<PAGE>
As filed with the Securities and Exchange Commission on September 28, 1999
Registration No. 333-75861
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Post-Effective Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
CENTERPRISE ADVISORS, INC.
(Exact name of registrant as specified in its charter)
Delaware 8700 36-4272852
(State or other
jurisdiction of
incorporation or
organization)
(Primary Standard Industrial Classification Code No.)
(I.R.S. Employer
Identification No.)
225 West Washington Street, 16th Floor, Chicago, Illinois 60606; (312) 578-9600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Robert C. Basten
President and Chief Executive Officer
225 West Washington Street, 16th Floor
Chicago, Illinois 60606
(312) 578-9600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Howard S. Lanznar, Esq.
Marguerite M. Elias, Esq.
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
(312) 902-5200
----------------
Approximate date of commencement of proposed sale to the public: Upon
consummation of the Mergers described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
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- --------------------------------------------------------------------------------
<PAGE>
CENTERPRISE ADVISORS, INC.
PROSPECTUS
For 12,488,981 Shares of Common Stock
JOINT INFORMATION STATEMENT
FOR THE ENTITIES LISTED BELOW
This document serves as a joint information statement in connection with the
meetings of the security holders of the following entities regarding the
proposed merger with Centerprise Advisors, Inc.:
(1) Berry, Dunn, McNeil & Parker, Chartered, a Maine professional service
corporation.
(2) Follmer, Rudzewicz & Company, P.C., a Michigan professional
corporation.
(3) Grace Capital, LLP, a Missouri limited liability partnership.
(4) Self-Funded Benefits, Inc., d/b/a Insurance Design Administrators, a
New Jersey corporation.
(5) Mann Frankfort Stein & Lipp, P.C., a Texas professional corporation.
(6) Reppond, which includes three related entities:
(a)The Reppond Company Inc., a Washington corporation;
(b)Reppond Administrators, L.L.C., a Washington limited liability
company; and
(c)VeraSource Excess Risk Ltd., a Washington corporation.
(7) Reznick Fedder & Silverman, Certified Public Accountants, A
Professional Corporation, a Maryland professional corporation.
(8) Robert F. Driver Co., Inc., a Delaware corporation.
(9) Simione, Scillia, Larrow & Dowling LLC, a Connecticut limited liability
company.
(10) Urbach Kahn & Werlin PC, a New York professional corporation.
The mergers of these entities with Centerprise and the Centerprise common
stock to be issued in the mergers involve risks that are described in "Risk
Factors," beginning on page 6.
This document also serves as the prospectus relating to an aggregate of
12,488,981 shares of Centerprise common stock to be issued in the mergers. For
a summary of the structure and provisions of the merger agreements, see "The
Merger Agreements."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these mergers or the securities to be
issued in the mergers or determined if this joint information
statement/prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The date of this joint information statement/prospectus is September 28, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Questions and Answers About the Centerprise Mergers with the Centerprise
Companies................................................................ ii
Recent Developments....................................................... iv
Summary................................................................... 1
Risk Factors.............................................................. 6
Forward-Looking Statements................................................ 15
The Meetings.............................................................. 16
Approval of the Mergers and Related Transactions.......................... 22
The Merger Agreements..................................................... 29
Centerprise Selected Financial Data....................................... 41
Centerprise Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 43
Industry Overview......................................................... 52
Business of Centerprise After the Mergers................................. 54
Centerprise Management.................................................... 66
Certain Transactions...................................................... 74
Information Regarding the Centerprise Companies........................... 79
Description of Centerprise Capital Stock.................................. 106
Comparison of Rights of Security Holders of Centerprise and the
Centerprise Companies.................................................... 108
Security Ownership of Management and Principal Stockholders of
Centerprise.............................................................. 137
Experts................................................................... 138
Legal Matters............................................................. 139
Where You Can Find More Information....................................... 139
Index to Financial Statements............................................. F-1
<CAPTION>
Appendices
<S> <C>
A California Dissenters' Rights Statute (California Corporations Code
Sections 1300 to 1304)................................................. A-1
B Delaware Dissenters' Rights Statute (Delaware General Corporations Law
Section 262)........................................................... B-1
</TABLE>
<TABLE>
<S> <C>
C Washington Dissenters' Rights Statute (Washington Business Corporations
Act Section 23B.13.020 and Washington Limited Liability Company Act
Section 25.15.430)..................................................... C-1
</TABLE>
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE CENTERPRISE MERGERS WITH THE CENTERPRISE
COMPANIES
This joint information statement/prospectus provides you with the material
information concerning the proposed Centerprise mergers with the Centerprise
companies. You are encouraged to read this entire document carefully before
voting on the mergers at your company's special meeting. In addition,
Centerprise has filed a Registration Statement on Form S-4 with the SEC under
the Securities Act concerning the common stock offered by this prospectus. You
may obtain information about Centerprise from the Registration Statement.
Q: Why are Centerprise and the Centerprise companies proposing these mergers?
A: Centerprise and the ten Centerprise companies believe that the
complementary nature of our respective businesses creates a combination
that is more valuable to clients and owners than the sum of our individual
parts. Our ability to achieve these anticipated benefits is subject to
certain risks discussed on pages 6 to 15. To review the reasons for the
mergers in greater detail, and related uncertainties, see pages 22 to 24.
Q: What will I receive for my ownership interest in a Centerprise company?
A: Following the mergers, security holders of the Centerprise companies will
receive, directly or indirectly, shares of Centerprise common stock and
cash. Please see the notice of meeting applicable to you. You will receive
cash in place of any fractional share of CenterPoint stock you would
otherwise be entitled to receive.
Q: Should I send in my certificate now?
A: No. Where necessary, after the arrangement is completed, we will send
security holders of each Centerprise company written instructions for
exchanging the certificates evidencing their ownership interests.
Q: When do you expect to complete the mergers?
A: We expect to complete the mergers by November 1999.
Q: What are the tax consequences of the mergers?
A: Your receipt of Centerprise stock in the mergers will be tax free for
federal income tax purposes. Your receipt of cash in the merger, including
cash received for a fractional share, will be taxable. You will recognize
taxable income equal to the lesser of:
(a) the cash you receive in the merger or
(b) the difference between the cash and value of Centerprise stock you
receive in the merger and your basis in the ownership interest in the
Centerprise company involved in the merger.
For more detail, see page 27 of this joint information
statement/prospectus.
Q: Will my rights as a stockholder or owner of a Centerprise company change as
a result of the merger?
A: Yes. Centerprise stockholder rights are governed by Delaware law and
Centerprise's charter and bylaws, whereas each of the Centerprise companies
is governed by the corporate or limited liability company law of the state
in which it is organized and their governance documents. For a summary of
material differences between the rights of Centerprise stockholders and the
rights of owners of the Centerprise companies, see "Comparison of Rights of
Security Holders of Centerprise and the Centerprise Companies" beginning on
page 108.
Q: Am I entitled to dissenters' rights?
A: You may be entitled to dissenters' rights. Please see pages 34 to 40 for a
description of the rights afforded by the laws of the state in which your
company is organized.
ii
<PAGE>
Q: Who can I call with questions?
