<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
SEPTEMBER 18, 1998
CLARK/BARDES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-24769 52-2103926
(State or other (Commission (IRS employer
jurisdiction of file number) identification no.)
incorporation or
organization)
2121 SAN JACINTO STREET, SUITE 2200
DALLAS, TEXAS 75201-7906
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code:
(214) 871-8717
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 18, 1998, the Clark/Bardes, Inc. ("CBI"), a Delaware
corporation and wholly owned subsidiary of Clark/Bardes Holdings Inc., a
Delaware corporation (the "Company"), entered into and consummated an Asset
Purchase Agreement (the "Purchase Agreement") with Schoenke & Associates
Corporation, Schoenke & Associates Securities Corporation (collectively, the
"Schoenke Entities") and Raymond F. Schoenke, Jr. (together with the Schoenke
Entities, the "Sellers"). The Purchase Agreement provided for, among other
things, the acquisition by CBI of the businesses and substantially all of the
assets of the Schoenke Entities for a purchase price of $17.0 million consisting
of (i) a wire transfer of immediately available funds of $13.5 million, which
represents $15.0 million less a $1.5 million deposit previously paid to the
Schoenke Entities pursuant to a Letter of Intent and (ii) a promissory note
issued by CBI to the Sellers in an amount equal to $2.0 million (the "Promissory
Note").
The assets acquired pursuant to the Purchase Agreement include all
intangible assets and intellectual property, all lists, records and files
pertaining to customers, all computer software and systems and related licenses,
and all limited partnership interests in Schoenke & Associates of Hawaii, L.P.
The purchase price was determined using the discounted cash flow of inforce
revenues adjusted for expected persistency, mortality and associated costs, and
adjustment was made to the purchase price for the anticipated going-concern
value.
The $13.5 million cash portion of the transaction was funded by the
proceeds from the Company's initial public offering under the Company's
Registration Statement on Form S-1 (No. 333-56799), as amended. The Promissory
Note is payable in two equal installments each in the amount of $1 million on
September 1, 1999 and on September 1, 2000, with interest on the unpaid balance
of the Promissory Note accruing at a rate of 6.75% compounded annually. CBI must
make interest payments on the first day of each month beginning on November 1,
1998. The promissory note is secured by a lien in certain commission renewals
and/or fees received by CBI.
The Schoenke Entities are a 35 member executive benefit and compensation
consulting firm headquartered in Maryland with offices in Dallas, St. Louis and
Honolulu. The Schoenke Entities specialize in designing, financing and
administering benefit programs for companies. Prior to the acquisition described
above, there was no material relationship between any of the Sellers and CBI or
the Company or any of its affiliates, any director or officers of the Company or
of CBI, or any associate of any such director or officer.
ITEM 7. PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENT OF BUSINESS ACQUIRED
Balance sheets of Schoenke & Associates Corporation as of
December 31, 1996 and 1997 and as of June 30, 1998 (unaudited)
and the related statements of income, changes in stockholders'
equity, and cash flows for
2
<PAGE> 3
each of the years in the three-year period ended December 31,
1997 and the six months ended June 30, 1997 and 1998 (unaudited).
(b) PRO FORMA FINANCIAL INFORMATION
Clark/Bardes Holdings, Inc. Unaudited Pro Forma Balance Sheet as
of June 30, 1998 and Unaudited Pro Forma Statement of Operations
for the year ended December 30, 1997 and the six months ended
June 30, 1998.
(c) EXHIBITS
The following Exhibits are filed herewith:
2.1 Letter of Intent, dated as of May 29, 1998, from
Clark/Bardes, Inc. to Schoenke & Associates Corporation,
Schoenke & Associates Securities Corporation and Schoenke &
Associates of Hawaii, L.P. (incorporated herein by reference
to Exhibit 2.2 to the Company's Registration Statement on
Form S-1 (No. 333-56799) filed with the Commission on June
12, 1998).
2.2 Asset Purchase Agreement, dated September 18, 1998, with
Schoenke & Associates Corporation, Schoenke & Associates
Securities Corporation and Raymond F. Schoenke, Jr.
99 Press release dated September 22, 1998.
3
<PAGE> 4
[BR & COMPANY LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS
SCHOENKE & ASSOCIATES CORPORATION
GERMANTOWN, MARYLAND
We have audited the accompanying balance sheets of Schoenke & Associates
Corporation as of December 31, 1997 and 1996, and the related statements of
income, changes in stockholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Schoenke & Associates
Corporation as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ BERLIN, RAMOS & COMPANY, P.A.
BERLIN, RAMOS & COMPANY, P.A.
June 29, 1998
4
<PAGE> 5
SCHOENKE & ASSOCIATES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 353,725 $ 250,144 $ 172,458
Commissions Receivable 834,003 973,198 680,304
Due from Affiliate 53 169 542
Accounts Receivable - Other 4,973 4,206 3,433
Due from Stockholder 1,811 2,108 1,596
Due from Employees 4,834 4,653 5,283
Prepaid Insurance 8,768 15,775 14,613
Prepaid Rent -- -- 20,240
------------ ------------ ------------
TOTAL CURRENT ASSETS 1,208,167 1,250,253 898,469
------------ ------------ ------------
FIXED ASSETS
Furniture and Equipment 593,888 575,988 417,796
Property Under Capital Leases 5,831 5,831 5,831
Leasehold Improvements 25,332 25,332 2,713
------------ ------------ ------------
625,051 607,151 426,340
Less: Accumulated Depreciation and
Amortization (458,551) (431,543) (370,166)
------------ ------------ ------------
NET FIXED ASSETS 166,500 175,608 56,174
------------ ------------ ------------
OTHER ASSETS
Investment in Stock (At Cost) -- 10,000 10,000
Investment in Partnership - Affiliate 16,901 16,901 13,135
Deposits 156,915 156,915 150,448
------------ ------------ ------------
TOTAL OTHER ASSETS 173,816 183,816 173,583
------------ ------------ ------------
TOTAL ASSETS $ 1,548,483 $ 1,609,677 $ 1,128,226
------------ ------------ ------------
</TABLE>
5
<PAGE> 6
SCHOENKE & ASSOCIATES CORPORATION
BALANCE SHEETS
LIABILITY AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997 1996
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Accrued Vacation $ 180,445 $ 177,059 $ 161,436
Accounts Payable 12,150 23,096 22,003
Obligations Under Capital Lease 2,017 1,012 800
Accrued Commissions Payable 188,925 228,156 214,726
401(K) Savings Plan Contribution Payable 92,741 95,271
Notes Payable 37,500 37,500 37,500
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 421,037 559,564 531,736
----------- ----------- -----------
LONG-TERM LIABILITIES
Notes Payable -- 18,750 56,250
Obligations Under Capital Lease -- 1,660 2,972
----------- ----------- -----------
TOTAL LONG-TERM LIABILITIES 0 20,410 59,222
----------- ----------- -----------
TOTAL LIABILITIES 421,037 579,974 590,958
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Capital Stock, Par Value $.05, 100,000 Shares
Authorized, 98,220 Shares Issued and
Outstanding at June 30, 1998 and December
31, 1997 and 1996, Respectively 4,911 4,911 4,911
Retained Earnings 1,122,535 1,024,792 532,357
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,127,446 1,029,703 537,268
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 1,548,483 $ 1,609,677 $ 1,128,226
=========== =========== ===========
</TABLE>
6
<PAGE> 7
SCHOENKE & ASSOCIATES CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES $ 3,236,658 $ 2,755,825 $ 6,464,836 $ 5,825,835 $ 4,823,720
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Commissions 1,684,560 399,138 2,225,065 1,949,847 1,186,627
Salaries and Bonuses 996,578 912,882 2,017,106 1,992,385 1,452,113
Consulting/Outside Service Contracts 137,336 117,041 184,861 156,441 268,291
Rent 125,432 152,715 273,819 412,360 441,935
Employee Benefits 122,703 107,819 235,891 210,263 205,495
Taxes - Payroll 76,871 74,418 137,601 133,404 103,178
Travel 44,875 145,544 262,424 227,280 270,641
Contributions 15,920 41,000 41,300 73,550 26,575
Depreciation and Amortization 27,008 18,325 67,512 45,930 40,039
Telephone 24,405 38,188 69,011 68,593 60,263
Seminars and Conferences -- -- 6,152 12,766 9,586
Repairs and Maintenance 13,725 15,400 31,650 24,544 25,827
Printing and Stationery 14,598 13,239 38,811 32,374 34,949
Miscellaneous Operating Expenses 865 898 6,605 8,705 11,890
Postage 12,037 19,194 24,339 20,597 20,432
</TABLE>
7
<PAGE> 8
SCHOENKE & ASSOCIATES CORPORATION
STATEMENTS OF INCOME (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Dues and Publications $ 16,105 $ 10,396 $ 38,102 $ 48,876 $ 40,359
Insurance 25,368 26,144 127,161 43,801 32,364
Computer Expense 6,678 6,499 19,121 15,902 15,275
Taxes and Licenses 4,742 4,660 11,466 6,320 8,926
Advertising 1,363 1,313 2,521 2,781 2,460
Interest 740 1,186 2,919 3,756 2,670
Bank Service Fees 618 3,519 5,165 4,457 4,527
Actuarial and Trustee Fees 1,275 385 10,455 8,377 11,063
Accounting 6,900 6,050 8,850 10,150 6,900
Retirement Savings Plan Contribution -- 1,825 90,172 96,601 72,301
Sundry General 76,240 23,239 74,356 57,392 28,456
Agency Fees -- -- -- 75 21,377
----------- ----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 3,436,942 2,141,017 6,012,435 5,667,527 4,404,519
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) FROM OPERATIONS $ (200,284) $ 614,808 $ 452,401 $ 158,308 $ 419,201
----------- ----------- ----------- ----------- -----------
</TABLE>
8
<PAGE> 9
SCHOENKE & ASSOCIATES CORPORATION
STATEMENTS OF INCOME (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OTHER INCOME
Gain on Sale of Investment in Stock $ 254,085 $ -- $ -- $ -- $ --
Miscellaneous Income 43,942 -- 924 1,365 435
Interest Income -- 19,829 34,425 30,220 16,657
Partnership Income -- -- 3,766 3,723 1,457
Gain from Disposal of Assets -- -- 919 -- 346
--------- --------- --------- --------- ---------
TOTAL OTHER INCOME (EXPENSE) 298,027 19,829 40,034 35,308 18,895
--------- --------- --------- --------- ---------
NET INCOME $ 97,743 $ 634,637 $ 492,435 $ 193,616 $ 438,096
========= ========= ========= ========= =========
EARNINGS PER SHARE (NOTE 1):
PRIMARY $ 1.00 $ 6.46 $ 5.01 $ 1.97 $ 4.46
FULLY DILUTED: $ 1.00 $ 6.46 $ 5.01 $ 1.97 $ 4.46
</TABLE>
9
<PAGE> 10
SCHOENKE & ASSOCIATES CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 AND SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Common Stock Treasury Stock
-------------------------- -------------------------
Number of Retained Number of
Shares Par Value Earnings Shares Cost
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 99,259 $ 4,963 $ 55,093 -- --
Purchase Treasury Stock -- -- -- (1,030) (154,500)
Retire Treasury Stock (1,039) (52) (154,448) 1,030 154,500
Net Income -- -- 438,096 -- --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 98,220 4,911 338,741 -- --
Net Income -- -- 193,616 -- --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 98,220 4,911 532,357 -- --
Net Income -- -- 492,435 -- --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 98,220 4,911 1,024,792 -- --
Net Income (Unaudited) -- -- 97,743 -- --
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1998
(Unaudited) $ 98,220 $ 4,911 $ 1,122,535 $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
10
<PAGE> 11
SCHOENKE & ASSOCIATES CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 97,743 $ 634,637 $ 492,435 $ 193,616 $ 438,096
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 27,008 18,325 67,512 45,930 40,039
Gain on Sale of Investment in Stock (254,085) -- -- -- --
Gain from Disposal of Assets -- -- (919) -- (346)
Partnership Income -- -- (3,766) (3,723) (1,457)
(Increase) Decrease in Assets:
Accounts Receivable - Other (767) (2,558) (773) (2,669) 3,533
Commissions Receivable 139,195 573,003 (292,894) 131,709 (626,543)
Prepaid Insurance 7,007 6,657 (1,162) (2,579) (12,034)
Prepaid Rent -- 20,240 20,240 (20,240) --
Deposits -- (6,315) (6,467) (100,000) --
Increase (Decrease) in Liabilities:
Accounts Payable (10,946) 3,900 1,093 (24,318) (18,369)
Accrued Vacation 3,386 7,449 15,623 29,121 132,315
Accrued Commissions Payable (39,231) (214,726) 13,430 (105,245) 237,987
401(k) Savings Plan Contribution Payable (92,741) (94,651) (2,530) 20,890 (3,215)
--------- --------- --------- --------- ---------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (123,431) 945,961 301,822 162,492 190,006
--------- --------- --------- --------- ---------
</TABLE>
11
<PAGE> 12
SCHOENKE & ASSOCIATES CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sale of Investment in Stock $ 264,085 $ -- $ -- $ -- $ --
Purchase of Fixed Assets (17,900) (82,771) (187,027) (50,493) (37,271)
Proceeds from Sale of Equipment -- -- 1,000 -- --
Advances (To)/From Affiliates 116 (1,449) 373 45 (458)
Net (Increase)/Decrease in Due from Stockholder 297 (926) (512) (321) 1,053
Net (Increase)/Decrease in Due from Employees (181) (663) 630 (4,975) 1,364
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED) IN
INVESTING ACTIVITIES 246,417 (85,809) (185,536) (55,744) (35,312)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan Curtailments (18,750) (18,750) (37,500) (39,750) (26,000)
Line of Credit Curtailments -- -- -- -- (75,000)
Repayments of Obligations Under Capital Lease (655) (518) (1,100) 3,069 1,301
----------- ----------- ----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (19,405) (19,268) (38,600) (36,681) (102,301)
----------- ----------- ----------- ----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 103,581 840,884 77,686 70,067 52,393
CASH AND CASH EQUIVALENTS, BEGINNING 250,144 172,458 172,458 102,391 49,998
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 353,725 $ 1,013,342 $ 250,144 $ 172,458 $ 102,391
=========== =========== =========== =========== ===========
</TABLE>
12
<PAGE> 13
SCHOENKE & ASSOCIATES CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Schoenke & Associates Corporation is an independent
insurance brokerage firm representing corporate clients located through out the
United States in transactions with major life and disability insurance carriers.
The company designs, implements and administers nonqualified executive benefits
programs financed through life insurance.
Basis of Presentation - The financial statements of the company have been
prepared in conformity with generally accepted accounting principles (GAAP). The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Fixed Assets, Depreciation and Amortization - Fixed assets are stated at cost.
Depreciation and amortization expense has been computed using straight line and
accelerated methods over the estimated useful lives of the assets. The cost and
accumulated depreciation of assets retired or sold are removed from the accounts
and any gain or loss is included in earnings in the year of disposition.
Income Taxes - The Corporation has elected to be taxed under the provisions of
subchapter S of the Internal Revenue Code. Under these provisions, the Company
does not pay income taxes on its taxable income. Instead, the stockholders are
liable for individual federal and state taxes on their respective shares of the
Company's taxable income.
Investment in Partnership - Investments in partnership is carried on the equity
method. Original cost is adjusted by the Company's share of earnings and losses,
capital contributions and cash distributions since inception. The equity in
earnings and losses of the partnership are recorded as of the respective
partnerships' year-end.
Revenue - First year commissions are recognized as revenue at the time the
policy application is completed, the premium is paid and the insured party is
contractually committed to purchase the insurance policy. Renewal commissions
are recognized as revenue at the policy anniversary date. Generally, service
fees are recognized as revenue when the services are performed which is
typically at the policy anniversary date.
The company generated approximately 29%, 35% and 36% of its revenue for the
years 1995, 1996 and 1997, respectively from Schoenke and Associates Securities
Corporation, which is wholly-owned by the company's primary shareholder, Raymond
Schoenke.
13
<PAGE> 14
SCHOENKE & ASSOCIATES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Concentration of Credit Risk - The company maintains cash balances in excess of
$100,000. Such balances are not insured by the Federal Deposit Insurance
Corporation (FDIC).