A: If you have any questions about the merger agreement or the merger and
related transactions, please call:
Berry Dunn Charles H. Roscoe (207) 775-2387
Follmer Anthony P. Frabotta (810) 254-1040
Grace Larry Porschen (314) 615-1200
IDA Robert F. Gallo
(201) 337-0007
Mann Richard H. Stein (800) 949-1706
Frankfort
Reppond Ben Reppond
(425) 451-8000
Reznick Rhea Voloshen (301) 652-9100
Driver Thomas W. Corbett (619) 238-1828
Simione Anthony P. Scillia (203) 777-1099
Urbach Steven N. Fischer (518) 449-3166
iii
<PAGE>
RECENT DEVELOPMENTS
On September 10, 1999, Centerprise extended to the owners of the Centerprise
companies and some Reznick employees an offer to rescind alleged offers to sell
and/or sales of common stock that may have previously taken place. Prior to the
expiration of the rescission offer, Centerprise received a rescission
acceptance form from each Centerprise company owner and each Reznick employee
who received the offer. See "Approval of the Mergers and Related Transactions--
Background of the Transaction" for a discussion of the consequences of the
outcome of the rescission offer.
Following the completion of the rescission offer, representatives of
Centerprise and the Centerprise companies held discussions to determine whether
and under what terms they were willing to proceed with the mergers. As a result
of these discussions, Centerprise and each Centerprise company have decided to
proceed, but the terms of the merger agreements have changed in significant
ways, as summarized below and described in more detail elsewhere in this
amended prospectus.
You previously received notice of a special meeting of your company's
owners. At that meeting, you will have an opportunity to vote on a proposal to
approve and adopt an amended and restated merger agreement, dated September 24,
1999, that reflects the results of the rescission offer and the changes to
which Centerprise and your company have agreed. After careful consideration,
your board of directors or other governing body has unanimously approved the
amended and restated merger agreement and the transactions provided for in the
agreement and has concluded that they are in the best interests of your company
and its owners. Your board of directors or other governing body recommends a
vote in favor of the amended and restated merger agreement and the merger.
The closing of each Centerprise company's merger is conditioned upon the
approval of its owners as required under applicable state law and upon the
closing of each of the other Centerprise companies' mergers. No voting
agreements are currently in effect or will be obtained prior to the meetings.
The amended and restated merger agreements have been filed as exhibits to
the registration statement of which this amended prospectus is a part. The
following summarizes some material changes in the revised agreements as
compared to the original merger agreements and references the pages or sections
of this amended prospectus in which the revised provisions are discussed or
reflected:
. The Centerprise company owners have been removed as signatories and
references to voting agreements deleted.
. The termination date has been extended to November 15, 1999.
. Centerprise has renegotiated with each of Follmer, Mann Frankfort,
Simione and Urbach the fixed dollar amount of annual earnings that will
be retained by Centerprise before any compensation is paid to the firm's
participants. The consideration payable to each of these companies in the
mergers has been revised accordingly. See pages 58, 74 through 76, F-9
and F-10, F-24 and F-25 and the unaudited pro forma combined financial
statements and related notes.
. The merger consideration for IDA has been renegotiated. See pages 74
through 76, F-9 and F-10, F-24 and F-25 and the unaudited pro forma
combined financial statements and related notes.
. In connection with changes in beneficial ownership resulting from
revisions to the common stock portion of the merger consideration, see
pages 137 and 138.
. Under the incentive compensation agreements between Centerprise and each
professional services firm, initial operating earnings will be based on
the twelve months ended June 30, 1999 rather than the 12 months ended
March 31, 1999. See pages 58 and 59.
iv
<PAGE>
. A closing condition has been added to each merger agreement. Centerprise
will not be obligated to close a merger unless the Centerprise company's
owners execute and deliver to Centerprise a letter containing certain
representations, warranties and indemnities. See pages 31 and 32. The
form of the owners' letter has been filed as an exhibit to the
registration statement of which this amended prospectus is a part.
In addition to the changes described above, the financial statements in this
amended prospectus have been updated to include audited financial statements
for Driver for the fiscal year ended July 31, 1999 and audited financial
statements for Urbach for the nine months ended July 31, 1999 together, in each
case, with management's discussion and analysis. See pages 98, 99, 103, 104, F-
40 through F-58, F-94 through F-107 and the unaudited pro forma combined
financial statements.
We urge you to read carefully this entire amended prospectus and the
documents to which we have referred you.
v
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
mergers fully and for a more complete description of the legal terms of the
mergers, you should read carefully this entire document and the documents to
which we have referred you.
Centerprise will acquire in separate transactions ten companies that
collectively provide professional, business and financial services and
products.
Unless we tell you otherwise, all financial information and share and per
share data in this prospectus
. have been adjusted to give effect to the mergers,
. give effect to the approximate 212.05817-for-1 stock split that will
occur prior to the closing of Centerprise's initial public offering, and
. assume that the underwriters' over-allotment option is not exercised in
the IPO.
Centerprise and the Founding Companies
Centerprise was recently formed to acquire ten founding companies in order
to create a leading provider of professional, business and financial services
and products to middle-market clients. Centerprise intends to provide clients
with personalized, local service backed by the resources and capabilities of a
national firm. Centerprise has assembled a group of founding companies with
expert capabilities, reputations for quality, effective leadership and strong
"trusted advisor" relationships with clients. These companies have been in
business an average of 29.5 years. On a combined historical basis, their
revenues increased from $161.9 million in fiscal 1997 to $191.1 million in
fiscal 1998, representing an annual growth rate of 18.0%.
Upon completion of the mergers, Centerprise will offer a full range of
consulting, accounting and tax services, as well as complementary business and
financial services and products, such as insurance brokerage and employee
benefits design and administration.
The principal executive office of Centerprise is:
Centerprise Advisors, Inc.
225 West Washington Street, 16th Floor
Chicago, Illinois 60606
The principal executive office of each Centerprise company is as follows:
Berry, Dunn, McNeil & Parker, Chartered
100 Middle Street
Portland, Maine 04104
(207) 775-2387
Follmer, Rudzewicz & Company, P.C.
12900 Hall Road, Suite 500
Sterling Heights, Michigan 48313
(810) 254-1040
Grace & Company, P.C.
3117 South Big Bend Boulevard
Suite 100
St. Louis, Missouri 63143
(314) 615-1200
Self Funded Benefits, Inc.,
d/b/a Insurance Design Administration
169 Ramapo Valley Road
Oakland, New Jersey 07436
(201) 337-0007
Mann Frankfort Stein & Lipp, P.C.
12 Greenway Plaza
8th Floor
Houston, Texas 77046
(800) 949-1706
1
<PAGE>
The Reppond Company, Inc.
Reppond Administrators, L.L.C.
VeraSource Excess Risk Ltd.
10900 N.E. 4th Street
Suite 1200
Bellevue, Washington 98004
(425) 451-8000
Reznick Fedder & Silverman,
Certified Public Accountants, A
Professional Corporation
4520 East West Highway
Bethesda, Maryland 20814-3319
(301) 652-9100
Robert F. Driver Co., Inc.