Net Income Per Share - Primary net income per share is computed by dividing (a)
net income less preferred stock dividends by (b) the average number of common
shares outstanding, increased by common equivalent shares (options and
performance shares) determined using the treasury stock method. Fully diluted
net income per share is computed by dividing (a) net income less preferred stock
dividends plus interest on convertible subordinated notes net of applicable
income taxes by (b) common and common equivalent shares outstanding plus shares
which would be issued upon conversion of the subordinated notes.
Treasury Stock - The company records acquisitions of its capital stock for
treasury at cost. Differences between proceeds for re-issuance of treasury stock
and average cost are charged to retained earnings.
Compensated Absences - The company has accrued for vacation pay for hours earned
by employees up through the balance date(s) included in this financial
statement. Compensated absences for sick pay has not been accrued since sick
hours do not carry over to a future period and can be used only for actual sick
time.
NOTE 2 - LINE OF CREDIT
The Company has a $500,000 renewable line of credit facility with The First
National Bank of Maryland. The line is secured by the Company's accounts
receivable and any other property of the company including, but not limited to
insurance proceeds and guaranteed by a majority stockholder. As of June 30, 1998
and December 31, 1997 and 1996, the outstanding balance was $0.
14
<PAGE> 15
SCHOENKE & ASSOCIATES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company entered into a non-cancelable ten-year lease on March 1, 1997. The
lease calls for minimum monthly payments starting at $20,240 and increasing 2.5%
each year until the lease expires. The Company is also liable for its
proportional share of the buildings' operating expenses.
The Company also leases two automobiles on a month to month basis. Payments are
$575 and $423, respectively.
Minimum and contingent rents under all operating leases are:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996 1995
--------------------- --------------------- ------------------
<S> <C> <C> <C>
Minimum Rents $286,739 $401,866 $430,740
Contingent Rents 1,150 19,151 18,238
-------- -------- --------
Totals $287,889 $421,017 $448,978
======== ======== ========
</TABLE>
Minimum future rental payments for the next five years and the aggregate are:
<TABLE>
<S> <C>
1997 $ 254,000*
1998 247,940
1999 254,139
2000 260,492
2001 267,004
2002 273,679
Thereafter 1,215,423
----------
$2,772,677
==========
</TABLE>
*Includes $71,841 rent from lease ended September 1996.
15
<PAGE> 16
SCHOENKE & ASSOCIATES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - INVESTMENT IN PARTNERSHIP
The Company has a 99% interest in Schoenke & Associates of Hawaii, L.P. The
company's investment is recorded on the equity method of accounting by which the
company's share of the net income in included in other income in the company's
statement of income and the net income or loss, as well as any contributions or
distributions adjust the investment account.
Following is a summary of financial position as of December 31, 1997 and 1996 of
Schoenke & Associates of Hawaii L.P. prepared on the cash basis of accounting
for federal income tax reporting.
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
------- -------
<S> <C> <C>
Assets $17,068 $13,264
Liabilities
Net Equity of the Partnership $17,068 $13,264
Percentage of Ownership 99% 99%
Net Equity - Schoenke & Associates
Corporation $16,901 $13,135
======= =======
</TABLE>
Net income for the years ended December 31, 1997 and 1996 was $3,766 and $3,723,
respectively.
NOTE 5 - CAPITAL LEASE
The Company leases office equipment under non-cancelable leases having terms of
thirty-nine months. Total capitalized costs and accumulated amortization were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
------- -------
<S> <C> <C>
Furniture and Equipment $ 5,831 $ 5,831
Less: Accumulated Amortization (2,261) (833)
------- -------
$ 3,570 $ 4,998
------- -------
</TABLE>
16
<PAGE> 17
SCHOENKE & ASSOCIATES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a schedule of future lease payments under the leases:
<TABLE>
<S> <C>
Year ending December 31, 1998 $ 1,439
1999 1,919
--------
Total Lease Payment 3,358
Less: Amount Representing Interest (686)
--------
Present Value of Future Lease Payments 2,672
Less: Current Portion (1,012)
--------
Non-current Portion $ 1,660
========
</TABLE>
Interest expense on capital lease obligations was $819, $418 and $160 for the
years ended December 31, 1997, 1996 and 1995, respectively.
Amortization expense incurred on capital leases was $1,428, $833 and $668 for
the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 6 - PENDING ACQUISITION
On May 29, 1998, the company entered into a letter of intent to sell the
business and substantially all of the assets to an unrelated party. The purchase
price of the pending acquisition is $17 million of which $1.5 million was paid
as a refundable deposit and $15.5 million is payable in cash at the time of
closing. The consummation of the acquisition is subject to numerous conditions
including consummation of the aforementioned offering contains several
contingencies to include obtaining regulatory approval. The consummation of this
pending acquisition must occur on or prior to October 1, 1998.
17
<PAGE> 18
SCHOENKE & ASSOCIATES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company has entered into certain transactions with stockholders,
corporations and a partnership in which some stockholders of the Corporation own
an interest. These transactions are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Corporations
Commission Splits Paid to Affiliate - RS & A $ 1,852,475 $ 1,601,513 $ 825,419
Fees Received from S & A Securities Corp 2,323,954 2,089,511 1,394,463
Partnership
Commission Splits Received from Affiliate -
S & A of Hawaii, L.P $ 532,279 $ 422,773 $ 263,387
</TABLE>
The Company also receives monthly reimbursements for office expenses paid on
behalf of its stockholders and its affiliates. Reimbursements during 1997, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Stockholder $ 81,420 $ 71,440 $ 61,366
Affiliates 2,538 1,888 1,431
</TABLE>
NOTE 8 - RETIREMENT PLAN
The Company has a 401(k) savings plan. Investment and fund distributions are
handled by an independent trustee for the benefit of participating employees.
The Company makes matching contributions to the plan at a rate of 50% of the
employees' contributions subject to a maximum of 3% of the employees' total
compensation. In addition, the Company also makes discretionary contributions to
the employees' profit-sharing account under the plan, normally at the rate of 3%
of the employees' total compensation. The total contribution for the years ended
December 31, 1997, 1996, and 1995 were $92,122, $94,651 and $72,301,
respectively.
18
<PAGE> 19
SCHOENKE & ASSOCIATES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - NOTES PAYABLE
The Company periodically repurchases certain shares of common stock owned by
former employees of the Company. These purchases are generally financed by
issuing short or medium-term notes at prevailing money market rates.
Notes payable consisted of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Total Notes Payable $ 56,250 $ 93,750 $ 133,500
Less: Current Maturities (37,500) (37,500) (39,750)
------------ ------------ ------------
Total Long - Term Debt $ 18,750 $ 56,250 $ 93,750
============ ============ ============
</TABLE>
NOTE 10 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Operating activities include interest paid of $700, $1,185, $2,919, $3,756 and
$2,670 for the six month's ended June 30, 1998 and 1997, and the twelve months
ended December 31, 1997, 1996 and 1995, respectively.
Other non-cash transactions for the year ended December 31, 1995 were as
follows:
The company purchased two shareholders non-voting common stock for $4,500 and
$150,000 for a total of $154,500.
NOTE 11- UNAUDITED INTERIM STATEMENTS
The financial statements for the six months ended June 30, 1998 and 1997 are
unaudited; however, in the opinion of the company's management, all adjustments
necessary for the fair presentation of financial statements for these interim
periods have been made. The results for the interim periods are not necessarily
indicative of the results obtained for a full year
NOTE 12 - INVESTMENT IN STOCK
In January 1998 the company completed the sale of their investment in 10 shares
of M Financial Holdings Incorporated. This investment was originally purchased
for $10,000 and resulted in a gain of $254,085. In the future, former
stockholders will receive distributions as profits are derived on business
placed with M Financial prior to January 1, 1996.
19
<PAGE> 20
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table sets forth unaudited pro forma financial information of
the Company for the periods ended and as of the dates indicated. The unaudited
pro forma financial information of the Company set forth below was derived from
the audited and unaudited financial statements of the Clark/Bardes, Inc., a
Texas corporation and predecessor corporation to CBI, (the "Predecessor
Company"), Bank Compensation Strategies, Inc. ("BCS") and the Schoenke Entities.
The unaudited pro forma balance sheet has been prepared to give effect to
the Reorganization, the payment of the Stockholder Distribution Amount, the
Offering and the acquisition of the Schoenke Entities as though each had
occurred as of June 30, 1998. The unaudited pro forma statements of income have
been prepared to give effect to (i) the payment of a dividend to the
stockholders of record on July 31, 1998 in an amount equal to $3.2 million, or
$1.00 per share (the "Stockholder Distribution Amount"), in connection with the
termination of the Predecessor Company's S corporation status, (ii) the
Reorganization, (iii) the Offering, (iv) for the year ended December 31, 1997,
the BCS acquisition and (v) the acquisition of the Schoenke Entities as if such
transactions had occurred as of the beginning of each period presented. The
unaudited pro forma financial information of the Company set forth below is
based upon available information and certain assumptions that the Company
believes are reasonable. The unaudited pro forma financial information of the
Company set forth below does not purport to represent either what the Company's
financial position or results of operations actually would have been if the
transactions had actually occurred as of such dates or what such results will be
for any future periods.
20
<PAGE> 21
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
ASSETS
ADJUSTMENTS
PREDECESSOR SCHOENKE FOR THE
COMPANY & ASSOCIATES ADJUSTMENTS STOCKHOLDER
AS OF AS OF FOR THE DISTRIBUTION
JUNE 30, JUNE 30, SCHOENKE AMOUNT, AND
1998 1998 ACQUISITION REORGANIZATION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 6,305,094 353,725 (13,500,000)(1) (1,000,000)(3)
-- -- -- (3,200,000)(4)
-- -- -- (6,200,000)(5)
-- -- -- (7,400,000)(6)
Accounts and notes receivable
Trade 2,386,839 838,976 -- --
Affiliates 284,787 6,698 -- --
Notes receivable 388,871 -- -- --
----------- ----------- ----------- -----------
Total accounts and notes receivable 3,060,497 845,674 -- --
Other current assets 231,310 8,768 -- --
Accrued interest receivable 68,674 -- -- --
----------- ----------- ----------- -----------
Total current assets 9,665,575 1,208,167 (13,500,000) (17,800,000)
Equipment and leasehold improvements, net 747,336 166,500 -- --
Intangible assets, net 23,646,867 -- 15,872,554(2) --
Deferred Commission Expense -- -- -- 7,400,000(6)
Other assets -- 173,816 -- --
Deposit on Acquisition 1,500,000 -- (1,500,000)(1) --
----------- ----------- ----------- -----------
Total assets 35,559,778 1,548,483 872,554 (10,400,000)
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 820,927 12,150 -- --
Commissions and fees payable 1,864,102 188,925 -- --
Accrued expenses and other liabilities 1,802,140 182,462 -- --
Accrued interest payable 446,341 -- -- --
Current portion of long-term debt 4,325,000 37,500 1,000,000(1) (1,000,000)(3)
----------- ----------- ----------- -----------
Total current liabilities 9,258,510 421,037 1,000,000 (1,000,000)
Long-term debt 31,388,143 -- 1,000,000(1) (4,800,000)(7)
----------- ----------- ----------- -----------
Total liabilities 40,646,653 421,037 2,000,000 (5,800,000)
Warrants obligation 5,300,000 -- -- (5,300,000)(8)
Stockholder's equity (deficit):
Common stock 5,463,631 4,911 (4,911)(2) (5,303,799)(9)
-- -- -- (100,000)(5)
Paid-in capital -- -- -- 5,300,000(8)
-- -- -- (5,300,000)(5)
-- -- -- (5,121,956)(10)
-- -- -- 5,303,799(9)
Retained earnings (1,921,956) 1,122,535 (1,122,535)(2) (3,200,000)(4)
-- -- 5,121,956(10)
Treasury stock (13,928,550) -- -- 4,800,000(7)
----------- ----------- ----------- -----------
Total stockholders' equity (deficit) (10,386,875) 1,127,446 (1,127,446) 1,500,000
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity 35,559,778 1,548,483 872,554 (9,600,000)
=========== =========== =========== ===========
<CAPTION>
THE COMPANY
PRO FORMA
ADJUSTED FOR
DISTRIBUTION ADJUSTMENTS THE COMPANY
AMOUNT AND FOR THE PRO FORMA
REORGANIZATION OFFERING AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents -- -- --
-- -- --
-- -- --
(24,641,182) 31,980,000 7,338,818
Accounts and notes receivable
Trade 3,225,815 -- 3,225,815
Affiliates 291,485 -- 291,485
Notes receivable 388,871 -- 388,871
----------- ----------- -----------
Total accounts and notes receivable 3,906,171 -- 3,906,171
Other current assets 240,078 -- 240,078
Accrued interest receivable 68,674 -- 68,674
----------- ----------- -----------
Total current assets (20,426,259) 31,980,000 11,553,741
Equipment and leasehold improvements, net 913,836 -- 913,836
Intangible assets, net 39,519,421 -- 39,519,421
Deferred Commission Expense 7,400,000 -- 7,400,000
Other assets 173,816 -- 173,816
Deposit on Acquisition -- -- --
----------- ----------- -----------
Total assets 27,580,814 31,980,000 59,560,814
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 833,077 -- 833,077
Commissions and fees payable 2,053,027 -- 2,053,027
Accrued expenses and other liabilities 1,984,602 -- 1,984,602
Accrued interest payable 446,341 -- 446,341
Current portion of long-term debt 4,362,500 -- 4,362,500
----------- ----------- -----------
Total current liabilities 9,679,547 -- 9,679,547
Long-term debt 27,588,143 -- 27,588,143
----------- ----------- -----------
Total liabilities 37,267,690 -- 37,267,690
Warrants obligation -- -- --
Stockholder's equity (deficit):
Common stock -- -- --
59,830 40,000(11) 99,830
Paid-in capital -- -- --
-- -- --
-- -- --
181,843 31,940,000(11) 32,121,843
Retained earnings -- -- --
-- -- --
Treasury stock (9,128,550) -- (9,128,550)
----------- ----------- -----------
Total stockholders' equity (deficit) (8,886,877) 31,980,000 23,093,123
----------- ----------- -----------
Total liabilities and stockholders' equity 28,380,813 31,980,000 60,360,813
=========== =========== ===========
</TABLE>
----------------------------
(1) Represents the payment made for the acquisition of the businesses and
substantially all of the assets of the Schoenke Entities, which consists of
$15.0 million of cash, including a $1.5 million deposit, and a $2.0 million
Promissory Note payable in two equal annual installments.
(2) Represents the allocation of the purchase price which, based on the
pro forma balance sheet, consists of $1.1 million of net assets and $15.9
million of intangibles. The actual allocation is based on the balance sheet
as of August 31, 1998, and consists of $500,000 of net assets and $16.5
million of intangibles.
21
<PAGE> 22
(3) Represents the use of proceeds for the prepayment of $1.0 million aggregate
principal amount of CBI's 8.5% Medium Term Notes due September 2001.
(4) Represents the payment of the Stockholder Distribution Amount.
(5) Represents the payment made in consideration of extinguishing the Warrants.
(6) Represents the payment for the purchase of renewal revenue from Mr. Wamberg
and The Wamberg Organization.
(7) Represents CBI's 8.5% Convertible Subordinated Notes due September 2007
which are assumed to be converted into 813,559 shares of Common Stock at
$5.90 per share.
(8) Represents the reclassification to paid-in capital of the Warrants with put
rights.
(9) Represents the adjustment to record common stock at $0.01 par value.
(10) Represents the reclassification from paid-in capital to retained earnings
in connection with the conversion to a C corporation.
(11) Represents the net proceeds of the Offering after deducting underwriting
discount and estimated expenses of the Offering.
22
<PAGE> 23
UNAUDITED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PREDECESSOR SCHOENKE
COMPANY BCS & ASSOCIATES ADJUSTMENTS
(HISTORICAL) (HISTORICAL) (HISTORICAL) FOR ACQUISITIONS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenue 49,455,419 12,808,974 6,464,836 --
Commission and fee expense 32,439,092 8,732,534 2,225,065 --
------------ ------------ ------------ ------------
Net revenue 17,016,327 4,076,440 4,239,771 --
------------ ------------ ------------ ------------
General and admin. expenses 11,506,335 3,460,270 3,787,370 --
Amortization of intangibles 294,630 -- -- 1,336,965(1)
------------ ------------ ------------ ------------
Income from operations 5,215,362 616,170 452,401 (1,336,965)
------------ ------------ ------------ ------------
Interest and dividend income 188,597 28,003 40,034 --
Interest expense (1,111,995) -- -- (1,675,000)(2)
Miscellaneous income (expense) 1,925 -- -- --
------------ ------------ ------------ ------------
Total other income (expense) (921,473) 28,003 40,034 (1,675,000)
------------ ------------ ------------ ------------
Income before taxes 4,293,889 644,173 492,435 (3,011,965)
Income taxes 60,000 -- -- 2,000
------------ ------------ ------------ ------------
Net income $ 4,233,889 $ 644,173 $ 492,435 $ (3,013,965)
============ ============ ============ ============
Per share information:
Basic earnings per share $ 1.03 -- -- --
Diluted earnings per share 0.99 -- -- --
Weighted average shares outstanding:
Basic 4,119,387 -- -- --
Diluted 4,398,593 -- -- --
<CAPTION>
ADJUSTMENTS
FOR THE
STOCKHOLDER
DISTRIBUTION
AMOUNT, THE THE COMPANY
CLARK/BARDES REORGANIZATION PRO FORMA
PRO FORMA AND THE OFFERINGS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Total revenue 68,729,229 -- 68,729,229
Commission and fee expense 43,396,691 -- 43,396,691
------------ ------------ ------------
Net revenue 25,332,538 -- 25,332,538
------------ ------------ ------------
General and admin. expenses 18,753,975 -- 18,753,975
Amortization of intangibles 1,631,595 -- 1,631,595
------------ ------------ ------------
Income from operations 4,946,968 -- 4,946,968
------------ ------------ ------------
Interest and dividend income 256,634 -- 256,634
Interest expense (2,786,995) 1,015,375(3) (1,771,620)
Miscellaneous income (expense) 1,925 -- 1,925
------------ ------------ ------------
Total other income (expense) (2,528,436) 1,015,375 (1,513,061)
------------ ------------ ------------
Income before taxes 2,418,532 1,015,375 3,433,907
Income taxes 62,000 1,298,000(4) 1,360,000
------------ ------------ ------------
Net income $ 2,356,532 $ (282,625) $ 2,073,907
============ ============ ============
Per share information:
Basic earnings per share $ 0.57 -- $ 0.41
Diluted earnings per share 0.54 -- 0.41
Weighted average shares outstanding:
Basic 4,119,387 -- 5,044,057(5)
Diluted 4,398,593 -- 5,051,334(5)
</TABLE>
----------------------------
(1) Amortization cost represents the pro forma cost associated with the BCS
acquisition for the period of January 1, 1997 to August 31, 1997 in the
amount of $589,260, and the acquisition of the Schoenke Entities for the
period of January 1, 1997 to December 31, 1997 in the amount of $747,705.
(2) Interest expense represents the pro forma interest cost associated with the
BCS acquisition for the period of January 1, 1997 to August 31, 1997, and
for the acquisition of the Schoenke Entities for the period of January 1,
1997 to December 31, 1997.
<TABLE>
<S> <C>
BCS interest expense detail:
10.5% Senior Secured Notes due August 2002 $13.5 million x 10.5% x 8/12 = $ 945,000
8.5% Medium Term Notes due September 2001 5.7 million x 8.5% x 8/12 = 323,000
11.0% Second Priority Senior Secured Notes due August 2004 4.8 million x 8.5% x 8/12 = 272,000
Schoenke Entities interest expense detail:
6.75% Promissory Note $ 2.0 million x 6.75% = $ 135,000
-----------
Total pro forma interest for BCS and the Schoenke Entities = $ 1,675,000
===========
</TABLE>
(3) Cost savings related to interest expense represents the pro forma changes
to the Company's debt as a result of the Reorganization and the Offering.
This includes the restructuring due September 2001, and the anticipated
conversion of the 8.5% Convertible Subordinated Notes due September 2007.
<TABLE>
<S> <C>
Interest savings associated with the Restructured Notes*
10.5% Senior Secured Notes due August 2002
Original balance $14.5 million x 6/12 x (.105 - .08) = $ 181,250
After February 1998 principal payment $13.1 million x 6/12 x (.105 - .08) = 163,125
11.0% Second Priority Senior Secured Notes due August 2004 $ 8.9 million x (.11- .09) = 178,000
Interest savings on prepayment of the 8.5% Medium Term Notes
due September 2001 $ 1.0 million x .085 = 85,000
Interest savings on conversion of the 8.5% Convertible Subordinated Notes $ 4.8 million x .085 = 408,000
due September 2007
-----------
Total Savings $ 1,015,375
===========
</TABLE>
* The cost savings related to interest expense on the Restructured Notes is
based on the estimated decrease in the interest rate for each of the
Restructured Notes. The actual interest rates were reset at the time of the
Offering to 7.84% and the interest rate for the 11.0% Second Priority
Senior Secured Notes due August 2004 would have been reset to 8.86%.
(4) Income tax expense is stated on a pro forma basis as if the Predecessor
Company had been treated as a C corporation and taxed at a 39.6% blended
rate for federal and state income tax purposes.
(5) Pro forma weighted average shares outstanding was calculated based on the
weighted average number of shares outstanding during the period of the 8.5%
Convertible adjusted to give effect to the conversion Subordinated Notes
due September 2007 and to the number of shares the proceeds of which would
be necessary to prepay the debt described in footnote (3) above.
23
<PAGE> 24
UNAUDITED PRO FORMA INCOME STATEMENT
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
STOCKHOLDER
DISTRIBUTION THE
PREDECESSOR SCHOENKE ADJUSTMENTS AMOUNT, THE COMPANY
COMPANY & ASSOCIATES FOR THE SCHOENKE REORGANIZATION PRO FORMA
(HISTORICAL) AT 6/30/98 ACQUISITION & THE OFFERING AS ADJUSTED
-------------- -------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total revenue 28,984,959 3,236,658 -- -- 32,221,617
Commission and fee expense 18,203,681 1,684,590 -- -- 19,888,271
-------------- -------------- -------------- -------------- --------------
Net revenue 10,781,278 1,552,068 -- -- 12,333,346
-------------- -------------- -------------- -------------- --------------
General and admin. expenses 8,399,696 1,752,352 -- 10,152,048
Amortization of intangibles 441,945 -- 373,853 (1) -- 815,798
Non-recurring operating expense 5,300,000 -- -- 5,300,000
-------------- -------------- -------------- -------------- --------------
Income from operations (3,360,363) (200,284) (373,853) -- (3,934,500)
-------------- -------------- -------------- -------------- --------------
Interest and dividend income 167,624 254,085 -- 421,709
Interest expense (1,803,750) -- (67,500)(2) 501,646 (1,369,604)
Miscellaneous income (expense) (141) 43,942 43,801
-------------- -------------- -------------- -------------- --------------
Total other income (expense) (1,636,267) 298,027 (67,500) 501,646 (904,094)
Income before taxes (4,996,630) 97,743 (441,353) 501,646 (3) (4,838,594)
Income taxes 14,000 -- -- 169,000 (4) 183,000
-------------- -------------- -------------- -------------- --------------
Net income (5,010,630) 97,743 (441,353) 332,646 (5,021,594)
============== ============== ============== ============== ==============
Per share information:
Basic earnings per share $ (1.56) -- -- -- $ (1.21)
Diluted earnings per share (1.56) -- -- -- (1.21)
Weighted average shares outstanding:
Basic 3,222,143 -- -- -- 4,146,813 (5)
Diluted 3,222,143 -- -- -- 4,146,813 (5)
</TABLE>
- ----------------------------
(1) Amortization cost represents the pro forma cost associated with the
acquisition of the Schoenke Entities for the period of January 1, 1998 to
June 30, 1998.
(2) Interest expense represents the pro forma interest cost associated with the
BCS acquisition for the period of January 1, 1998 to June 30, 1998.
<TABLE>
<CAPTION>
Schoenke Entities interest expense detail:
<S> <C> <C>
6.75% Seller-financed notes due August 2000 $2.0 million x 6.75% x 6/12 = $ 67,500
</TABLE>
(3) Cost savings related to interest expense represents the pro forma changes
to the Company's debt as a result of the Reorganization and the Offering.
This includes the restructuring of the 10.5% Senior Secured Notes due
August 2002 and 11.0% Second Priority Senior Secured Notes due August 2004,
the $1.0 million prepayment of the 8.5% Medium Term Notes due September
2001, and the anticipated conversion of the 8.5% Convertible Subordinated
Notes due September 2007.
<TABLE>
<CAPTION>
Interest savings associated with the Restructured Notes*
<S> <C> <C>
10.5% Senior Secured Notes due August 2002
Original balance $14.5 million x 1/12 x (.105 - .08) $ 30,208
After February 1998 principal payment $13.1 million x 6/12 x (.105 - .08) 135,938
11.0% Second Priority Senior Secured Notes due August 2004 $ 8.9 million x 6/12 x (.11 -.09) 89,000
Interest savings on prepayment of the 8.5% Medium Term Notes
due September 2001 $1.0 million x 6/12 x .085 42,500
Interest savings on conversion of the 8.5% Convertible
Subordinated Notes due September 2007 $4.8 million x 6/12 x .085 204,000
---------
Total Savings $ 501,646
=========
</TABLE>
* The cost savings related to interest expense on the Restructured Notes is
based on the estimated decrease in the interest rate for each of the
Restructured
24
<PAGE> 25
Notes. The actual interest rates were reset at the time of the Offering.
The 10.5% Senior Secured Notes due August 2002 would have been reset to
7.84% and the interest rate for the 11.0% Second Priority Senior Secured
Notes due August 2004 would have been reset to 8.86%.
(4) Income tax expense is stated on a pro forma basis as if the Predecessor
Company had been treated as a C corporation and taxed at a 39.6% blended
rate for federal and state income tax purposes.
(5) Pro forma weighted average shares outstanding was calculated based on the
weighted average number of shares outstanding during the period of the 8.5%
Convertible adjusted to give effect to the conversion Subordinated Notes
due September 2007 and to the number of shares the proceeds of which would
be necessary to prepay the debt described in footnote (3) above.
25
<PAGE> 26
SIGNATURE
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.
CLARK/BARDES HOLDINGS, INC.
/s/ MELVIN G. TODD
--------------------------------------
Melvin G. Todd
President and Chief Executive Officer
Date: October 2, 1998
26
<PAGE> 27
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1 Letter of Intent, dated as of May 29, 1998, from Clark/Bardes,
Inc. to Schoenke & Associates Corporation, Schoenke & Associates
Securities Corporation and Schoenke & Associates of Hawaii, L.P.
(incorporated herein by reference to Exhibit 2.2 to the Company's
Registration Statement on Form S-1 (No. 333-56799) filed with the
Commission on June 12, 1998).
2.2 Asset Purchase Agreement, dated September 18, 1998, with Schoenke
& Associates Corporation, Schoenke & Associates Securities
Corporation and Raymond F. Schoenke, Jr.
99 Press release dated September 22, 1998.
<PAGE> 1
EXHIBIT 2.2
===============================================================================
ASSET PURCHASE AGREEMENT
by and among
CLARK/BARDES, INC.
and
SCHOENKE & ASSOCIATES CORPORATION,
SCHOENKE & ASSOCIATES SECURITIES CORPORATION,
AND RAYMOND F. SCHOENKE, JR.
September 18, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
ARTICLE 1
<S> <C> <C>
PURCHASE AND SALE OF ASSETS..............................................................................1
1.1 Purchased Assets.......................................................................1
1.2 Excluded Assets........................................................................4
1.3 Assumption of Liabilities..............................................................4
1.4 Excluded Liabilities...................................................................4
ARTICLE 2
CONSIDERATION FOR THE PURCHASED ASSETS...................................................................5
2.1 Purchase Price.........................................................................5
2.2 Required Cash Amount Adjustment........................................................5
2.3 Procedures for Final Determination of Required Cash Amount.............................5
2.4 Required Cash Amount Definition........................................................6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS AND MAJOR SHAREHOLDER..........................................7
3.1 Organization and Power.................................................................7
3.2 Subsidiaries...........................................................................7
3.3 Authorization; No Breach...............................................................7
3.4 Financial Statements...................................................................8
3.5 Absence of Undisclosed Liabilities.....................................................8
3.6 No Material Adverse Changes............................................................8
3.7 Absence of Certain Developments........................................................8
3.8 Title and Condition of Properties.....................................................10
3.9 Tax Matters...........................................................................11
3.10 Contracts and Commitments.............................................................12
3.11 Proprietary Rights....................................................................14
3.12 Litigation; Proceedings...............................................................14
3.13 Brokerage.............................................................................14
3.14 Governmental Consent, etc.............................................................14
3.15 Employees.............................................................................14
3.16 Employee Benefit Plans................................................................15
3.17 Insurance.............................................................................16
3.18 Affiliated Transactions...............................................................16
3.19 Compliance with Laws; Permits; Certain Operations.....................................17
3.20 Environmental Health and Safety.......................................................17
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
3.21 Product and Warranty Claims; Warranties...............................................18
3.22 Disclosure............................................................................18
3.23 Year 2000 Problem.....................................................................18
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER.............................................................19
4.1 Corporate Organization and Power......................................................19
4.2 Authorization.........................................................................19
4.3 No Violation..........................................................................19
4.4 Litigation............................................................................19
4.5 Brokerage.............................................................................19
ARTICLE 5
CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE...........................................................20
5.1 Conditions to Purchaser's Obligation..................................................20
ARTICLE 6
CONDITIONS TO SELLERS' OBLIGATION TO CLOSE..............................................................21
6.1 Conditions to Sellers' Obligation.....................................................21
ARTICLE 7
CLOSING TRANSACTIONS....................................................................................22
7.1 The Closing...........................................................................22
7.2 Action to Be Taken at the Closing.....................................................23
7.3 Closing Documents.....................................................................23
7.4 Possession............................................................................25
7.5 Nonassignable Contracts...............................................................25
ARTICLE 8
INDEMNIFICATION; LIMITATIONS ON LIABILITY...............................................................25
8.1 Indemnification by Each Seller and Major Shareholder..................................25
8.2 Indemnification by Purchaser..........................................................26
8.3 Method of Asserting Claims............................................................26
8.4 Survival; Limitations on Liability....................................................27
ARTICLE 9
TERMINATION.............................................................................................27
9.1 Termination...........................................................................27
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
9.2 Effect of Termination.................................................................28
9.3 Effect of Closing.....................................................................28
ARTICLE 10
ADDITIONAL AGREEMENTS...................................................................................28
10.1 Survival..............................................................................28
10.2 Mutual Assistance.....................................................................28
10.3 Press Release and Announcements.......................................................28
10.4 Expenses..............................................................................29
10.5 Further Transfers.....................................................................29
10.6 Transition Assistance.................................................................29
10.7 Confidentiality.......................................................................29
10.8 Non-Compete; Non-Solicitation.........................................................29
10.9 Specific Performance..................................................................30
10.10 Remittances...........................................................................30
10.11 Employees and Agents of Sellers.......................................................31
ARTICLE 11
MISCELLANEOUS...........................................................................................31
11.1 Amendment and Waiver..................................................................31
11.2 Notices...............................................................................31
11.3 Assignment............................................................................32
11.4 Severability..........................................................................33
11.5 No Third Party Beneficiaries..........................................................33
11.6 No Strict Construction................................................................33
11.7 Captions..............................................................................33
11.8 Complete Agreement....................................................................33
11.9 Counterparts..........................................................................33
11.10 Governing Law.........................................................................33
11.11 Remedies Cumulative...................................................................33
11.12 Use of "Schoenke" Name................................................................34
11.13 Definition of Sellers' Knowledge......................................................34
</TABLE>
iii
<PAGE> 5
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A -- Form of Promissory Note
Exhibit B -- Allocation of Purchase Price
Exhibit C -- Opinion of Sellers' Counsel
Exhibit D -- Form of Non-Compete Agreement
Exhibit E -- Form of Non-Solicitation Agreement
Exhibit F -- Opinion of Purchaser's Counsel
Exhibit G -- Officer's Certificate of Sellers
Exhibit H -- Officer's Certificate of Purchaser
</TABLE>
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT is entered into as of September 18, 1998 (this
"Agreement") to be effective September 1, 1998 (the "Effective Date") by and
among CLARK/BARDES, INC., a Delaware corporation ("Purchaser"), and SCHOENKE &
ASSOCIATES CORPORATION, a Maryland corporation ("SAC"), and SCHOENKE &
ASSOCIATES SECURITIES CORPORATION, a Maryland corporation ("SAS") (SAC and SAS
shall individually be referred to as "Seller" and collectively be referred to as
the "Sellers"), and RAYMOND F. SCHOENKE, JR. (the "Major Shareholder").