1620 Fifth Avenue
San Diego, California 92101
(619) 238-1828
Simione, Scillia, Larrow & Dowling LLC
555 Long Wharf Drive
12th Floor
New Haven, Connecticut 06511
(203) 777-1099
Urbach Kahn & Werlin PC
66 State Street
Albany, New York 12207
(518) 449-3166
Special Meetings of the Security Holders of the Companies
Each company will hold a special meeting, at which its board of directors or
other governing body will ask the security holders to approve a merger
agreement and its merger with Centerprise. Details on the time, place and date
of each special meeting, the record date for the determination of who is
entitled to vote, the number of votes required and quorum requirements are
given at pages 16 to 21.
Recommendations to Security Holders
The board of directors or other governing board of each company has
unanimously approved its merger agreement with Centerprise, and recommends that
the security holders of its company approve the merger. The board considered
the potential benefits and adverse effects of the merger. See pages 22 to 24.
Centerprise's Reasons for the Mergers
We believe that certain industry trends have created a significant
opportunity for a company that provides high quality professional, business and
financial services and products to middle-market clients.
The Mergers
The merger agreement is the legal document that governs the merger. Each
merger agreement has been filed as an exhibit to Centerprise's registration
statement on Form S-4. We encourage you to read the merger agreement applicable
to you.
Conditions to the Mergers
The completion of the mergers depends upon meeting a number of conditions
including:
. The SEC must declare Centerprise's registration statements on Form S-1
and Form S-4 effective;
. The security holders of each company must approve its merger agreement
and merger; and
. All of the mergers and the IPO must close simultaneously.
Termination
Either Centerprise or any company may terminate its merger agreement if the
merger is not completed by November 15, 1999, and in certain other
circumstances. See pages 33 and 34.
Expenses; Fees
In general, each party will pay the fees and expenses it incurs in
connection with each merger agreement, whether or not the merger is completed.
Centerprise will pay the fees and expenses associated with its IPO and this
joint information statement/prospectus, whether or not the IPO is completed.
Interested Persons in the Mergers
Prospective directors and officers of Centerprise and its subsidiaries have
interests in the mergers that
2
<PAGE>
are different from or in addition to those of the founding companies' security
holders generally. See pages 24 through 27.
Dissenters' Rights Regarding the Mergers
You may be entitled to dissenters' rights with respect to the merger
applicable to you under state law. See pages 34 to 40.
Certain Income Tax Considerations
Centerprise stock you receive in the mergers will be tax free for federal
income tax purposes. Cash you receive in the mergers, including cash you
receive for a fractional share, will be taxable to the extent described on page
27.
Accounting Treatment
Centerprise will record the mergers under the purchase accounting method.
3
<PAGE>
Summary Unaudited Pro Forma Combined Financial Data
(in thousands, except share and per share data)
Centerprise will acquire ten companies simultaneously with the closing of
the IPO. For financial statement presentation purposes, Centerprise has been
identified as the "accounting acquiror." The following presents summary
unaudited pro forma combined financial data for Centerprise, as adjusted for:
. the completion of the mergers;
. pro forma adjustments to the historical financial statements; and
. the completion of, and the application of the estimated net proceeds
from, the offering, at an assumed initial public offering price of $12.50
per share.
The pro forma combined statement of operations data and other data assume
that the mergers and the IPO were completed on January 1, 1998. The pro forma
combined balance sheet data assume that the mergers were completed on June 30,
1999. The statement of operations and balance sheet data are not necessarily
indicative of the results of operations or financial position that would have
been achieved had these events actually occurred on the assumed dates and
should not be viewed as representative of Centerprise's future results of
operations or financial position. You should read this data together with the
unaudited pro forma combined financial statements and the related notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Pro Forma Combined
----------------------------------
Six Months Ended
Year Ended June 30,
December 31, ---------------------
1998 1998 1999
------------ ---------- ----------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Professional services (1)............... $ 140,746 $ 80,011 $ 94,859
Business and financial services......... 52,691 28,497 36,571
---------- ---------- ----------
Total revenues........................ 193,437 108,508 131,430
Expenses:
Professional services compensation and
related costs (2)...................... 87,689 48,259 61,530
Business and financial services
compensation and related costs (2)..... 35,458 17,961 21,488
Other operating expenses................ 35,169 17,128 20,745
Non-cash stock compensation (3)......... 17,503 -- 3,763
Amortization of goodwill (4)............ 16,039 8,019 8,019
Depreciation expense.................... 4,854 2,425 2,090
---------- ---------- ----------
Income (loss) from operations............. (3,275) 14,716 13,795
Other income, net (5)..................... 101 280 389
---------- ---------- ----------
Income (loss) before income taxes......... (3,174) 14,996 14,184
Provision for income taxes (6)............ 5,146 9,206 8,881
---------- ---------- ----------
Net income (loss)......................... $ (8,320) $ 5,790 $ 5,303
========== ========== ==========
Net income (loss) per share, basic and
diluted.................................. $ (0.32) $ 0.22 $ 0.20
========== ========== ==========
Shares used in computing net income (loss)
per share (7)............................ 26,169,905 26,169,905 26,169,905
========== ========== ==========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
Combined
As Adjusted
June 30,
1999
-----------
<S> <C>
Balance Sheet Data:
Working capital................................................... $ 828
Total assets...................................................... 335,996
Total long-term debt, net of current portion...................... 7,981
Stockholders' equity.............................................. 243,804
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Combined
----------------------------
Six Months
Year Ended Ended June 30,
December 31, ---------------
1998 1998 1999
------------ ------- -------
<S> <C> <C> <C>
Other Data:
EBITDA (8)...................................... $18,491 $25,765 $24,916
Income from operations before goodwill
amortization (8)............................... 12,764 22,735 21,814
Net income before goodwill amortization(8)...... 7,719 13,809 13,322
</TABLE>
- --------
(1) Includes pro forma revenues associated with services agreements of $62,600,
$35,833 and $41,583 for the year ended December 31, 1998 and the six months
ended June 30, 1998 and 1999, respectively. The services agreements are
non-exclusive and, with twelve months notice, the attest firms may change
their staffing requirements. Accordingly, the pro forma services agreement
revenues reflected above are not necessarily representative of
Centerprise's results of operations for any future period. However,
Centerprise believes that were the agreements in place for the historical
periods, the profits recognized by Centerprise would have materially
approximated the profits derived from attest services.
(2) Reflects pro forma reductions in compensation and benefits to owners and
employees of the founding companies. Such amounts include an aggregate of
approximately $26,569, $16,471 and $15,217 for the year ended December 31,
1998 and the six months ended June 30, 1998 and 1999, respectively. These
individuals have agreed to these reductions in employment and incentive
compensation agreements which will take effect upon completion of the IPO.
(3) Reflects non-cash, non-recurring stock compensation charges resulting from
the issuance of stock to Centerprise employees of $17,503 and $2,656 in the
year ended December 31, 1998 and the six months ended June 30, 1999,
respectively, and the issuance of stock to Driver employees of $1,107 in
the six months ended June 30, 1999. Centerprise anticipates no such stock
compensation charges for issuances of stock in the future.
(4) Reflects a non-cash amortization charge over a 15-year period related to
$240,580 of goodwill to be recorded as a result of the mergers and computed
on the basis described in the notes to the unaudited pro forma combined
financial statements.
(5) Reflects a reduction of net interest expense associated with long-term debt
of Driver to be repaid from the proceeds of the offering of $939, $234 and
$884 for the year ended December 31, 1998 and the six months ended June 30,
1998 and 1999, respectively.
(6) Assumes all income is subject to a corporate income tax rate of 40% and
assumes all goodwill is non-deductible.
(7) Includes:
(a) 12,488,981 shares to be issued to the owners and employees of the
founding companies in the mergers;
(b) 3,711,019 shares held by initial investors and management of
Centerprise; and
(c) 9,969,905 of the 10,500,000 shares of common stock sold in the IPO, net
of underwriting discounts, necessary to pay the cash portion of the
merger consideration, to repay indebtedness and fund other obligations
of the founding companies and to pay estimated expenses of the IPO.
(8) EBITDA represents net income before interest, income taxes, depreciation
and amortization. EBITDA, Income from operations before goodwill
amortization and Net income before goodwill amortization are provided
because they are measures that management believes may be useful to
analysts and investors. EBITDA, Income from operations before goodwill
amortization and Net income before goodwill amortization are not measures
of performance under GAAP and should not be considered as alternatives to
Net income or Income from operations or as measures of operating
performance or cash flow data prepared in accordance with GAAP. EBITDA,
Income from operations before goodwill amortization and Net income before
goodwill amortization, as calculated by Centerprise, are not necessarily
comparable with similarly titled measures of other companies. Centerprise
uses a 15 year life for amortization of goodwill, which management believes
is substantially lower than that used by other companies which may provide
similar services. Management believes this useful life to be appropriate,
and because of its relative conservatism and the material nature of the
charge, management further believes that analysts and investors will find
it useful to have this Other Data when evaluating Centerprise's performance
versus its competitors which may use a substantially longer life for
amortization of goodwill.
5
<PAGE>
RISK FACTORS
You should consider the following risk factors in evaluating whether to
approve and adopt the merger agreement applicable to you and thereby become a
holder of Centerprise common stock. You should consider these factors together
with the other information contained in this joint information
statement/prospectus.
Centerprise has no operating history and cannot assure you that its future
operating results will match the historical combined results of the founding
companies
Centerprise was recently formed and has conducted no operations and
generated no revenues. Unless the financial benefits resulting from the
combination of the founding companies exceed the incremental corporate
overhead, Centerprise's results will fall short of the combined operating
results of the founding companies and the market value of Centerprise's common
stock will likely decline. Centerprise cannot guarantee that its operating
results as a combined company will equal or exceed the combined historical
operating results of the founding companies prior to the offering.
Historical operating results of the professional services firms include
revenues from attest services which will not be provided by Centerprise
following the closing. Estimated combined revenues from attest services were
approximately $64.8 million for the year ended December 31, 1998 and $42.7
million for the six months ended June 30, 1999. These estimated revenues are
based on estimates of historical attest services as defined from state to state
and historical average realization rates. Centerprise will enter into services
agreements with separate attest firms to be owned by the CPA owners of each
professional services firm, under which Centerprise will provide professional
staffing and other services, and revenues and income from these agreements are
reflected in the unaudited pro forma combined financial statements. Centerprise
believes that had the services agreements been in place throughout the periods
shown in the pro forma financial statements, revenues and income derived by
Centerprise under the services agreements would have materially approximated
historical revenues and income from attest services provided by the
professional services firms. See Notes 4 and 6 to the unaudited pro forma
combined financial statements. However, because the services agreements are
non-exclusive, the amounts reflected in the pro forma financial statements as
"services agreement" fees may not be representative of future ongoing
operations.
The pro forma financial results presented in this prospectus do not
necessarily indicate actual results which might have occurred if the operations
and management teams of the founding companies had been combined during the
periods presented. In addition, these pro forma results are not representative
of future results that will be reported on a consolidated basis. See
"Centerprise Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a description of historical operating results and
currently identified matters that could cause future results to differ.
Regulation of the accounting profession will constrain Centerprise's operations
and impact its structure and numerous issues arising out of that regulation,
its interpretation or its evolution could impair Centerprise's ability to
provide services to some clients, including the attest firms, reduce its
revenues and cause the market value of the common stock to decline
Background. Each state has adopted accountancy laws, regulations and codes
of ethics that provide for the licensure of CPAs, grant licensed CPAs and
accounting firms that are wholly-owned by CPAs the exclusive right to practice
accountancy and place restrictions upon the activities of licensed CPAs.
Centerprise will not render any services that may be performed only by persons
and firms that are licensed to practice accountancy. Most states define such
attest services to include reports on historical and prospective financial
statements, including audits, compilations and reviews; certain other reports
intended to be relied upon by third parties; advice and opinions regarding
accounting principles and auditing standards; and other services such as
reports on compliance with laws and contractual obligations and the adequacy of
internal accounting controls. The laws and regulations of some states define
more broadly these attest services that can be provided only by a licensed CPA
or firm. Following the mergers, the CPAs who currently own the founding
companies that provide professional services will continue to provide attest
services through separate attest firms which will be licensed to practice
accountancy and in which Centerprise will have no ownership interest. Pursuant
to services
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agreements, Centerprise will provide, for a fee, professional and other
personnel, equipment, office space and business and administration services
necessary for the operation of these attest firms. For more detailed
information concerning Centerprise's regulatory environment and the services
agreements, see "Business of Centerprise after the Mergers--Regulation--
Accounting Profession" and "Certain Transactions--The Mergers--Ancillary
Agreements with Professional Services Firms and their Affiliates--Services
Agreements."
Current laws, regulations and codes of ethics related to the practice of
accountancy pose the following principal risks to Centerprise:
.Because of regulatory restrictions, Centerprise cannot assure revenues
under the non-exclusive services agreements. The services agreements are non-
exclusive, and one or more attest firms could choose to contract with entities
other than Centerprise for some or all of these services. Failure by one or
more attest firms to use Centerprise's services could reduce Centerprise's
future revenues.
.A successful challenge to Centerprise's separate practice structure by
accountancy boards in one or more states in which Centerprise operates could
result in, among other things, a reduction in the operations of or services
provided by Centerprise or the divestiture by Centerprise of certain assets,
and a corresponding reduction in its revenues, or termination of or
modifications to one or more of the services agreements in a manner adverse to
Centerprise's economic interests. Moreover, if Centerprise's operations are
challenged as constituting the illegal practice of accountancy, provisions in
the services agreements could limit Centerprise's flexibility to modify its
operations in response to regulatory issues.
.State accountancy boards may bar CPAs in Centerprise's employ from
providing attest services. Should state regulators deem activities undertaken
by CPAs as employees of Centerprise to be in violation of the laws, regulations
or codes of ethics under which the CPAs practice, they could lose their right
to practice accountancy and their ability to provide attest services to the
clients which the attest firms share with Centerprise. This could reduce both
the revenues that Centerprise would otherwise receive under the services
agreements and impair Centerprise's ability to render non-attest services to
these clients.