W I T N E S S E T H
WHEREAS, the Sellers are engaged in the business of marketing life
insurance policies, and related compensation, salary and benefit plans (the
"Business"); and
WHEREAS, on the terms and subject to the conditions of this Agreement,
Purchaser desires to acquire from Sellers and Sellers desire to sell to
Purchaser, substantially all of the assets, properties and Business of the
Sellers as a going concern, and the Purchaser agrees to assume certain
liabilities of Seller.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 Purchased Assets. On the terms and subject to the conditions of
this Agreement, on the Closing Date (as defined in Section 7.1), Purchaser shall
purchase from Sellers, and Sellers shall sell, convey, assign, transfer and
deliver to Purchaser, all properties, assets, rights and interests of every kind
and nature, whether real or personal, tangible or intangible, and wherever
located and by whomever possessed, of Sellers as of the Effective Date related
to or used in, or otherwise associated with, the Business, including, without
limitation, all of the following assets (but excluding all Excluded Assets as
defined in Section 1.2 hereof):
(a) cash, cash equivalents and marketable securities having the
aggregate value equal to the amounts provided for on Schedule 1.1(a) (the
"Required Cash Amount");
(b) all accounts and notes receivable (whether current or noncurrent),
a list, description and aging of which as of the date hereof is set forth on
Schedule 1.1(b);
(c) all prepayments, prepaid expenses (including, without limitation,
prepaid insurance premiums, except for professional liability, fiduciary,
fidelity crime and errors and omissions
<PAGE> 7
coverage policies to be retained by Sellers and the Major Shareholder (the
"Retained Insurance")), deferred charges, advance payments and security deposits
as of the Closing Date;
(d) all supplies located at each Seller's facilities, in transit to or
from such Seller's facilities or which otherwise relate to the Business (the
"Inventory");
(e) all interests in real estate (including, without limitation, land,
buildings, improvements and that certain security deposit of one hundred
thousand dollars ($100,000) pursuant to the Lease Agreement), whether owned in
fee, leased or otherwise, including but not limited to, the interests listed on
Schedule 1.1(e) (collectively, the "Maryland Real Estate") and all licenses,
permits, approvals and qualifications relating to the Maryland Real Estate;
(f) all interests in machinery and equipment, fixtures, fittings,
furniture, automobiles and other vehicles, tools, fixtures, spare parts and
supplies and other tangible personal property, whether owned, leased or
otherwise (including, without limitation, items which have been fully
depreciated or expensed), including, without limitation, such items as set forth
on Schedule 1.1(f);
(g) all insurance, insurance reserves and deposits other than the
Retained Insurance and the tail coverage discussed in Section 3.17 hereof
(including, without limitation, reserves and deposits relating to workmen's
compensation), including, without limitation, such items as set forth on
Schedule 1.1(g);
(h) all office furnishings and related assets;
(i) all intangible assets and intellectual property (including, without
limitation, registered and unregistered trademarks, service marks and trade
names, trade dress and other names, marks and slogans, including the names
"Schoenke & Associates" and "Schoenke & Associates Securities Corporation" and
all variations and permutations thereof; provided, however, Purchaser shall
have no right to, and shall not use, the "Schoenke" name except in connection
with insurance and financial service related businesses and Major Shareholder
shall be free to use the "Schoenke" name in any business pursuits (subject to
the terms of the Non-Compete Agreement (as hereinafter defined), including,
without limitation, Ray Schoenke & Associates, Inc.), all publishing and
distribution rights, and all associated goodwill; all statutory, common law and
registered copyrights; all patents, inventions, shop rights, know-how, trade
secrets and confidential information; all registration applications for any of
the foregoing; all interests in and to telephone numbers and all listings
pertaining to Sellers in all telephone books and other directories; together
with all rights to use all of the foregoing forever and all other rights in, to,
and under the foregoing in all countries, including, without limitation, such
items as set forth on Schedule 1.1(i);
(j) all discoveries, improvements, processes, data, confidential
information, specifications and ideas, whether patentable or not, all licenses
and other similar agreements, and all drawings, records, books or other indicia,
however evidenced, of the foregoing; all rights in and to any products or other
intellectual property rights under research or development prior to or on the
Closing Date related to the Business;
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<PAGE> 8
(k) all rights existing under contracts, leases, licenses (to the
extent lawfully assignable or transferable), permits (to the extent lawfully
assignable or transferable), supply and distribution arrangements, sales and
purchase agreements and orders, employee benefit plans, trusts and other
arrangements, employment and consulting agreements, consignment arrangements,
warranties, consents, orders, registrations (to the extent lawfully assignable
or transferable), privileges, franchises, memberships, certificates, approvals
or other similar rights and all other agreements, arrangements and
understandings, including, without limitation, all rights existing under the
contracts listed on the Contracts Schedule and Customer Contract Schedule (as
defined in Section 3.10 hereto);
(l) the right to receive all mail and other communications addressed to
Sellers (including, without limitation, mail and communications from customers,
suppliers, distributors, agents and others and accounts receivable payments),
provided that Purchaser agrees to forward any such mail and communications that
are of a personal nature to the officer or employee to which it pertains
promptly after receipt;
(m) all lists, records and files pertaining to customers, including
past, present and prospective customers solicited over the past five (5) years,
as referenced in Schedule 1.1(m);
(n) all lists and records pertaining to suppliers, distributors,
personnel, customers and agents and all other books, ledgers, files, documents,
correspondence, business analysis, illustrations, proposals and records of every
kind and nature;
(o) all business and marketing plans and proposals and pricing and cost
information;
(p) all computer software and systems, including licenses related
thereto, proprietary or otherwise, including related source codes, data and
documentation;
(q) all creative materials (including, without limitation, photographs,
films, art work, color separations and the like) advertising and promotional
materials and all other printed or written materials;
(r) all claims, refunds, causes of action, choses in action, rights of
recovery and rights of set-off of every kind and nature;
(s) all goodwill as a going concern and all other intangible property;
(t) all limited partnership interests in Schoenke & Associates of
Hawaii, L.P. ("SAH");
(u) subject and pursuant to the Cash Payments Transfer Side Agreement
between Purchaser and SAC dated the date hereof (the "Cash Payments Transfer
Side Agreement"), such cash payments as SAC receives under the Incentive
Compensation Plan Agreement with M Financial Holdings Incorporated (the "M Cash
Payments"); and
3
<PAGE> 9
(v) all other property not referred to above which is either
represented on Sellers' Latest Balance Sheet (as defined in Section 3.4) or
acquired by Sellers thereafter (except for such property which has been sold or
otherwise disposed of in the ordinary course of business) related to the
Business.
For purposes of the Agreement, the term "Purchased Assets" means all properties,
assets and rights of Sellers which Sellers shall convey to Purchaser or shall be
obligated to convey to Purchaser under this Agreement.
1.2 Excluded Assets. Notwithstanding the foregoing, the following
assets (the "Excluded Assets") are expressly excluded from the purchase and sale
contemplated hereby and, as such, are not included in the Purchased Assets:
(a) income tax credits and refunds;
(b) those certain assets listed on Schedule 1.2 hereto; and
(c) the minute books, capital stock records, articles of incorporation,
by-laws and corporate seal of Sellers, together with annual and other corporate
reports filed with the State of Maryland, other documents and correspondence
that relate to each Seller's corporate organization and maintenance thereof.
1.3 Assumption of Liabilities. Subject to the conditions specified in
this Agreement, on the Effective Date, Purchaser shall assume and agree to pay,
defend, discharge and perform as and when due only the following liabilities and
obligations of Sellers (the "Assumed Liabilities"):
(a) Each Seller's obligations and liabilities under the contracts
listed on the Contracts Schedule (Schedule 3.10(a)) and on the Customer Contract
Schedule (Schedule 3.10(d)) to the extent such liabilities or obligations are
incurred by the Sellers or accrued and set forth on Schedule 1.1(a) with respect
to operations following the Effective Date;
(b) obligations of continued performance under executory vendor
purchase orders for the purchase of supplies, equipment or services entered into
in the ordinary course of business (the "Vendor Orders");
(c) accrued payroll vacation and other benefits of employees of the
Sellers generated in the ordinary course of business to the extent reflected on
the Required Cash Amount Schedule (Schedule 1.1(a)); and
(d) the obligations under the employee health plans through December
31, 1998 for the benefit of all employees listed on Schedule 10.11.
4
<PAGE> 10
1.4 Excluded Liabilities. Notwithstanding anything to the contrary
contained in this Agreement, Purchaser shall not assume or be liable for any
liabilities or obligations of Sellers other than the Assumed Liabilities and all
such other liabilities or obligations shall be the responsibility of the Sellers
(the "Excluded Liabilities").
ARTICLE 2
CONSIDERATION FOR THE PURCHASED ASSETS
2.1 Purchase Price. In addition to the assumption of the Assumed
Liabilities, the aggregate purchase price for the Purchased Assets shall be an
amount equal to Seventeen Million and no/100 Dollars ($17,000,000), (the
"Purchase Price"), which shall be payable to Sellers on the Closing Date:
(a) by wire transfer of immediately available funds to such account or
accounts as shall have been designated in writing by Sellers not less than three
(3) days prior to the Closing Date in an amount equal to Thirteen Million Five
Hundred Thousand and no/100 Dollars ($13,500,000) (which is $15,000,000 less the
$1,500,000 good faith deposit previously paid to Sellers), as adjusted pursuant
to Section 2.2 hereof; and
(b) by a promissory note in an amount equal to Two Million and no/100
Dollars ($2,000,000) substantially in the form attached hereto as Exhibit A (the
"Promissory Note"), to be issued by Purchaser to Sellers which shall be paid by
Purchaser in accordance with the terms thereof.
The Promissory Note shall be secured by a lien in certain commission renewals
and/or fees received by Purchaser as more fully described in that certain
Security Agreement dated of even date herewith, among Purchaser and Sellers (the
"Security Agreement"). The Purchase Price shall be allocated among the Purchased
Assets as set forth in Exhibit B attached hereto. The parties agree that the
allocation set forth in Exhibit B shall be used by them and respected for all
purposes, including income tax purposes if in conformance with the rules and
regulations of the Internal Revenue Code of 1986, as amended (the "Code"), and
that the parties shall follow such allocation for all reporting purposes,
including, without limitation, Internal Revenue Service ("IRS") Form 8594.
2.2 Required Cash Amount Adjustment. Within three (3) days prior to the
Closing, Sellers shall notify Purchaser in writing of its good faith estimate of
the Required Cash Amount (as defined in Section 1.1 herein) as of the Effective
Date (the "Estimated Required Cash Amount"). Within three (3) business days
after the final determination of the Required Cash Amount pursuant to Section
2.3 below, Sellers shall pay Purchaser an amount equal to the positive
difference between the Required Cash Amount less the Estimated Required Cash
Amount by wire transfer of immediately available funds.
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<PAGE> 11
2.3 Procedures for Final Determination of Required Cash Amount. Within
thirty (30) days after the Closing Date, Purchaser shall prepare and deliver to
Sellers at Purchaser's expense a balance sheet for Sellers as of the opening of
business on the Effective Date, together with a statement setting forth
Purchaser's determination of the Required Cash Amount. Within thirty (30) days
after receipt of such items, Sellers shall deliver to Purchaser a detailed
written statement describing its objections, if any, to such balance sheet and
determination of the Required Cash Amount. If Sellers do not raise any
objections within the thirty (30) day period, the audited balance sheet and
Purchaser's determination of the Required Cash Amount shall become final and
binding upon all parties. Upon request by Sellers at any time after receipt of
the aforementioned balance sheet and statement, Purchaser shall make available
to Sellers and their accountants and other representatives the work papers used
in preparing the balance sheet and in determining Purchaser's calculation of the
Required Cash Amount and such other documents as Sellers may reasonably request
in connection with their review of the Required Cash Amount. If Sellers do raise
any objections, Purchaser and Sellers shall use reasonable efforts to resolve
any such disputes. If a final resolution is not obtained within thirty (30) days
after Sellers shall have submitted their objections to Purchaser, any remaining
disputes shall be resolved by an accounting firm mutually agreeable to Purchaser
and Sellers. If Purchaser and Sellers are unable to mutually agree on such an
accounting firm within five (5) days after the expiration of said thirty (30)
day period, a "big-six" accounting firm shall be selected by lot after
elimination of one firm designated as objectionable by each of Purchaser and
Sellers. The determination of the accounting firm so selected shall be set forth
in writing and shall be conclusive and binding upon the parties, and the fees
and expenses of such accounting firm shall be paid one-half by Purchaser and
one-half by Sellers. The final balance sheet prepared in accordance with this
Section 2.3 and Section 2.4 below and the related statement setting forth the
final determination of the Required Cash Amount are referred to as the "Closing
Balance Sheet."
2.4 Required Cash Amount Definition. For purposes hereof, "Required
Cash Amount" shall be determined as of the opening of business on the Effective
Date and shall be cash in an amount equal to the Sellers' accrued liabilities
including, but not limited to, accrued payroll, accrued vacation, other benefits
of employees and other accrued expenses, as detailed on Schedule 1.1(a) at such
time. The Closing Balance Sheet shall be prepared, and the Required Cash Amount
shall be determined, in accordance with generally accepted accounting principles
applied in a manner consistent with those used in preparing Sellers' balance
sheets as of March 31, 1998 (the "Latest Balance Sheet"); provided that (a) all
proper accruals and reserves shall be recorded (including but not limited to
vacation pay, customer rebate accruals, bad debt reserves and warranty expenses,
taxes and utility charges prorated through the Effective Date), (b) no assets
shall be included in excess of their realizable value, (c) no assets which have
been fully expensed or depreciated on the books and records of Sellers in
accordance with past practice shall be included, (d) no prepaid expenses,
intangible assets or other assets shall be included if they shall not benefit
Purchaser, (e) to the extent that the Latest Balance Sheet was not prepared in
accordance with generally accepted accounting principles (based upon
authoritative accounting pronouncements and literature in effect on the
Effective Date) and as a result the Required Cash Amount would otherwise be
overstated as of the Effective Date, the Closing Balance Sheet shall be prepared
and the Required Cash Amount shall be determined in accordance with generally
accepted accounting principles as in effect on the
6
<PAGE> 12
Closing Date, and (f) all accounting entries (including all liabilities and
accruals) shall be taken into account regardless of their amount and all errors
and omissions shall be corrected and all adjustments made.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS AND MAJOR
SHAREHOLDER
As an inducement to Purchaser to enter into this Agreement, Sellers and
the Major Shareholder hereby, jointly and severally, represent and warrant to
Purchaser as of the date hereof and as of the Closing Date that:
3.1 Organization and Power. SAC is a corporation duly organized,
validly existing and in good standing under the laws of Maryland and such
jurisdiction is the only jurisdiction in which ownership of its properties or
the conduct of its business requires it to be so qualified. SAS is a corporation
duly organized, validly existing and in good standing under the laws of Maryland
and such jurisdiction is the only jurisdiction in which ownership of its
properties or the conduct of its business requires it to be so qualified. SAH is
a limited partnership duly organized, validly existing and in good standing
under the laws of Hawaii and such jurisdiction is the only jurisdiction in which
ownership of its properties or the conduct of its business requires it to be so
qualified. Except for certain licenses and permits with respect to the Major
Shareholder described on Schedule 1.2 and certain licenses and permits described
on Schedule 3.10(a), each Seller has all requisite power and authority and all
material licenses, permits and other authorizations necessary to own and operate
their properties and to carry on their businesses as now conducted as they
relate to the Business. The copies of the certificate of incorporation and
by-laws of Sellers which have been previously furnished to Purchaser reflect all
amendments made thereto at any time prior to the date of this Agreement and are
correct and complete in all material respects.
3.2 Subsidiaries. Except for SAH, Sellers own no stock, partnership
interest, joint venture interest or other security or interest in any other
corporation, organization or entity related to the Business.