.Under numerous states' regulatory regimes, the CPAs employed by Centerprise
will not be able, while performing non-attest services on behalf of
Centerprise, to proclaim expertise in accounting principles or auditing
standards or use their "CPA" designation on letters, business cards or
promotional literature. These limitations could impair Centerprise's marketing
efforts and reduce its revenues.
.Restrictions imposed by independence requirements and conflict of interest
rules could limit the clients to whom Centerprise and the attest firms may
provide services. These restrictions could cause a decline in Centerprise's
revenues by forcing Centerprise or the attest firms to discontinue their
services on behalf of some existing clients of the Centerprise companies or to
forego providing services to potential future clients as a result of these
restrictions.
With respect to attest firm clients that are public reporting companies,
i.e., clients that may be required to file audited financial statements with
the SEC, Centerprise and the attest firms must comply with independence rules
required by the accounting profession and the SEC. To date, revenues derived
from services performed for SEC reporting clients have not been material to
Centerprise or any of its professional services firms. In applying independence
rules, the SEC staff will view Centerprise and all attest firms as a single
entity, and as a result, Centerprise must abide by all of the independence
rules that the attest firms must follow in order for the attest firms to be
independent of an SEC reporting attest client. Any business relationship of
Centerprise or its officers, directors, affiliates or significant stockholders
with an attest firm client will be regarded as a business relationship between
the attest firm and the client for purposes of applying the independence rules.
The accounting profession and the SEC view an attest firm as lacking
independence from entities involved in the IPO or in making a market for or
otherwise facilitating the trading of Centerprise's common stock in the
secondary market. Accordingly, an attest firm's independence would be impaired
with respect to all members of the syndicate underwriting the IPO and to
broker-dealer firms that exercise discretionary buy and sell authority over
customer accounts holding significant positions in Centerprise or that employ
securities analysts who follow Centerprise.
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Because Centerprise, its officers, directors, affiliates and significant
stockholders and the attest firms are viewed as one entity for purposes of the
accounting profession's and the SEC's independence rules, Centerprise and its
officers, directors, affiliates or significant stockholders would impair the
independence of an attest firm if they held any financial interest in, entered
into any business relationship with or sold any services to an SEC reporting
client of an attest firm that the attest firm itself would be precluded from
under the accounting profession's and the SEC's independence rules. For
example, neither Centerprise nor any attest firm may provide bookkeeping
services or other prohibited services to an SEC reporting client of an attest
firm, and Centerprise, its directors, officers, affiliates and significant
stockholders, its professional employees and members of their respective
households will be prohibited from owning stock in an SEC reporting client of
an attest firm. In addition, the accounting profession and the SEC view an
attest firm as lacking independence with respect to an SEC reporting client
where that client or its directors, officers, affiliates or significant
stockholders own stock in Centerprise or Centerprise's affiliates.
Centerprise and the attest firms have agreed to implement policies and
procedures designed to enable them to maintain independence in accordance with
applicable standards. These procedures will include independence screening in
connection with the selection of attest clients as well as periodic
confirmations of independence by officers, directors and professionals at
Centerprise, the attest firms and their clients. To effect these policies and
procedures, Centerprise has developed a web-based central database for existing
and prospective attest firm clients. There can be no assurance that following
the policies and procedures implemented by Centerprise and the attest firms
will enable the attest firms to avoid circumstances that would cause the attest
firm to lack independence from an SEC reporting client.
.State laws limiting Centerprise's flexibility in using incentive fees could
impair its marketing efforts and reduce its revenues. State accountancy laws
prohibiting CPAs from paying or receiving referral fees or using contingent fee
arrangements could impair Centerprise's marketing efforts and reduce its
revenues by placing significant restrictions upon the use of incentive fee
arrangements that Centerprise could otherwise employ in its operations.
.State regulators could preclude Centerprise's employees from providing one
or more types of services to clients, which could reduce Centerprise's
revenues. Few states have provided guidance as to what activities are
encompassed by their prohibitions against CPAs engaging in "incompatible"
occupations. There can be no assurance that one or more states may not invoke
these prohibitions to preclude Centerprise's employees from engaging in one or
more types of services which Centerprise will be offering to its clients, which
preclusion could reduce Centerprise's revenues.
.Applicable laws, regulations and codes of ethics could change in a manner
that restricts Centerprise's operations. Centerprise cannot ensure that the
laws, regulations or codes of ethics of any state, their interpretations, state
enforcement policies and practices or other elements of the regulatory
environment will not change so as to materially restrict Centerprise's
operations. Accordingly, Centerprise's ability to continue to operate in, or
expand its operations in or to, some states may depend on its flexibility to
modify its operational structure in response to these changes. Provisions of
the services agreements between Centerprise and the attest firms may constrain
this flexibility. Limitations on Centerprise's ability to use the separate
practice structure in order to comply with applicable laws could impair its
relationship with the attest firms or their clients, harm Centerprise's
business or reduce its revenues or earnings.
Failure to integrate the founding companies quickly and effectively, or client
concerns about the impact of the mergers, could materially increase expenses or
decrease revenues
Centerprise's success will depend, in part, on its ability to integrate
successfully the operations of the founding companies. Failure to accomplish
the integration quickly and effectively, or client concerns regarding the
impact of the mergers, could increase Centerprise's expenses or decrease its
revenues, or both. Each
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founding company has operated, and until the mergers will operate,
independently. In addition, a number of the founding companies offer different
services, use different internal accounting policies and procedures, employ
different technologies and computer operating systems and target different
geographic markets and client segments. At the time of the offering,
Centerprise will not have a fully integrated financial reporting system.
Integration of the founding companies will require significant management
resources, and may distract certain members of management of the these
companies from normal operations. Centerprise cannot guarantee that its
recently assembled corporate management team will effectively oversee the
combined entity and implement its business or growth strategies.
Absent proper controls, Centerprise's integrated management strategy could
result in inconsistent operating and financial practices at the various
business units, harm Centerprise's financial condition or operating results and
cause the market value of the common stock to decline
Centerprise intends to operate its business units through an integrated
management structure, with local management retaining responsibility for the
profitability and growth of their respective businesses. If Centerprise does
not implement proper controls, its management strategy could result in
inconsistent operating and financial practices at the various business units,
harm Centerprise's financial condition or results of operations and cause the
market value of the common stock to decline.
Centerprise's failure to successfully complete acquisitions would limit its
growth prospects, and Centerprise expects competition for suitable acquisitions
to increase
As part of its growth strategy, Centerprise intends to pursue acquisitions
that will add to or complement its existing businesses, and its failure to
identify and consummate suitable acquisitions would limit its growth prospects.
Centerprise will be competing to acquire attractive companies with other firms,
many of which have greater financial and other resources. Centerprise believes
this competition will increase, making it more difficult to acquire suitable
companies on acceptable terms.
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Future completed acquisitions pose numerous risks to Centerprise that could
limit its growth prospects
Future completed acquisitions pose numerous risks that could limit
Centerprise's growth prospects. For example:
. Centerprise may incur additional debt and amortization expense related to
goodwill and other intangible assets purchased in future acquisitions.
. Centerprise may be unable to integrate acquired businesses successfully
and realize anticipated economic, operational and other benefits in a
timely manner, particularly if it acquires a business in a market in
which it has limited or no expertise, or with a corporate culture
different from its own. If Centerprise is unable to integrate acquired
businesses successfully, it may incur substantial costs and delays or
other operational, technical or financial problems.
. The integration of acquisitions may disrupt Centerprise's ongoing
business, distract management and other resources, and make it difficult
to maintain Centerprise's standards, controls and procedures.
. Centerprise cannot ensure that the acquired businesses will achieve
anticipated revenues, earnings or cash flow.
Completion of future acquisitions may cause further dilution to stockholders
Centerprise currently intends to finance future acquisitions by using common
stock for some or all of the purchase price. This could further dilute the
ownership interests of Centerprise's stockholders.
The loss of key management personnel could harm Centerprise's business and
prospects
The loss of the services of one or more of Centerprise's key management
personnel could harm Centerprise's business or prospects, and there can be no
assurance that such individuals will continue in their present capacities for
any particular period of time. Centerprise's success depends largely on the
efforts of its senior management team including Robert C. Basten, president and
chief executive officer, Thomas W. Corbett, president and chief operating
officer of the business and financial services group, DeAnn L. Brunts, chief
financial officer, Rondol E. Eagle, chief integration officer, and Dennis W.
Bikun, chief accounting officer. In addition, Centerprise's success will depend
significantly on the senior management of the founding companies as a result of
their experience in managing these companies and their strong relationships
with their clients.
Competition for qualified accounting professionals could impair Centerprise's
ability to execute its business strategies
Centerprise competes for qualified accounting professionals, both
experienced professionals and recent college graduates, and believes that state
laws increasing the number of college credits required for licensing may
further reduce an already limited supply of accounting professionals and lead
to increased compensation levels. In the future, Centerprise may have
difficulty recruiting and retaining sufficient numbers of qualified accounting
personnel, which could impair its ability to execute its business strategies.
In addition, increased compensation levels could cause a material increase in
Centerprise's expenses.
Centerprise may not be able to obtain adequate financing to implement its
strategies and lack of financing could constrain its operations and limit its
growth
Successful implementation of Centerprise's strategies will require continued
access to capital. If Centerprise does not have sufficient cash resources, its
ability to implement its business and growth strategies could be limited unless
it is able to obtain capital through additional financings. Centerprise
currently intends to finance future acquisitions by using common stock for some
or all of the purchase price. If the common stock does not maintain sufficient
value, or potential acquisition candidates do not accept common stock as
consideration for the sale of their businesses, Centerprise may be required to
use more of its cash resources or obtain other financing. Centerprise cannot
ensure that equity or debt financings will be available as required for
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acquisitions or other needs. Even if financing is available, it may not be on
terms that are favorable to Centerprise or sufficient for its needs.
Centerprise's insurance services revenues depend on premiums set by other
companies; premiums have been cyclical and depend on market conditions
A portion of Centerprise's business consists of insurance agency and
brokerage activities which derive revenues from commissions paid by insurance
companies. These commissions are a percentage of premiums charged, which
premiums are determined by insurers, not Centerprise. Centerprise cannot
predict the timing or extent of future changes in commission rates or premiums
and, therefore, cannot predict the effect, if any, that such changes would have
on its operations. Historically, property and casualty premiums have been
cyclical in nature and have varied widely based on market conditions. Since the
mid-1980s, general premium levels have been depressed as a result of the
expanded underwriting capacity of insurance companies and increased
competition. In addition, as traditional insurance companies continue to
outsource the production of premium revenue to non-affiliated agents such as
Centerprise, these insurance companies may seek to further reduce their
expenses by reducing the commission rates payable to such insurance agents.
Centerprise may expand its insurance business to include activities that
involve bearing the risk of loss
Centerprise may in the future expand its insurance business to include
activities where it bears the risk of loss by the insured. While it is likely
that Centerprise would focus on products in which it has particular expertise
through its brokerage business, as a risk-bearing entity Centerprise would be
subject to significant additional risks that it does not currently encounter in
its brokerage business. Centerprise cannot guarantee that it will be able to
successfully manage any risk of loss its assumes. Failure by Centerprise to
successfully manage such risk could harm its business and financial condition
or reduce its earnings.
Claims for errors and malpractice could subject Centerprise to liability or
increased insurance premiums and harm its reputation and client relationships
Centerprise offers some services, including accounting, valuation and
financial planning, that involve a risk of professional malpractice and other
similar claims. Tax services and administrative services for employee benefits
insurance plans are subject to various risks relating to errors and omissions
in processing and filing plan forms and tax returns in accordance with the
plans and government regulations. Centerprise processes data received from
employees and employers and may be subject to liability for any late or
misfiled plan forms or tax returns. In addition, the failure of Centerprise's
employees to properly file plan forms or tax returns could harm Centerprise's
reputation or its relationships with existing clients and impair its ability to
attract new clients. In addition, as to attest services provided by the attest
firms, while the primary risk of professional liability lies with the attest
firm, this does not preclude the possibility that Centerprise could be drawn
into disputes concerning attest work where Centerprise employees were involved
pursuant to services agreements.
Centerprise maintains professional liability and errors and omissions
insurance coverage that it believes is adequate both as to risks and amounts.
However, Centerprise cannot ensure that actual future claims will not exceed
the coverage amounts. If Centerprise experiences a large claim or claims, the
rates for such insurance may increase. Centerprise's ability to incorporate
such increases into fees paid by clients could be constrained by contractual
arrangements with clients or competitive factors. As a result, such increases
could reduce Centerprise's earnings. In addition, a determination adverse to
Centerprise in connection with one or more significant claims, whether or not
insured, could harm Centerprise's reputation and client relationships.
Client contracts do not ensure revenues
Centerprise and the attest firms enter into agreements with most of their
clients. While these contracts typically define fee arrangements, the scope of
services and termination provisions, they generally do not obligate the client
to use the services of Centerprise or the attest firm and do not, therefore,
ensure revenues.
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While Centerprise believes that its relationships with its current clients, and
the attest firms' relationships with their current clients, are good, it cannot
guarantee that such clients will renew their existing agreements or engage
Centerprise or the attest firms. The failure of attest firm clients to engage
the attest firms could reduce Centerprise's revenues under the services
agreements.
Centerprise's quarterly operating results will fluctuate due to seasonality and
other factors, and unexpected variations in quarterly results could cause the
price of Centerprise's stock to decline
Centerprise expects its revenues, expenses and operating results to vary
materially from quarter to quarter. Unexpected variations in quarterly results
could cause the price of Centerprise common stock to decline, which in turn
could limit Centerprise's ability to pursue acquisitions. Centerprise
anticipates higher revenues and operating income in the first quarter of its
fiscal year because of the seasonal demand for accounting and tax services. In
addition to this seasonality, quarterly results may vary as a result of many
factors, including:
. client engagements commenced and completed during a quarter;
. the timing and structure of acquisitions and their related costs;
. the addition or loss of material clients; and
. the timing of material projects.