3.3 Authorization; No Breach. The execution, delivery and performance
of this Agreement and the other agreements contemplated hereby and the
transactions contemplated hereby and thereby have been duly and validly
authorized by each Seller. No other corporate act or proceeding on the part of
Sellers, their Board of Directors or their shareholders, is necessary to
authorize the execution, delivery or performance of this Agreement, any other
agreement contemplated hereby or the consummation of the transactions
contemplated hereby or thereby. This Agreement has been duly executed and
delivered by Sellers and the Major Shareholder and this Agreement constitutes
and the other agreements contemplated hereby upon execution and delivery by
Sellers and the Major Shareholder shall each constitute, a valid and binding
obligation of each Seller, as applicable, enforceable in accordance with their
terms. The execution, delivery and
7
<PAGE> 13
performance of this Agreement and the other agreements contemplated hereby by
Sellers and the Major Shareholder and the consummation of the transactions
contemplated hereby and thereby do not and shall not (a) conflict with or result
in any breach of any of the provisions of, (b) constitute a default under,
result in a violation of, or cause the acceleration of any obligation under, (c)
result in the creation of any lien, security interest, charge or encumbrance
upon any of the Purchased Assets under, or (d) require any authorization,
consent, approval, exemption or other action by or notice to any court or other
governmental body under the provisions of Sellers' certificate of incorporation
or by-laws, any indenture, mortgage, lease, loan agreement or other agreement or
instrument to which any Seller or the Major Shareholder is bound or affected or
any law, statute, rule, regulation, judgement, order or decree to which any
Seller or the Major Shareholder is subject or by which any of the Purchased
Assets is bound.
3.4 Financial Statements. Sellers have furnished Purchaser with copies
of (a) their audited balance sheet as of December 31, 1997 and the related
audited financial statements for the twelve-month period then ended, (b) its
audited balance sheets as of December 31, 1996, December 31, 1995 and December
31, 1994 and the related audited financial statements for the fiscal years then
ended, and (c) financial statements for the Sellers as at and for the
three-month period ended March 31, 1998 (the "Latest Balance Sheet"). Each of
the foregoing financial statements has been based upon the information contained
in Sellers' books and records (which are accurate and complete in all material
respects) and fairly presents the financial condition and results of operations
of Sellers as of the times and for the periods referred to therein, and such
financial statements contain proper accruals and adequate reserves and have been
prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods indicated, except as otherwise noted
therein.
3.5 Absence of Undisclosed Liabilities. As of the Closing, Sellers
shall have no liabilities or obligations whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known to Sellers, whether due or to
become due, arising out of or related to transactions entered into at or prior
to the Closing, or out of any action or inaction by Sellers or any employee, or
to Sellers' knowledge, any agent, licensee or contractor of any of them at or
prior to the Closing, or out of any state of facts existing at or prior to the
Closing, regardless of when any such liability or obligation is asserted,
including, without limitation, taxes with respect to or based upon transactions
or events occurring on or before the Closing, except (a) liabilities and
obligations under agreements, contracts, leases or commitments described on the
Leases Schedule (as defined in Section 3.8(b) hereof) and the Contracts Schedule
and the Customer Contracts Schedule (as such terms are defined in Section 3.10
hereof) or under agreements, leases, contracts and commitments which are not
required pursuant to this Agreement to be disclosed thereon (but not liabilities
for breaches thereof), (b) liabilities and obligations reflected on Sellers'
Latest Balance Sheet, and (c) liabilities and obligations which have arisen
after the date of Sellers' Latest Balance Sheet in the ordinary course of
business (none of which is a liability for breach of contract, breach of
warranty, tort or infringement).
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<PAGE> 14
3.6 No Material Adverse Changes. Since the date of the Latest Balance
Sheet, there has been no material adverse change in the financial condition,
operating results, assets, operations, employee relations or customer relations
of Sellers.
3.7 Absence of Certain Developments. Except as set forth in the
"Developments Schedule" attached hereto as Schedule 3.7, since the date of the
Latest Balance Sheet, no Seller has:
(a) borrowed or agreed to borrow any amount or incurred or become
subject to any material liabilities, except current liabilities incurred in the
ordinary course of business and liabilities under contracts entered into in the
ordinary course of business;
(b) discharged or satisfied, or agreed to discharge or satisfy, any
material lien or encumbrance or paid any material liability, other than current
liabilities paid in the ordinary course of business;
(c) mortgaged, pledged or subjected to any lien, charge or any other
encumbrance, any portion of the Purchased Assets, except liens for current
property taxes not yet due and payable and except for liens in favor of
Purchaser;
(d) sold, assigned or transferred, or agreed to do so, any of the
Purchased Assets, except in the ordinary course of business or canceled without
fair consideration any material debts or claims owing to or held by it;
(e) sold, assigned, transferred, abandoned or permitted to lapse any
patents, trademarks, trade names, copyrights, trade secrets or other intangible
assets, or disclosed any material proprietary confidential information to any
person;
(f) made or granted, or agreed to make or grant, any bonus or any wage
or salary increase to any employee or group of employees or made or granted any
increase in any employee benefit plan or arrangement (except in accordance with
past custom and practice), or amended or terminated, or agreed to terminate or
amend, any existing employee benefit plan or arrangement or adopted any new
employee benefit plan or arrangement;
(g) made, or agreed to make, any capital expenditures or commitments
therefore that aggregate in excess of $10,000;
(h) made, or agreed to make, any loans or advances to, or guarantees
for the benefit of, any persons;
(i) suffered any extraordinary losses or waived any rights of material
value, whether or not in the ordinary course of business or consistent with past
practice;
(j) entered into, or agreed to enter into, any other material
transaction other than in the ordinary course of business;
9
<PAGE> 15
(k) made, or agreed to make, any charitable contributions or pledges;
(l) failed to replenish the Sellers' supplies in a normal and customary
manner consistent with its prior practice and prudent business practices
prevailing in the industry, or made any purchase commitment in excess of the
normal, ordinary and usual requirements of its business or at any price in
excess of the then current market price or upon terms and conditions more
onerous than those usual and customary in the industry, or made any change in
its selling, pricing, advertising or personnel practice inconsistent with its
prior practice and prudent business practices prevailing in the industry; or
(m) suffered any material damage, destruction or casualty loss to the
Purchased Assets, whether or not covered by insurance.
3.8 Title and Condition of Properties.
(a) The Sellers own no real estate.
(b) The lease described on the "Leases Schedule" attached hereto as
Schedule 3.8(b) (the "Lease") is in full force and effect, and Sellers (as
indicated on such schedule) hold a valid and existing leasehold interest under
such lease for the term set forth on the Leases Schedule. The lease described on
the Leases Schedule constitutes the only lease under which Sellers hold a
leasehold interest in real estate. Sellers have delivered to Purchaser complete
and accurate copies of the lease described on the Leases Schedule, and such
lease has not been modified in any respect, except to the extent that such
modifications are disclosed by the copies delivered to Purchaser. To Sellers'
knowledge, no Seller is in default under such lease, and no other party to such
lease has the right to terminate, accelerate performance under or otherwise
modify such lease, including upon the giving of notice or the passage of time.
To the Seller's knowledge, no third party to such lease is in default under such
lease.
(c) The real estate demised by the lease described on the Leases
Schedule constitutes all of the real estate owned, used or occupied by Sellers.
(d) Sellers own good and marketable title, free and clear of all liens,
charges, security interests, encumbrances, encroachments and claims of others,
to all of the Purchased Assets, except for leased equipment, for liens of
current taxes not yet due and payable (which shall be pro-rated), liens
disclosed on the Latest Balance Sheet, and liens in favor of Purchaser
("Permitted Encumbrances"). At the Closing, Sellers shall sell, assign, transfer
and convey to Purchaser by customary Bill of Sale good and marketable title to
all of the personal property included within the Purchased Assets, free and
clear of all liens, security interests, charges, encumbrances and claims of
others, other than Permitted Encumbrances.
(e) Sellers' equipment and other tangible assets are in good condition
and repair in all material respects, have been maintained in accordance with
normal industry standards and are usable
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<PAGE> 16
in the ordinary course of business. Sellers own or lease under valid leases all
buildings, equipment and other tangible assets necessary for the conduct of the
Business.
(f) Since the commencement of Sellers' tenancy under the Office Lease
on March 1, 1997, Sellers have received no notice of any violation of any
applicable zoning, building, fire or other ordinance or other law, regulation or
requirement relating to the operation of leased real property and Sellers have
not within three years prior to the date of this Agreement received any such
notice with respect to owned or leased personal property, including, without
limitation, applicable environmental protection and occupational health and
safety laws and regulations or any condemnation proceeding with respect to any
properties owned, used or leased by Sellers.
(g) The Purchased Assets, together with the services and arrangements
described on the Contracts Schedule, comprise all assets and services required
for the continued conduct of the Business by the Purchaser as now being
conducted. Except for those certain licenses and permits with respect to the
Major Shareholder described on Schedule 1.2 hereto, the Purchased Assets, taken
as a whole, constitute all the properties and assets relating to or used or held
for use in connection with the Business during the past twelve months (except
supplies utilized, cash disposed of, accounts receivable collected, prepaid
expenses realized, Contracts fully performed, properties or assets replaced by
equivalent or superior properties or assets, and other dispositions in the
ordinary course of business and except for certain of the Excluded Assets).
Other than individual insurance licenses listed on Schedule 3.10 hereto, there
are no assets or properties used in the operation of the Business and owned by
any Person other than the Sellers that will not be leased or licensed to the
Purchaser under valid, current leases or license arrangements. The Purchased
Assets are in all material respects adequate for the purposes for which such
assets are currently used or are held for use, and are in reasonably good repair
and operating condition (subject to normal wear and tear).
3.9 Tax Matters.
(a) Sellers have duly filed all federal, foreign, state and local tax
information and tax returns of any and every nature and description (the
"Returns") required to be filed by them (all such returns being accurate and
complete in all respects) and have duly paid or made provision for the payment
of all taxes and other governmental charges (including without limitation any
interest, penalty or additions to tax thereto) which have been incurred or are
shown to be due on said Returns or are claimed in writing to be due from Sellers
or imposed on Sellers or their properties, assets, income, franchises, leases,
licenses, sales or use, by any federal, state, local or foreign taxing
authorities (collectively, the "Taxes") on or prior to the date hereof, other
than Taxes which are being contested in good faith and by appropriate
proceedings and as to which Sellers have set aside on their books adequate
reserves or which may be attributable to the transactions contemplated hereby.
There are no disputes pending, or claims overtly asserted, or to Sellers'
knowledge, claims which are likely to be asserted, for Taxes upon any Seller. No
Seller has been required to give any currently effective waivers extending the
statutory period of limitation applicable to any foreign, federal, state or
local return or for any period or agreed to an extension of time with respect to
a Tax assessment or deficiency. No claim has ever been made by an authority in a
jurisdiction where the Sellers do not file Returns that any Seller is or may be
subject to taxation by that jurisdiction. No Seller is nor
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has been, a party to any tax allocation agreement or arrangement pursuant to
which it has any contingent or outstanding liability to anyone. No Seller has
any liability for Taxes as a transferee of, or successor to, any other person.
Each Seller has provided to Purchaser or its representatives complete and
correct copies of its federal, state and local income tax returns filed on or
prior to the date hereof and all examination reports, if any, relating to the
audit of such returns by the IRS or other tax authority for each taxable year
beginning on or after January 1, 1992. To the knowledge of each Seller, there
exists no proposed assessment against any Seller or notice, whether formal or
informal, of any deficiency or claim for additional Tax (including, without
limitation, interest, additions to tax or penalties).
(b) All monies required to be withheld from employees, and to Sellers'
knowledge from independent contractors, shareholders or creditors, of each
Seller for Taxes, including, but not limited to, income taxes, back-up
withholding taxes, social security and unemployment insurance taxes or collected
from customers or others as Taxes, including, but not limited to, sales, use or
other taxes, have been withheld or collected and paid, when due, to the
appropriate governmental authority, or if such payment is not yet due, an
adequate reserve has been established for such Taxes.
(c) Neither Seller has in place any arrangement of the type described
in Code Section 280G.
3.10 Contracts and Commitments.
(a) Except as set forth in Section 3.16 or in the "Contracts Schedule"
attached hereto as Schedule 3.10(a) or in the "Customer Contracts Schedule"
attached hereto as Schedule 3.10(d), no Seller is a party to any:
(i) bonus, pension, profit sharing, retirement or deferred
compensation plan or stock purchase, stock option, hospitalization
insurance or similar plan or practice, whether formal or informal, or
severance agreements or arrangements;
(ii) contract with any labor union or contract for the
employment of any officer, individual employee or other person on a
full-time, part-time or consulting basis;
(iii) mortgaging, pledging or otherwise placing a lien on any
of the Purchased Assets;
(iv) guarantee of any obligation for borrowed money or
otherwise, other than endorsements made for collection in the ordinary
course of business;
(v) agreement or commitment with respect to the lending or
investing of funds to or in other persons or entities;
(vi) license or royalty agreement related to the Business;
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(vii) lease or agreement related to the Business under which
it is lessee of or holds or operates any personal property owned by any
other party;
(viii) lease or agreement related to the Business under which
it is lessor of or permits any third party to hold or operate any
property, real or personal, owned or controlled by it;
(ix) contract or group of related contracts related to the
Business with the same party for the purchase or sale of products or
services other than the Customer Contracts (as defined in Section
3.10(d) hereof);
(x) other contract related to the Business with any party
continuing over a period of more than six months from the date or dates
thereof, not terminable by it on thirty (30) days' or less notice
without penalties;
(xi) contract which prohibits it from freely engaging in
business anywhere in the world;
(xii) contract relating to the distribution or production of
its products as it relates to the Business; or
(xiii) other agreements related to the Business whether or not
entered into in the ordinary course of business.
(b) Except as specifically disclosed in the Contracts Schedule or the
Customer Contracts Schedule, (i) to Sellers' knowledge, no contract or
commitment related to the Business has been breached in any material respect or
canceled by the other party, (ii) since December 31, 1997, no supplier of the
Business has notified Sellers that it shall stop or decrease in any material
respect the rate of business done with Sellers, (iii) Sellers have in all
material respects performed all the obligations required to be performed by them
to the date of this Agreement and are not in receipt of any claim of default
under any material lease, contract, commitment or other agreement listed on
Schedule 3.10(a) or Schedule 3.10(d) hereof, (iv) no event has occurred which
with the passage of time or the giving of notice or both would result in a
breach or default under any lease, contract, instrument or other agreement
listed on Schedule 3.10(a) or Schedule 3.10(d); and (v) Sellers are not a party
to any contract which is adverse to the Business's operations, financial
condition, operating results or business prospects.
(c) Purchaser has been supplied with a true and correct copy of all
written contracts which are referred to on the Contract Schedule and Customer
Contracts Schedule, together with all amendments, waivers or other changes
thereto.
(d) Sellers have no knowledge of any (i) pending or threatened
termination, cancellation, limitation, modification or change in any of Sellers'
business relationship with any customer or group of customers related to the
Business or (ii) changes or pending changes in any law, rule,
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regulation, technology, or business relationship or other circumstance that
could result in the loss of any customers related to the Business after the date
hereof. Each contract, agreement or lease with customers of any Seller relating
to the Business ("Customer Contracts") is listed on the "Customer Contract
Schedule" attached hereto as Schedule 3.10(d). Except as indicated on the
Customer Contract Schedule, (A) each of the Customer Contracts is valid,
enforceable and in full force and effect in accordance with the terms thereof,
(B) there is no existing default or event or condition which, with notice or
lapse of time or both, would constitute an event of default under any Customer
Contract, (C) no Customer Contract has been amended, modified, supplemented or
otherwise altered orally, in writing or by course of conduct, (D) no Customer
Contract requires the consent of the Customer or any other party to affect a
valid assignment thereof to Purchaser without causing a default or giving rise
to a right of termination thereunder and (E) each Customer Contract complies
with all applicable laws, rules and regulations.
3.11 Proprietary Rights. Set forth on the "Proprietary Rights Schedule"
attached hereto as Schedule 3.11 is a list and summary description of all
patents, patent applications, trademarks, service marks, trade names, corporate
names and copyrights owned by Sellers which are related to the Business or used
by Sellers in the conduct of the Business. Except as disclosed in Schedule 3.11
hereto, Sellers own and possess all right, title and interest in and to the
proprietary rights necessary to conduct the Business. Sellers have taken all
necessary or desirable action to protect the proprietary rights necessary or
desirable to conduct the Business. Sellers have not received any notices of
infringement, misappropriation, invalidity or conflict from any third party with
respect to such proprietary rights. To Sellers' knowledge, Sellers have not
infringed, misappropriated or otherwise conflicted with any proprietary rights
of any third parties and Sellers' proprietary rights have not been infringed by
any third parties.
3.12 Litigation; Proceedings. There are no actions, suits, proceedings,
orders or investigations pending or to Sellers' knowledge, threatened against or
affecting any Seller at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
3.13 Brokerage. There are no claims for brokerage commissions, finders
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of any
Seller.