Centerprise has significant intangible assets; the amortization of these assets
will, and impairment of these assets would, reduce net income
Approximately $240.6 million, or 71.6%, of Centerprise's pro forma as
adjusted total assets as of June 30, 1999 represents goodwill recorded in
connection with the mergers. Goodwill is an intangible asset that represents
the difference between the aggregate purchase price for the assets acquired and
the amount of such purchase price allocated to such assets for purposes of
Centerprise's pro forma balance sheet. Centerprise will amortize the goodwill
from the mergers over 15 years at $16.0 million per year with the amount
amortized in a particular period constituting an expense that reduces net
income for that period. The amount amortized is not deductible for tax
purposes. Therefore, the non-cash charge reflecting the amortization of
goodwill substantially reduces Centerprise's net income in total and on a per
share basis. Management believes that Centerprise's 15-year life for
amortization of goodwill is substantially lower than that used by other
companies which may provide similar services. Although management believes this
useful life to be appropriate, there can be no assurance that its relative
shortness and relative impact on net income and earnings per share will not
negatively impact the market price of the common stock.
In addition, Centerprise will be required to amortize the goodwill, if any,
from any future acquisitions. Under accounting rules, Centerprise is required
to periodically evaluate if goodwill has been impaired by reviewing the cash
flows for acquired companies and comparing such amounts with the carrying value
of the associated goodwill. If goodwill is impaired, Centerprise would be
required to write down goodwill and incur a related non-cash charge to income.
A reduction in net income resulting from the write down could cause a decline
in the market price of the common stock.
Centerprise's industry experiences slower collections than many other
industries; this may affect Centerprise's liquidity
In general, professional services firms experience higher average accounts
receivable days outstanding than businesses in many other industries. This may
affect Centerprise's liquidity.
Failure to be year 2000 compliant could interrupt Centerprise's operations,
hurt its business or expose it to material claims
Centerprise believes that it has satisfactorily assessed its internal risks
with respect to its information technology systems, but it has not fully
completed tests to assure that its information technology systems will function
properly in the year 2000. Based on Centerprise's ongoing survey of the
assessment made by each
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founding company, Centerprise estimates that the total cost of year 2000
compliance activities will be approximately $600,000 to $650,000, of which
approximately $420,000 had been incurred as of June 30, 1999. However,
Centerprise cannot guarantee that:
. actual compliance costs will fall within the range of this estimate,
. any business acquired in the future will not require substantial year
2000 compliance expenditures; or
. precautions that the Centerprise Companies have taken to protect their
businesses from or minimize the impact of the year 2000 issue will be
adequate.
Any damage to Centerprise's information processing system, failure of
telecommunications lines or breach of the security of its computer systems
could result in an interruption of its operations or other loss which may not
be covered by insurance.
Centerprise is in the process of surveying the year 2000 readiness of
significant customers, business partners and vendors. If Centerprise's efforts
to address year 2000 risks are not successful, or if significant third parties
with whom Centerprise conducts business do not successfully address such risks,
it could interrupt Centerprise's operations and harm its business. None of the
founding companies have engaged in any independent verification or validation
processes in assessing their year 2000 risks. See "Centerprise Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance" for detailed information on Centerprise's state of readiness,
potential risks and contingency plans regarding the year 2000 issue.
Several of the founding companies periodically provide year 2000 consulting
services. Although Centerprise believes, based on the services it has provided
to date, that it has limited exposure to claims that may be asserted by clients
whose systems might be compromised as a result of a year 2000 related
malfunction, there can be no assurance that material claims will not be made.
Centerprise's current stockholders will be able to exercise substantial control
and may make decisions that you do not consider to be in your best interest
After the IPO, Centerprise's management, its initial investors and the
owners and employees of the founding companies will own approximately 60.7% of
the outstanding shares of common stock, or 57.3% if the underwriters' over-
allotment option is exercised in full. As a result, if these persons act
together, they will have the ability to exercise substantial control over
Centerprise's affairs and to elect a sufficient number of directors to control
the board of directors. The ownership position of these stockholders and the
terms of the stockholders' agreement to which they are parties may have the
effect of delaying, deterring or preventing a change in control of Centerprise
or a change in the composition of the board of directors. See "Security
Ownership of Management and Principal Stockholders of Centerprise" and
"Description of Capital Stock" for information concerning the beneficial
ownership of Centerprise's stockholders and the terms of the stockholders'
agreement.
Anti-takeover provisions in Centerprise's charter documents and Delaware law
could make an acquisition of Centerprise difficult
Centerprise's certificate of incorporation and Delaware law contain
provisions that may delay, deter or inhibit a future acquisition of Centerprise
if the board of directors does not approve of such acquisition. This could
occur even if Centerprise's stockholders are offered a premium over the market
price for their shares or if a substantial number or even a majority of the
stockholders believe the takeover is in their best interest. See "Description
of Centerprise Capital Stock" for a description of these provisions.
Centerprise's common stock has never been publicly traded and its liquidity is
uncertain
There has been no public market for Centerprise's common stock. The common
stock has been authorized for listing on The New York Stock Exchange.
Centerprise does not know whether investor interest will lead to
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the development of a trading market or, if a trading market develops, how
liquid that market will be. Centerprise will determine the initial offering
price for the shares through negotiations with the underwriters. You may not be
able to sell your shares at or above the initial offering price.
Centerprise's stock price may be volatile
The price at which Centerprise's shares will trade following the offering
may be volatile and will depend upon a number of factors, including
. Centerprise's historical and anticipated operating results;
. announcements by Centerprise or its competitors;
. changes in financial estimates by securities analysts regarding
Centerprise, its industry, its competitors or its clients;
. conditions and trends in the industries in which Centerprise or its
competitors compete; and
. general market and economic conditions.
In addition, the stock market has from time to time experienced extreme price
and volume fluctuations. These broad market fluctuations may cause the market
price of the shares to decline.
Centerprise could be required to engage another accounting firm to reaudit its
and the founding companies' financial statements if PricewaterhouseCoopers were
determined not to be independent.
The independence of the accounting firm of PricewaterhouseCoopers, which
audited historical financial statements of Centerprise and the founding
companies included in this prospectus, could be called into question if
Centerprise's chief financial officer, previously a partner in the firm, was
determined to have an appearance of continuing influence in the firm based upon
her connection to the professional services previously provided by the firm to
Centerprise and her subsequent employment by Centerprise. Centerprise is
responsible, under applicable securities laws, for providing financial
statements audited by an independent auditor. If PricewaterhouseCoopers were
ultimately determined not to be independent of Centerprise, Centerprise would
be required to engage another independent accounting firm to reaudit its and
the founding companies' financial statements, including audited financial
statements included in this prospectus. Both Centerprise and
PricewaterhouseCoopers believe that PricewaterhouseCoopers is independent of
Centerprise.
You will be restricted in transferring the shares of Centerprise common stock
you receive in the mergers
An agreement to be signed by each Centerprise company owner prior to the
closing will prohibit the sale or other transfer of any of the shares you
receive in the merger for a period of 18 months following Centerprise's IPO.