3.14 Governmental Consent, etc.
(a) No material permit, consent, approval or authorization of, or
declaration to or filing with, any governmental or material regulatory authority
is required in connection with the execution, delivery or performance of this
Agreement by any Seller, or the consummation by such Seller of any of the
transactions contemplated hereby and thereby, except as disclosed on the
"Consents Schedule" attached hereto as Schedule 3.14.
(b) The Consents Schedule attached hereto as Schedule 3.14 sets forth
all material governmental approvals or consents necessary for, or otherwise
material to, the conduct of the
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Business. All such governmental approvals and consents have been duly obtained
and are in full force and effect, and Sellers are in compliance with each of
such governmental approvals and consents held by it with respect to the
Purchased Assets and the Business.
3.15 Employees. Except as set forth on Schedule 3.15, to Sellers'
knowledge, no key employee, nor group of such Seller's employees related to the
Business, has any plans to terminate employment with such Seller. Each Seller
has complied in all material respects with all applicable laws relating to the
employment of labor and, to Sellers' knowledge the engagement of independent
contractors related to the Business, including provisions thereof relating to
wages, hours, equal opportunity, immigration, collective bargaining,
disabilities, family leave and the payment of social security and other taxes.
Except as disclosed on the "Employees Schedule" attached hereto as Schedule
3.15, no Seller has any existing relationships with any union or employee
representative or any labor relations problems, and there has been no union
organization efforts with respect to the Business within the last five years.
Except as set forth on Schedule 3.15, no present employee of Sellers has advised
the Sellers that he or she will not be available for continued conduct of the
Business after the Closing on substantially the same terms as now conducted.
3.16 Employee Benefit Plans.
(a) The "Employee Benefits Schedule" attached hereto as Schedule 3.16,
contains a list and a true and correct copy, including all amendments thereto,
of any employee benefit plan, within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), which Sellers
and/or any corporation, partnership or other trade or business which is or would
be a member of a controlled group of corporations, group of trades or business
under common control, or an affiliated service group including Sellers, under
the provisions of Code Section 414(b), (c), (m) or (o) (each an "ERISA
Affiliate") maintains, to which Sellers or any ERISA Affiliate contributes, or
is obligated to contribute, or under which any employee or former employee,
officer or former officer, director, or former director, shareholders or former
shareholder of Sellers or any ERISA Affiliate (collectively, "Participants"), or
any beneficiary of any Participant, is covered or has benefit rights and
pursuant to which any liability of Sellers or any ERISA Affiliate exists or is
reasonably likely to occur, and each other arrangement, program or plan pursuant
to which any benefit is or shall be provided to any Participant or any
Participant's beneficiary, whether formal or informal, including, without
limitation, those providing any form of medical, health or dental insurance,
life, disability and accidental death and dismemberment insurance, severance pay
or benefits continuation, nonqualified deferred compensation, relocation
assistance, vacation pay, tuition aid, apprenticeship benefits or matching gifts
for charitable contributions to educational or cultural institutions
(collectively, the "Benefit Plans"). Each of such plans that is an employee
pension benefit plan within the meaning of Section 3(2) of ERISA that is
intended to be a qualified plan under Section 401(a) of the Code has been
amended to comply in all material respects with current law as required and each
such plan has obtained a favorable determination letter with respect to such
amendment. Neither the Sellers nor the Major Shareholder is aware of any facts
or circumstances that might jeopardize the qualified status of any such Benefit
Plan.
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(b) Except as set forth in the "Employee Benefits Schedule", to
Sellers' knowledge, all accrued contributions and other payments to be made by
each Seller or any ERISA Affiliate to any Benefit Plan through the date of the
Latest Balance Sheet have been made or reserves adequate for such purposes as of
the date of the Latest Balance Sheet have been set aside therefor and reflected
on the Latest Balance Sheet. To Sellers' knowledge, no Seller nor any ERISA
Affiliate is in default in performing any of its contractual obligations under
any of the Benefit Plans or any related trust agreement or insurance contract,
and there are no outstanding liabilities of any Benefit Plan other than
liabilities for benefits to be paid to Participants and beneficiaries in such
Benefit Plan in the ordinary course of business.
(c) There is no pending litigation or, to the best knowledge of each
Seller, overtly threatened litigation or pending claim (other than benefit
claims made in the ordinary course) by or on behalf of or against any of the
Benefit Plans (or with respect to the administration of any of the Benefit
Plans) now or heretofore maintained by each Seller or any ERISA Affiliate which
allege violations of applicable state or federal law.
(d) To Sellers' knowledge, each Benefit Plan is and has been in
compliance in all respects with, and each such Plan is and has been operated in
accordance with the applicable laws, rules and regulations governing such Plan,
including, without limitation, the rules and regulations promulgated by the
Department of Labor, the Pension Benefit Guaranty Corporation ("PBGC") and the
IRS under ERISA, the Code or any other applicable law.
(e) To Sellers' knowledge, none of the Benefit Plans is or ever has
been subject to Title IV of ERISA, and no Seller nor any ERISA Affiliate is or
has been required to contribute to an employee benefit plan that is a
"multiemployer plan" within the meaning of Section 3(37) of ERISA nor has been
so required during the five-year period ending on the Closing Date.
(f) To Sellers' knowledge, all reporting and disclosure requirements of
ERISA and the Code applicable to the Benefit Plans have been satisfied in all
material respects and all such reports have been provided to the Purchaser.
(g) To Sellers' knowledge, no Seller nor any ERISA Affiliate has any
liability on account of any accumulated funding deficiency (as defined in
Section 412 of the Code) or on account of any failure to make contributions to
or pay benefits under any Benefit Plan, nor is any Seller aware of any claim
pending or threatened to be brought by any party regarding such matters. To
Sellers' knowledge, no prohibited transaction has occurred with respect to any
Benefit Plan that would result, directly or indirectly, in the imposition of any
excise tax under Section 4975 of the Code.
(h) None of the Benefit Plans provides for (or has ever provided for)
medical or health care or benefits for any former employee of any Seller or any
ERISA Affiliate, except to the extent required by Section 4980B of the Code or
Part 6 of Title I of ERISA. The Sellers have no commitments to offer medical
benefits to employees upon termination other than COBRA rights.
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3.17 Insurance. The "Insurance Schedule" attached hereto as Schedule
3.17 lists and briefly describes each insurance policy maintained by each Seller
with respect to the Purchased Assets. The Sellers have delivered to the
Purchaser complete and correct copies of all such policies together with all
riders and amendments thereto. All of such insurance policies are in full force
and effect, and to Sellers' knowledge, Sellers are not in default with respect
to their respective obligations under any of such insurance policies. The
Sellers shall provide tail coverage on their errors and omissions insurance
policies for a period of three (3) years from the date hereof to cover any
claims following the Closing Date.
3.18 Affiliated Transactions. Except as set forth on the "Affiliated
Transaction Schedule" attached hereto as Schedule 3.18, no officer, director,
shareholder or affiliate of any Seller or any person related by blood or
marriage to any such person or any entity in which any such person owns any
beneficial interest is a party to any agreement, contract, commitment or
transaction related to the Business with any Seller or has any interest in any
property used by such Seller.
3.19 Compliance with Laws; Permits; Certain Operations.
(a) Sellers and their officers, directors, employees, and to Sellers'
knowledge, their agents, have complied in all material respects with all
applicable laws and regulations of foreign, federal, state and local governments
and all agencies thereof which affect the Business or the Purchased Assets or to
which Sellers may otherwise be subject, and no claims have been filed against
Sellers alleging a violation of any such law or regulation, except as set forth
on the "Compliance Schedule" attached hereto as Schedule 3.19(a). In particular,
but without limiting the generality of the foregoing, Sellers have not violated,
or received a notice or charge asserting any violation of the Immigration Reform
and Control Act of 1986, the Occupational Safety and Health Act of 1970, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
the Resource Conservation and Recovery Act of 1976, the Toxic Substances Control
Act of 1976, the Americans With Disabilities Act, or any other state or federal
act (including rules and regulations thereunder) regulating or otherwise
affecting the employment of aliens, employee health and safety, the environment,
zoning, building, fire or other ordinances or any other aspect of the Business.
(b) Except as set forth in Schedule 1.2 with respect to the licenses
held by the Major Shareholder, Sellers hold all of the permits, licenses,
certificates and other authorizations of foreign, federal, state and local
governmental agencies required for the conduct of the Business all of which are
set forth in the "Permits Schedule" attached hereto as Schedule 3.19(b). Sellers
have not received any notice (and Sellers have no reason to believe) that
revocation is being considered with respect to any of such licenses, permits,
certificates or authorizations, or that Sellers are in violation of any such
license, permit, certificate or authorization.
3.20 Environmental Health and Safety.
(a) Each Seller and its respective predecessors and affiliates has
complied with, and is currently in compliance with all Environmental, Health and
Safety Laws, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand or notice has been
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threatened, filed or commenced against any of them alleging any failure so to
comply, alleging any liability under any Environmental, Health and Safety Laws
or requesting any investigation related thereto. To Sellers' knowledge, no
condition exists or event has occurred which, with or without notice or the
passage of time, would constitute a violation of or give rise to a lien under
any Environmental, Health and Safety Laws. Without limiting the generality of
the preceding sentences, to Sellers' knowledge, each Seller, and its respective
predecessor and affiliates, has obtained and been in compliance, and is
currently in compliance, with all of the terms and conditions of all permits,
licenses and other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables which are
contained in, all Environmental Health and Safety Laws. For purposes hereof,
"Environmental, Health and Safety Laws" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976 and the Occupational Safety and Health Act of 1970, each as
amended, together with all other laws (including statutes, rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof) relating to fines, injunctions, penalties, damages, liability,
contribution, cost recovery, compensation losses or injuries concerning
pollution or protection of the environment, natural resources, public health and
safety, or employee health and safety, or the protection of human, plant or
animal welfare or health, including laws relating to use, emissions, discharges,
releases, or threatened releases of Hazardous Materials, Extremely Hazardous
Substances, pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into or onto ambient air, surface water, ground water,
or lands or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of Hazardous
Materials, Extremely Hazardous Substances, pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes. For purposes
hereof, "Extremely Hazardous Substance" means such term as set forth in ss.302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
For purposes hereof, "Hazardous Materials" means any dangerous, toxic or
hazardous pollutant, contaminant, chemical, waste, material or substance as
defined in, regulated by or governed by any Environmental, Health, and Safety
Laws, federal, state, local or foreign law, statute, code, ordinance,
regulation, rule or other requirement relating to such substance or otherwise
relating to the environment or human health or safety, including without
limitation any waste, material, substance, pollutant or contaminant that might
cause any injury to human health or safety or to the environment or might
subject the Seller to any imposition of penalties, fines, orders, decrees,
licenses, permits, judgments, costs or liability under any Environmental, Health
or Safety Laws.
(b) To Sellers' knowledge, all properties and equipment used in the
Business of the Sellers, their predecessors and affiliates, have been free of
asbestos, PCB's, methylene chloride, trichlorethylene, 1, 2 -
trans-dichloroethylene, dioxins, dibenzofurans and other hazardous substances.
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3.21 Product and Warranty Claims; Warranties. Except as disclosed in
the "Claims Schedule" attached hereto as Schedule 3.21, Sellers have no
knowledge of and have not received during the past five (5) years any claim or
notice with respect to any occurrences arising out of the use of, or related to,
the products sold, implemented or serviced by or on behalf of each Seller
related to the Business.
3.22 Disclosure. Neither this Agreement nor any of the schedules,
attachments or exhibits hereto contain any untrue statement of a material fact
or omit a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they were made, not misleading.
There is no material fact which has not been disclosed in writing to Purchaser
of which the Sellers or any officer, director or key employee of Sellers is
aware and which materially adversely affects or could reasonably be anticipated
to affect materially adversely the Business or the Purchased Assets.
3.23 Year 2000 Problem. Based on previous and ongoing internal reviews,
Sellers believe that the computer equipment and software used by Seller will
function properly with respect to dates in the year 2000 and thereafter. Sellers
have requested information from third parties addressing any potential year 2000
issues with such third parties; however, Sellers are not able to determine the
extent to which such third parties, such as insurance companies and clients, may
experience year 2000 issues.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers as of the
date hereof and as of the Closing Date that:
4.1 Corporate Organization and Power. Purchaser is a corporation duly
organized and validly existing under the laws of the State of Delaware with full
corporate power and authority to enter into this Agreement and the other
agreements contemplated hereby and perform its obligations hereunder and
thereunder. Purchaser is qualified to do business as a foreign corporation and
is in good standing in the State of Maryland.
4.2 Authorization. The execution, delivery and performance by Purchaser
of this Agreement and the other agreements contemplated hereby and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all requisite corporate action, and no other corporate
proceedings on the part of Purchaser are necessary to authorize the execution,
delivery or performance of this Agreement or the other agreements contemplated
hereby. This Agreement constitutes and, upon execution and delivery by
Purchaser, the other agreements contemplated hereby shall each constitute a
valid and binding obligation of Purchaser enforceable against Purchaser in
accordance with their respective terms.
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4.3 No Violation. Purchaser is not subject to or obligated under its
articles of incorporation, any applicable law, rule or regulation of any
governmental authority, or any agreement or instrument, or any license,
franchise or permit, or subject to any order, writ, injunction or decree which
would materially, adversely affect its ability to perform this Agreement or the
other agreements contemplated hereby.
4.4 Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to the best of Purchaser's knowledge, threatened
against or affecting Purchaser, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which would materially
adversely affect Purchaser's performance under this Agreement or the
consummation of the transactions contemplated hereby.
4.5 Brokerage. There are no claims for brokerage commissions, finders
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of
Purchaser.
ARTICLE 5
CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE
5.1 Conditions to Purchaser's Obligation. The obligation of Purchaser
to consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) the representations and warranties set forth in Article 3 hereof
shall be true and correct at and as of the Closing;
(b) Sellers shall have performed all of the covenants and agreements
required to be performed by them under this Agreement prior to the Closing;
(c) there shall have been no adverse change in the operations,
financial condition, operating results, assets or business prospects of the
Business, and there shall have been no casualty loss or damage to the Purchased
Assets, taken as a whole, whether or not covered by insurance;
(d) all consents by third parties that are required for the transfer of
the Purchased Assets and the Business to Purchaser as contemplated hereby, from
Sellers to Purchaser that are required for the consummation of the transactions
contemplated hereby or that are required to prevent a breach of, or a default
under or a termination or modification of any instrument, contract, license,
lease or other agreement to which Sellers are a party or to which any of the
Purchased Assets are subject, and releases of all liens, charges, security
interests, encumbrances and claims of others on or with respect to the Purchased
Assets shall have been obtained on terms and conditions satisfactory to
Purchaser in its sole discretion;
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(e) no action or proceeding before any court or government body shall
be pending or threatened which, in the judgment of Purchaser, made in good faith
and upon the advice of counsel, makes it inadvisable or undesirable to
consummate the transactions contemplated hereby by reason of the probability
that the action or proceeding shall result in a judgment, decree or order which
would prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement, cause such transactions to be rescinded or materially adversely
affect the value or use of the Purchased Assets or Business;
(f) Purchaser shall have received from Sellers' counsel, Patton Boggs,
L.L.P., an opinion with respect to the matters set forth in Exhibit C attached
hereto, addressed to Purchaser and dated the Closing Date, in form and substance
satisfactory to Purchaser;
(g) not less than five (5) business days prior to the Closing Date,
Sellers shall have provided Purchaser, at Sellers' expense, with UCC search
reports ("UCC Searches") of Sellers disclosing no liens or encumbrances against
the Purchased Assets, other than the Permitted Encumbrances. If the UCC Searches
disclose any title encumbrances, defects, liens, encumbrances or matters other
than Permitted Encumbrances, Sellers shall have caused the same to be removed;
(h) all proceedings to be taken by Sellers in connection with the
consummation of the Closing and the other transactions contemplated hereby and
all certificates, opinions, instruments and other documents required to effect
the transactions contemplated hereby requested by Purchaser shall be
satisfactory in form and substance to Purchaser and its counsel;
(i) Purchaser and the landlord of the property located at 20250 Century
Blvd., Germantown, Maryland 20874 (the "Landlord") shall have entered into that
certain Lease Agreement and related Assignment of Lease regarding the lease of
such property (collectively, the "Lease Agreement");
(j) Purchaser's Board of Directors shall have approved the transaction
contemplated hereby;
(k) Purchaser and the Major Shareholder shall have entered into that
certain Non-Compete Agreement in the form set forth in Exhibit D hereto (the
"Non-Compete Agreement");
(l) Purchaser's existing lenders shall have consented to the
transaction and Purchaser shall have successfully completed the renegotiation of
certain loan terms with such lenders;
(m) Each of Kevin B. Ballou, David C. Evans and John F. Blottenberger,
Jr. and Purchaser shall have entered into that certain Non-Solicitation
Agreement in the respective forms set forth in Exhibit E hereto (the
"Non-Solicitation Agreements").
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Any conditions specified in this Section 5.1 may be waived by Purchaser;
provided that no such waiver shall be effective unless it is set forth in a
writing executed by Purchaser, except as otherwise provided in Section 9.3.
ARTICLE 6
CONDITIONS TO SELLERS' OBLIGATION TO CLOSE
6.1 Conditions to Sellers' Obligation. The obligation of Sellers to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) the representations and warranties set forth in Article 4 hereof
shall be true and correct in all material respects at and as of the Closing as
though then made and as though the Closing Date was substituted for the date of
this Agreement throughout such representations and warranties;
(b) Purchaser shall have performed in all material respects all the
covenants and agreements required to be performed by it under this Agreement
prior to the Closing;
(c) Sellers shall have received from Purchaser's counsel, Vedder,
Price, Kaufman & Kammholz, an opinion with respect to the matters set forth in
Exhibit F attached hereto, addressed to Sellers and dated the Closing Date, in
form and substance reasonably satisfactory to Sellers;
(d) no action or proceeding before any court or government body shall
be pending or threatened which, in the judgement of Sellers, made in good faith
and upon advice of counsel, makes it inadvisable or undesirable to consummate
the transactions contemplated hereby by reason of the probability that the
action or proceeding shall result in a judgment, decree or order which would
prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement, cause such transactions to be rescinded or materially adversely
affect the value or use of the Purchased Assets or Business;
(e) all consents by third parties that are required for the transfer of
the Purchased Assets and the Business to Purchaser as contemplated hereby from
Sellers to Purchaser that are required for the consummation of the transactions
contemplated hereby or that are required to prevent a breach of, or a default
under or a termination or modification of any instrument, contract, license,
lease or other agreement to which Sellers are a party or to which any of the
Purchased Assets are subject, and releases of all liens, charges, security
interests, encumbrances and claims of others on or with respect to the Purchased
Assets shall have been obtained on terms and conditions satisfactory to Sellers
in their sole discretion;
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(f) the Major Shareholder and Nancy Schoenke shall be released from
their guaranty of the Sellers' obligations under the Lease Agreement; and
(g) all proceedings to be taken by Purchaser in connection with the
consummation of the Closing and the other transactions contemplated hereby and
all certificates, opinions, instruments and other documents required to effect
the transactions contemplated hereby reasonably requested by Sellers shall be
reasonably satisfactory in form and substance to Sellers and their counsel.
Any condition specified in this Section 6.1 may be waived by Sellers; provided
that no such waiver shall be effective against Sellers unless it is set forth in
a writing executed by Sellers, except as otherwise provided in Section 9.3.
ARTICLE 7
CLOSING TRANSACTIONS
7.1 The Closing. Subject to the conditions contained in this Agreement,
the closing of the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of Patton Boggs, L.L.P. in Washington, D.C. at
10:00 a.m. local time on September 18, 1998, or at such other place or on such
other date as may be mutually agreeable to the parties. The date and time of the
Closing are referred to herein as the "Closing Date."
7.2 Action to Be Taken at the Closing. The sale, conveyance, assignment
and delivery of the Purchased Assets and the payment of the Purchase Price
pursuant to the terms of this Agreement shall take place at the Closing, and,
simultaneously, the other transactions contemplated by this Agreement shall take
place by the delivery of all of the closing documents set forth in Section 7.3.
7.3 Closing Documents.
(a) Sellers and the Major Shareholder shall deliver to Purchaser at the
Closing the following documents, duly executed by Sellers where necessary to
make them effective:
(i) an officer's certificate in the form set forth in Exhibit
G attached hereto, stating that the preconditions specified in Section
5.1 (a) through (m) have been satisfied;
(ii) copies of all necessary third party and governmental
consents, approvals, releases and filings required in order to effect
the transactions contemplated by this Agreement;
(iii) such stamped recordable warranty deeds, instruments of
sale, transfer, assignment, conveyance and delivery (including all
vehicle titles), as are required in order to transfer to Purchaser good
and marketable title to the Purchased Assets, free and clear of
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all liens, charges, security interests and other encumbrances, except
for Permitted Encumbrances;
(iv) such assignment of Leases as Purchaser may reasonably
request;
(v) certified copies of the resolutions duly adopted by the
Board of Directors and Shareholders of Sellers authorizing the
execution, delivery and performance of this Agreement and each of the
other agreements contemplated hereby, and the consummation of all other
transactions contemplated by this Agreement;
(vi) all of Sellers' contracts and commitments, files, books,
records and other data relating to the Business and the Purchased
Assets;
(vii) copies of good standing certificates in all
jurisdictions where the Sellers are qualified to do business in which
ownership of the Purchased Assets or the conduct of the Business
requires Sellers to be so qualified;
(viii) a certificate of the Secretary of each Seller,
certifying as to the correctness and completeness of the Articles of
Incorporation, Bylaws, Articles of Organization and Operating Agreement
of such Seller, as appropriate, and all amendments thereto;
(ix) a Transitional Services Agreement between Purchaser and
Sellers reasonably agreeable to the parties (the "Services Agreement");
(x) Purchaser and the Major Shareholder shall have entered
into an agreement regarding the maintenance of the Major Shareholder's
B-D License (the "B-D License Agreement");
(xi) the Non-Compete Agreement and the Non-Solicitation
Agreements;
(xii) the Lease Agreement;
(xiii) the financial statements for the Sellers for the months
of July and August of 1998;
(xiv) the Cash Payments Transfer Side Agreement; and
(xv) such other documents or instruments as Purchaser may
request to effect the transactions contemplated hereby.
All of the foregoing documents in this Section 7.3(a) shall be
reasonably satisfactory in form and substance to Purchaser and shall be dated
the Closing Date.
(b) Purchaser shall deliver to Sellers and the Major Shareholder at the
Closing the following items, duly executed by Purchaser where necessary to make
them effective:
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(i) the amount of the Purchase Price payable at Closing as
provided in Section 2.1;
(ii) the Promissory Note and the Security Agreement;
(iii) an officer's certificate in the form set forth as
Exhibit H attached hereto, stating that the preconditions specified in
Section 6.1 (a) through (g) hereof have been satisfied;
(iv) copies of all necessary third party and governmental
consents, approvals, releases and filings required in order for
Purchaser to effect the transactions contemplated by this Agreement;
(v) the Lease Agreement, the Service Agreement, the B-D
License Agreement and the Cash Payments Transfer Side Agreement;
(vi) the Non-Compete Agreement and the Non-Solicitation
Agreements; and
(vii) such other documents or instruments as Sellers
reasonably may request to effect the transactions contemplated hereby.
All of the foregoing documents in this Section 7.3(b) shall be
reasonably satisfactory in form and substance to Sellers and shall be dated as
of the Closing Date.
7.4 Possession. Simultaneously with the Closing, Sellers shall take
such steps as may be requisite or desirable to put Purchaser in actual
possession and operating control of the Business and the Purchased Assets.
7.5 Nonassignable Contracts. To the extent that the assignment
hereunder by Sellers to Purchaser of the Contracts is not permitted or is not
permitted without the consent of any other party to the Contract, this Agreement
shall not be deemed to constitute an assignment of any such Contract if such
consent is not given or if such assignment otherwise would constitute a breach
of, or cause a loss of contractual benefits under, any such Contract, and
Purchaser shall assume no obligations or liabilities thereunder. Sellers shall
advise Purchaser promptly in writing with respect to any Contract which it
knows, should know or has reason to know that it will not receive any required
consent. Without in any way limiting Sellers' obligation to use their respective
best efforts to obtain all consents necessary for the sale, transfer, assignment
and delivery of the Contracts and the Purchased Assets to Purchaser hereunder,
if any such consent is not obtained or if such assignment is not permitted
irrespective of consent and the Closing hereunder is consummated, Sellers shall
cooperate with Purchaser in any reasonable arrangement designed by Purchaser to
provide Purchaser with the rights and benefits, subject to the obligations,
under the Contract, including enforcement for the benefit of Purchaser of any
and all rights of Sellers against any other person arising out of breach or
cancellation by such other person and, if requested by Purchaser, Sellers shall
act as an
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agent on behalf of Purchaser or as Purchaser shall otherwise reasonably require,
in each case at such Seller's cost, provided SAS shall in no event be obligated
to continue its existence beyond a date eighteen (18) months from the Closing
Date and SAC shall in no event be obligated to continue its existence beyond the
later of (i) a date eighteen (18) months from the Closing Date or (ii) the date
upon which SAC is no longer entitled to receive the M Cash Payments or payments
related to any other Contract.
ARTICLE 8
INDEMNIFICATION; LIMITATIONS ON LIABILITY
8.1 Indemnification by Each Seller and Major Shareholder. Subject to
Section 8.4 hereof, each Seller and Major Shareholder, jointly and severally,
agree to and shall indemnify in full Purchaser and its officers, directors,
employees, agents, shareholders and partners (collectively, the "Purchaser
Indemnified Parties") and defend and hold them harmless against any loss,
liability, deficiency, damage, expense or cost (including reasonable legal
expenses), that Purchaser Indemnified Parties may suffer, sustain or become
subject to, as a result of (a) any misrepresentation in any of the
representations or breach of any of the warranties of any Seller or the Major
Shareholder contained in this Agreement or in any exhibits, schedules,
certificates or other agreements or documents delivered or to be delivered
pursuant to the terms of this Agreement or otherwise incorporated in this
Agreement (collectively, the "Related Documents"), or (b) any breach of, or
failure to perform, any agreement or covenant of any Seller or the Major
Shareholder contained in this Agreement or any of the Related Documents
(collectively, "Purchaser Losses").
8.2 Indemnification by Purchaser. Subject to Section 8.4 hereof,
Purchaser agrees to indemnify in full each Seller (the "Sellers Indemnified
Parties") and hold it harmless against any Losses which the Sellers Indemnified
Parties may suffer, sustain or become subject to as a result of (i) any
misrepresentation in any of the representations or breaches of any of the
warranties of Purchaser contained in this Agreement or in any of the Related
Documents or (ii) any breach of, or failure to perform, any agreement of
Purchaser contained in this Agreement or any of the Related Documents
(collectively, "Sellers Losses") (Purchaser Losses and Sellers Losses shall
collectively be referred to as the "Losses").
8.3 Method of Asserting Claims. As used herein, an "Indemnified Party"
shall refer to a "Purchaser Indemnified Party" or "Sellers Indemnified Party,"
as applicable, the "Notifying Party" shall refer to the party hereto whose
Indemnified Parties are entitled to indemnification hereunder, and the
"Indemnifying Party" shall refer to the party hereto obligated to indemnify such
Notifying Party's Indemnified Parties.
(a) In the event that any of the Indemnified Parties is made a
defendant in or party to any action or proceeding, judicial or administrative,
instituted by any third party for the liability or the costs or expenses of
which are Sellers Losses or Purchaser Losses, as the case may be (any such third
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party action or proceeding being referred to as a "Claim"), the Notifying Party
shall give the Indemnifying Party prompt notice thereof. The failure to give
such notice shall not affect any Indemnified Party's ability to seek
reimbursement unless such failure has materially and adversely affected the
Indemnifying Party's ability to defend successfully a Claim. The Indemnifying
Party shall be entitled to contest and defend such Claim; provided, that the
Indemnifying Party (i) has a reasonable basis for concluding that such defense
may be successful and (ii) diligently contests and defends such Claim. Notice of
the intention so to contest and defend shall be given by the Indemnifying Party
to the Notifying Party within twenty (20) business days after the Notifying
Party's notice of such Claim (but, in all events, at least five (5) business
days prior to the date that an answer to such Claim is due to be filed). Such
contest and defense shall be conducted by reputable attorneys employed by the
Indemnifying Party. The Notifying Party shall be entitled at any time, at its
own cost and expense (which expense shall not constitute a Loss unless the
Notifying Party reasonably determines that the Indemnifying Party is not
adequately representing or, because of a conflict of interest, may not
adequately represent, any interests of the Indemnified Parties), to participate
in such contest and defense and to be represented by attorneys of its or their
own choosing. If the Notifying Party elects to participate in such defense, the
Notifying Party shall cooperate with the Indemnifying Party in the conduct of
such defense. Neither the Notifying Party nor the Indemnifying Party may
concede, settle or compromise any Claim without the consent of the other party,
which consent shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, in the event the Indemnifying Party fails or is not entitled to
contest and defend a claim, the Notifying Party shall be entitled to contest,
defend and settle such Claim.
(b) In the event any Indemnified Party should have a claim against any
Indemnifying Party that does not involve a Claim, the Notifying Party shall
deliver a notice of such claim with reasonable promptness to the Indemnifying
Party. If the Indemnifying Party notifies the Notifying Party that it does not
dispute the claim described in such notice or fails to notify the Notifying
Party within thirty (30) days after delivery of such notice by the Notifying
Party whether the Indemnifying Party disputes the claim described in such
notice, the Loss in the amount specified in the Notifying Party's notice shall
be conclusively deemed a liability of the Indemnifying Party and the
Indemnifying Party shall pay the amount of such Loss to the Indemnified Party on
demand. If the Indemnifying Party has timely disputed its liability with respect
to such claim, a representative of each of the Indemnifying Party and the
Notifying Party (or their respective designees) shall proceed in good faith to
negotiate a resolution of such dispute, and if not resolved through the
negotiations of such presidents or designees within sixty (60) days after the
delivery of the Notifying Party's notice of such claim, such dispute (except for
any such dispute which gives rise or could give rise to equitable relief under
this Agreement) shall be resolved fully and finally in Chicago, Illinois by an
arbitrator selected pursuant to, and an arbitration governed by, the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator shall
resolve the dispute within thirty (30) days after selection and judgment upon
the award rendered by such arbitrator may be entered in any court of competent
jurisdiction.
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8.4 Survival; Limitations on Liability.
(a) Subject to the provisions of Section 8.4(b) and Section
10.1 hereof, the covenants, agreements, representations, and warranties
contained in or made pursuant to this Agreement shall survive the Closing.
(b) The liabilities and obligations of the parties (and the
Indemnifying Parties) under this Agreement shall be subject to the limitation
that no Indemnifying Parties shall be responsible for any Losses until the
cumulative aggregate amount thereof shall exceed Twenty-Five Thousand Dollars
($25,000.00) (the "Minimum Amount") in which case such Indemnifying Parties
shall then be liable for all Losses; provided, however, that any provision of
this Agreement to the contrary notwithstanding, the dollar limitations set forth
in this Section 8.4 shall not apply to any Claim relating to breach of Sellers'
obligations with respect to Taxes or any claim related to a breach of a
representation or warranty where Sellers or Purchaser had knowledge of such
breach at Closing.
ARTICLE 9
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual written consent of Purchaser and Sellers;
(b) by either Purchaser or Sellers if there has been a material
misrepresentation or breach of warranty or breach of covenant on the part of the
other party in the representations and warranties or covenants set forth in this
Agreement and any such misrepresentation or breach, if capable of cure, is not
cured within fifteen (15) days after written notice thereof to such other party,
or if events have occurred which have made it impossible to satisfy a condition
precedent to the terminating party's obligations to consummate the transactions
contemplated hereby (other than as a result of any willful act or omission by
the terminating party); or
(c) by either Purchaser or Sellers if the transactions contemplated
hereby have not been consummated by October 1, 1998; provided, that neither
Purchaser nor Sellers shall be entitled to terminate this Agreement pursuant to
this subsection (c) if such party's willful breach of this Agreement,
respectively, has prevented the consummation of the transactions contemplated
hereby.
9.2 Effect of Termination. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become void, and
there shall be no liability on the part of Sellers or Purchaser, except for
willful breaches of this Agreement prior to the time of such termination and
except for the provisions of Section 10.7.
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9.3 Effect of Closing. Each Seller and Purchaser shall be deemed to
have waived their respective rights to terminate this Agreement upon the
completion of the Closing.
ARTICLE 10
ADDITIONAL AGREEMENTS
10.1 Survival. The representations, warranties, covenants and
agreements set forth in this Agreement or in any writing delivered to Purchaser
or Sellers in connection with this Agreement shall survive the Closing Date and
the consummation of the transactions contemplated hereby for a period of fifteen
(15) months and shall not be affected by any examination made for or on behalf
of Purchaser or Sellers, the knowledge of any of Purchaser's or any Seller's
officers, directors, shareholders, employees or agents, or the acceptance by
Purchaser or any Seller of any certificate or opinion; provided, however, that
the representations, warranties, covenants and agreements made with respect to
Sections 3.8, 3.9 and 3.16 hereof shall survive until the applicable statute of
limitations has expired.
10.2 Mutual Assistance. Subsequent to the Closing, Sellers on the one
hand and Purchaser on the other, at their own cost, shall assist each other
(including making records available) in the preparation of their respective tax
returns and the filing and execution of tax elections, if required, as well as
any audits or litigation that may ensue as a result of the filing thereof, to
the extent that such assistance is reasonably requested.
10.3 Press Release and Announcements. No press release related to this
Agreement or the transactions contemplated hereby, or other announcements to the
employees, customers or suppliers of Sellers, shall be issued without the joint
approval of Purchaser and Sellers. No other public announcement related to this
Agreement or the transactions contemplated hereby shall be made by either party,
except as required by law, in which event the parties shall consult as to the
form and substance of any such announcement required by law.
10.4 Expenses. Each party shall pay all of its expenses in connection
with the negotiation of this Agreement, the performance of its obligations
hereunder and the consummation of the transactions contemplated by this
Agreement; provided, however, the Sellers and the Purchaser shall each pay 50%
of the cost of the review conducted by Berlin, Ramos & Company, P.A. for the
three-month period ended March 31, 1998. Sellers shall pay the cost of recording
all documents necessary to place record title to the Purchased Assets in the
condition warranted by or required of Sellers by this Agreement.
10.5 Further Transfers. After the Closing, Sellers shall, and shall
cause their affiliates to, execute and deliver such further instruments of
conveyance and transfer and take such additional action as Purchaser may
reasonably request to effect, consummate, confirm or evidence the transfer to
Purchaser of the Purchased Assets. Sellers shall execute such documents as may
be necessary to assist Purchaser (or its designees) in preserving or perfecting
its rights in the Purchased Assets.
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10.6 Transition Assistance. From the date hereof and until five (5)
years after the Closing, Sellers shall not in any manner take any action which
is designed, intended or might be reasonably anticipated to have the effect of
discouraging customers, suppliers, lessors, employees, sales agents and other
business associates from maintaining the same business relationships with
Purchaser after the date of this Agreement as were maintained with Sellers prior
to the date of this Agreement; provided that Sellers shall not be deemed to be
in breach of this Section 10.6 by reason of any act or omission of any former
officer or employee of Sellers.
10.7 Confidentiality. If the transactions contemplated by this
Agreement are not consummated, Purchaser shall maintain the confidentiality of
all information and materials received by it reasonably designated by Sellers as
confidential, and Purchaser shall return to Sellers or destroy any materials
(and copies thereof) obtained from Sellers in connection with the transactions
contemplated hereby. Whether or not the transactions contemplated hereby are
consummated, Sellers shall maintain the confidentiality of all information and
materials regarding Purchaser and its affiliates, reasonably designated as
confidential by Purchaser. If the transactions contemplated by this Agreement
are consummated, Sellers shall maintain the confidentiality of all proprietary
and other non-public information regarding the Business and the Purchased Assets
and shall turn over to Purchaser all such materials in their possession.
10.8 Non-Compete; Non-Solicitation.
(a) Although it is understood among the parties that Sellers desire to
no longer engage in business operations similar to that of the Business, as an
additional inducement to Purchaser to enter into and to perform its obligations
under this Agreement, Sellers agree that, for a period of five (5) years after
the Closing Date (the "Non-Competition Period"), Sellers shall not in the United
States or in any foreign country in which such Seller currently does business,
directly or indirectly, either for itself or any other person or entity, own,
manage, control, participate in, permit its name to be used by, consult with,
render services for or otherwise assist in any manner any entity that owns,
invests in, manages, controls or engages in the business of selling and
distributing products similar to those of the Business.
(b) Sellers agree that for a period of five (5) years after the
Closing, they shall not directly or indirectly offer employment to or hire any
current or future employee or sales agent of any Seller without the prior
written consent of Purchaser, unless such employee or sales agent is not then
performing services for Purchaser.
(c) If, at the time of enforcement of this Section 10.8, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area.
(d) Sellers recognize and affirm that in the event of breach by them of
any of the provisions of this Section 10.8 money damages would be inadequate and
neither Purchaser nor
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Sellers would have any adequate remedy at law. Accordingly, Sellers and
Purchaser agree that the other party shall have the right, in addition to any
other rights and remedies existing in its favor, to enforce its rights and the
obligations under this Section 10.8 by an action or actions for specific
performance, injunction and/or other equitable relief without posting any bond
or security to enforce or prevent any violations, whether anticipatory,
continuing or future, of the provisions of this Section 10.8, including, without
limitation, the extension of the Non-Competition Period by a period equal to (i)
the length of the violation of this Section 10.8 plus (ii) the length of any
court proceedings necessary to stop such violation. In the event of a breach or
violation by Sellers of any of the provisions of this Section 10.8, the running
of the Non-Competition Period, but not of Sellers' obligations under this
Section 10.8, shall be tolled during the period during which the occurrence of
any such breach or violation is investigated and during the continuance of any
such breach or violation.
10.9 Specific Performance. Sellers and the Major Shareholder
acknowledge that the Business and the Purchased Assets are unique and recognize
and affirm that in the event of a breach of this Agreement by Sellers or the
Major Shareholder, money damages would be inadequate and Purchaser would have no
adequate remedy at law. Accordingly, each Seller and the Major Shareholder
agrees, jointly and severally, that Purchaser shall have the right, in addition
to any other rights and remedies existing in its favor, to enforce its rights
and each Seller's and the Major Shareholder's obligations hereunder by an action
or actions for specific performance, injunction and/or other equitable relief,
without posting any bond or security.
10.10 Remittances. All remittances, mail and other communications
relating to the Purchased Assets or the Business received by Sellers or the
officers and directors of such Seller or the Major Shareholder, at any time
after the Closing Date shall be immediately turned over to Purchaser by such
parties. Each Seller shall cooperate with Purchaser, and take such actions as
Purchaser reasonably requests, to assure that customers of the Business send
their remittances directly to Purchaser, and to assure that remittances from
customers of the Business which are improperly sent to any Seller are not
commingled with such Seller's assets and are turned over to Purchaser.
10.11 Employees and Agents of Sellers. Purchaser is under no legal
obligation to employ any personnel presently employed by any Seller. Prior to
the Closing Date, Purchaser may, but shall not be required to, offer employment
to such persons currently employed by Sellers as Purchaser in its sole
discretion shall determine. Prior to the Closing, Purchaser shall advise Sellers
of the names of such persons, if any, Purchaser intends to employ after Closing
which shall be listed on Schedule 10.11 hereto. Purchaser shall have the
absolute right to establish all terms and conditions of employment, including
wages, benefits and benefit plans, for any employees of any Seller to whom it
chooses to make an offer of employment to be employed by Purchaser. Further, it
is expressly agreed that Purchaser is not bound to assume, implement or continue
any wages, terms and conditions of employment, benefits or benefit plans which
may currently exist for any of Sellers' employees; provided, however, the
Purchaser has agreed to continue the employee health plans through December 31,
1998 for the benefit of all employees listed on Schedule 10.11. All such offers
of employment shall be on the terms and conditions established by Purchaser and
shall be
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contingent upon employment commencing with Purchaser only following the Closing
Date. Each Seller agrees not to discourage any individuals who are offered
employment or an agency relationship with Purchaser from accepting such
employment or agency relationship with Purchaser.
ARTICLE 11
MISCELLANEOUS
11.1 Amendment and Waiver. This Agreement may be amended, and any
provision of this Agreement may be waived; provided that any such amendment or
waiver shall be binding on Sellers and Major Shareholder only if such amendment
or waiver is set forth in a writing executed by Sellers and Major Shareholder
and that any such amendment or waiver shall be binding upon Purchaser only if
such amendment or waiver is set forth in a writing executed by Purchaser. No
course of dealing between or among any persons having any interest in this
Agreement shall be deemed effective to modify, amend or discharge any part of
this Agreement or any rights or obligations of any person under or by reason of
this Agreement.
11.2 Notices. All notices, demands and other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when personally delivered, mailed
by first class mail, return receipt requested or delivered by a nationally
recognized courier service. Notices, demands and communications to Sellers or
Purchaser shall, unless another address is specified in writing in accordance
herewith, be sent to the address indicated below:
NOTICES TO SELLERS
Schoenke & Associates Corporation
20250 Century Blvd., 4th Floor
Germantown, Maryland 20874
Attention: Raymond F. Schoenke, Jr.
Phone: (301) 916-6100
Fax: (301) 916-7500
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WITH A COPY TO:
Patton Boggs, L.L.P.
2550 M Street NW
Washington, D.C. 20037
Attention: James R. Stuart, Esq.
John H. Vogel, Esq.
Phone: (202) 457-6510 or (202) 457-6460
Fax: (202) 457-6315
NOTICES TO PURCHASER
Clark/Bardes, Inc.
2121 San Jacinto Street, Suite 2200
Dallas, Texas 75201
Attention: Mel G. Todd, President
Phone: (214) 871-8717
Fax: (214) 871-7690
WITH A COPY TO:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601
Attention: Stanley B. Block, Esq.
Lane R. Moyer, Esq.
Phone: (312) 609-7500
Fax: (312) 609-5005
11.3 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legatees, personal representatives, successors and permitted
assigns (including all successors and assignees in the event of any Seller's
liquidation) as the case may be, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assignable by any party
without the prior written consent of the other; except that Purchaser may assign
this Agreement without restriction to any of its affiliates, existing as of the
date hereof or in the future; provided Purchaser unconditionally guarantees to
Sellers and the Major Shareholder at the time of such assignment the prompt and
complete performance of all of such affiliates' obligations hereunder.
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11.4 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Agreement.
11.5 No Third Party Beneficiaries. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any other persons other than the parties hereto and
their respective successors, permitted assigns, heirs, legatees and personal
representatives, as the case may be, nor is anything in this Agreement intended
to relieve or discharge the obligation or liability of any third persons to any
party, nor shall any provision give any third parties any right of subrogation
or action over or against any party. This Agreement is not intended to and does
not create any third party beneficiary rights whatsoever.
11.6 No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
person.
11.7 Captions. The captions used in this Agreement are for convenience
of reference only and do not constitute a part of this Agreement and shall not
be deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement shall be enforced and construed
as if no caption had been used in this Agreement.
11.8 Complete Agreement. This document and the documents referred to
herein contain the complete agreement between the parties and supersede any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
11.9 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
11.10 Governing Law. The internal law, not the law of conflicts, of the
State of Maryland shall govern all questions concerning the construction,
validity and interpretation of this Agreement and the performance of the
obligations imposed by this Agreement.
11.11 Remedies Cumulative. Except as set forth in Section 8.3(b), all
remedies of the parties provided herein shall, to the extent permitted by law,
be deemed cumulative and not exclusive of any thereof or of any other remedies
available to the parties, by judicial proceedings or otherwise, to enforce the
performance or observance of the covenants and agreements contained herein, and
every remedy given herein or by law to any party hereto may be exercised from
time to time, and as often as shall be deemed expedient, by such party.
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11.12 Use of "Schoenke" Name. Notwithstanding the acquisition by
Purchaser of the names "Schoenke & Associates", "Schoenke & Associates
Securities Corporation" and "Schoenke & Associates of Hawaii, L.P.", Purchaser
shall not have any right or license to, and hereby agrees not to, use the
"Schoenke & Associates" name at any time or in any manner in connection with any
business or activity other than lawfully organized and operated insurance or
financial service related businesses.
11.13 Definition of Sellers' Knowledge. For purposes of this Agreement,
the phrase to "Sellers' knowledge" shall mean the knowledge of the Major
Shareholder, David C. Evans or Kevin B. Ballou.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CLARK/BARDES, INC.
By: /s/ THOMAS M [ILLEGIBLE]
---------------------------------------
Its: Chief Financial Officer
--------------------------------------
SCHOENKE & ASSOCIATES CORPORATION
By: /s/ RAYMOND F. SCHOENKE, JR.
---------------------------------------
Its: Chairman of the Board
--------------------------------------
SCHOENKE & ASSOCIATES SECURITIES
CORPORATION
By: /s/ RAYMOND F. SCHOENKE, JR.
---------------------------------------
Its: Chairman of the Board
--------------------------------------
/s/ RAYMOND F. SCHOENKE, JR.
------------------------------------------
Raymond F. Schoenke, Jr.
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EXHIBIT 99
Contact: Clark/Bardes, Inc.
Ron Roth
Vice President, Marketing
(214) 871-8717
FOR IMMEDIATE RELEASE
CLARK/BARDES ACQUIRES SCHOENKE & ASSOCIATES
To be the premier designer and distribution company
of business-owned life insurance products to corporations
DALLAS, TX, SEPTEMBER 22, 1998 -- Clark/Bardes Holdings Inc. (NASDAQ: CLKB), a
publicly held designer, distributor and administer of insurance-financed
employee benefit programs, today announced the acquisition of Schoenke &
Associates for $17 million. The deal is in line with the company's strategy to
rapidly grow the firm through acquisitions and to be a leader in the
consolidation of the highly fragmented insurance financed employee benefit
industry.
Started in 1978 by former Washington Redskins lineman Ray Schoenke, Schoenke &
Associates is a mid sized, 35 member executive benefit and compensation
consulting firm headquartered in Maryland with offices in Dallas, St. Louis and
Honolulu. The firm specializes in designing, financing and administering
programs for corporate America, and it has many Fortune 1000 corporate clients.
National accounts include: MCI, MBNA, Fannie Mae and Marriott Corporation.
Regional banks include: First Virginia Bank, First Maryland Bank, Bank of
Hawaii, First Hawaiian Bank, Commonwealth Savings Bank and Brenton Bank.
"We are stronger together than we are apart, with greater leverage and more
buying power. It's a win-win situation for everyone. The business remains and we
improve our products and services," says Chris Nyland, former executive vice
president and now in charge of running the Schoenke & Associates office in
Washington, D.C.
" The acquisition adds approximately 35 extremely talented and experienced
professionals to the Clark/Bardes family, says Mel Todd, President of
Clark/Bardes. Known in the industry for their creativity and world class
service, Schoenke & Associates mirrors our corporate values, goals and culture.
It's a natural fit for both of us."
"We are delighted to be playing on the same team with Schoenke & Associates.
They add breadth and depth of expertise to Clark/Bardes' national presence. The
firm is integral to enhancing our role as a
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provider of innovative benefit and insurance solutions to corporations and
banks," said Tom Wamberg, chairman of Clark/Bardes.
GOING PUBLIC
Prior to the acquisition of Schoenke & Associates, Clark/Bardes completed an
initial public offering on August 19, 1998, creating the first publicly-held
company of its kind in the industry. "We have the opportunity to spearhead the
consolidation of the highly fragmented insurance industry much like what we've
seen happen over the last five years in banking. Going public gives us the means
to pioneer this trend," said Wamberg.
Schoenke & Associates is the second acquisition for Clark/Bardes in the last 12
months.
ABOUT CLARK/BARDES, INC.
Founded in 1967, Clark/Bardes is a nationally recognized firm with expertise in
executive benefit design, funding and plan administration. The company's primary
purposes to help companies offset the cost of employee and executive benefit
obligations through the use of sophisticated insurance products that maintain or
increase shareholder value.
The statements contained in this new releases that are forward looking are based
on current expectations that are subject to a number of uncertainties and risks,
and actual results may differ materially. The uncertainties and risks include,
but are not limited to competitive and other market factors, general economic
conditions, government regulations, insurance trends, customer purchasing
behavior and other facets of the Company's business operations. Further
information may be obtained at the company's Internet site: www.clarkbardes.com
A written prospectus regarding the offering of the stock may be obtained from
the underwriters or Mel Todd, President, Clark/Bardes, Inc,. 2121 San Jacinto,
Suite #2200, Dallas, TX 75201
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