After 18 months have elapsed, 20% of your shares will be released from this
restriction. An additional 20% of your shares will be released from this
restriction after each succeeding six-month period. Consequently, after 3 1/2
years have elapsed, none of your shares will be subject to these contractual
restrictions on transfer. However, if you are an employee of Centerprise or a
Centerprise company, your shares are subject to additional restrictions. If
your employment is terminated within 30 months of the offering, other than
through death, disability, retirement or circumstances approved by management
of the Centerprise company and by Centerprise's chief executive officer,
restricted shares then held by you will remain restricted until the fifth
anniversary of the IPO. This extended lockup will not apply:
. to the former owners of IDA if their employment is terminated without
cause as defined in their employment agreements; and
. to former owners of Driver and Reppond entering into employment
agreements with Centerprise, if their employment is terminated without
cause or within 60 days of a constructive termination, in each case as
defined in the employment agreements.
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In addition, Centerprise and the owners and employees of the Centerprise
companies will be required to agree with certain exceptions, not to offer,
pledge, sell, contract to sell or otherwise dispose of any shares of common
stock, or any securities convertible into or exchangeable for common stock, for
a period of 180 days following the date of the prospectus related to the IPO
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Accordingly, your shares of Centerprise common stock will not be
freely transferable when the mergers are finalized and you will bear the risk
of an investment in those shares for at least the periods during which you are
prohibited or restricted from selling them.
You will not know the value of the Centerprise shares before you vote on the
mergers
The value of the shares of Centerprise common stock you will receive in the
merger that applies to you depends on the initial public offering price of the
Centerprise common stock. For this reason you will not know precisely the value
of the Centerprise shares you will receive at the time you are asked to vote on
the merger transaction that applies to you.
The security holders of the Centerprise companies may fail to approve the
mergers
If the security holders of the Centerprise companies fail to approve the
mergers, the Centerprise companies will not realize the benefits of the mergers
identified by their governing boards. No voting agreements are currently in
effect or will be obtained prior to the meetings.
Future directors and officers of Centerprise and its subsidiaries have
interests in the mergers that may differ from yours
Several individuals have interests in the mergers which are different than
the interests of the Centerprise companies' security holders. The following
individuals will become directors of Centerprise upon closing of the mergers:
David Reznick of Reznick; Richard H. Stein of Mann Frankfort; Anthony P.
Frabotta of Follmer; Charles H. Roscoe of Berry Dunn; Steven N. Fischer of
Urbach; Robert F. Gallo of IDA; Wayne J. Grace of Grace; and Anthony P. Scillia
of Simione. Thomas W. Corbett of Driver will become a director and an officer
of Centerprise. In addition, Thomas W. Corbett, P. Gregory Zimmer, Jerold D.
Hall, Robert F. Gallo, Russell Minetti, Benjamin Reppond, Scott D. Perry and
Louis R. Baransky will enter into employment agreements with Centerprise.
Due to the benefits to be received by these individuals in connection with
the mergers the interests of these individuals may be different from the
interests of security holders of the Centerprise companies generally. You
should consider such persons' interests in the applicable merger in connection
with any such person's recommendation of such merger.
FORWARD-LOOKING STATEMENTS
This joint information statement/prospectus includes forward-looking
statements. You can identify these statements by forward-looking words such as
"may," "will," "expect," "anticipate," "intend," "believe," "estimate" and
"continue" or similar words. You should read statements that contain these
words carefully because they:
.discuss Centerprise's future expectations;
.contain projections of Centerprise's future results of operations or
financial condition; or
.state other "forward-looking" information.
These forward-looking statements are subject to risks, uncertainties and
assumptions. The "Risk Factors" as well as other cautionary language in this
joint information statement/prospectus provide examples of risks, uncertainties
and events that may cause Centerprise's actual results to differ materially
from the expectations described in these forward-looking statements.
Centerprise is not obligated to publicly update or revise any forward-looking
statements to reflect new information, future events or other circumstances.
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THE MEETINGS
Centerprise and each of the founding companies provides this joint
information statement/prospectus in connection with the meetings of the owners
of each founding company called to consider the applicable merger.
Berry Dunn Meeting
Time, Place and Date
Berry Dunn will hold their meeting on October 5, 1999 at 100 Middle Street,
Portland, Maine 04104, commencing at 9:00 a.m. local time.
Purpose of the Berry Dunn Meeting
The Berry Dunn board is asking the holders of Berry Dunn common shares to
approve and adopt the merger agreement and the merger with a wholly-owned
subsidiary of Centerprise and to transact such other business as may properly
come before the meeting.
Record Date; Shares Entitled to Vote
Record holders of Berry Dunn common shares at the close of business on
September 1, 1999 are entitled to receive notice of and to vote at the meeting.
On the record date, 29 record holders held an aggregate of 9,744.898 common
shares.
Vote Required
Approval and adoption of the Berry Dunn merger agreement and merger requires
the affirmative vote of the holders of more than two-thirds of the outstanding
common shares. The Berry Dunn board will count the votes.
Each record holder on the record date may cast one vote per share,
exercisable in person, on each matter properly submitted at the meeting.
The holders of a majority of the outstanding common shares on the record
date must be present to constitute a quorum at the meeting.
Follmer Meeting
Time, Place and Date
Follmer will hold their meeting on October 5, 1999 at 26200 American Drive,
Suite 400, Southfield, Michigan 48034, commencing at 4:00 p.m. local time.
Purpose of the Follmer Meeting
The Follmer board is asking the holders of Follmer common shares to approve
and adopt the merger agreement and the merger with a wholly-owned subsidiary of
Centerprise and to transact such other business as may properly come before the
meeting.
Record Date; Shares Entitled to Vote
Record holders of Follmer common shares at the close of business on
September 1, 1999 are entitled to receive notice of and to vote at the meeting.
On the record date, 12 record holders held an aggregate of 10,150 common
shares.
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Vote Required
Approval and adoption of the Follmer merger agreement and merger requires
the affirmative vote of the holders of a majority of the outstanding common
shares. The Follmer board will count the votes.
Each record holder on the record date may to cast one vote per share,
exercisable in person or by properly executed proxy, on each matter properly
submitted at the meeting.
The holders of a majority of the outstanding common shares on the record
date must be present to constitute a quorum at the meeting. Follmer intends to
include abstentions as present or represented for purposes of establishing a
quorum.
Grace Capital Meeting
Time, Place and Date
Grace Capital will hold their meeting on October 5, 1999 at 3117 South Big
Bend Boulevard, Suite 100, St. Louis, Missouri 63143, commencing at 8:00 a.m.
local time.
Purpose of the Grace Capital Meeting
The managers will be asking the partners of Grace Capital to cause Grace to
approve and adopt the merger agreement and the merger with a wholly-owned
subsidiary of Centerprise and to transact such other business as may properly
come before the meeting.
Record Date; Interests Entitled to Vote
Record holders of Grace Capital partnership interests at the close of
business on September 1, 1999 are entitled to receive notice of and to vote at
the meeting. On the record date, 13 record holders held all of the Grace
Capital partnership interests.
Vote Required
An action to cause the approval and adoption by Grace of the Grace merger
agreement and merger requires the affirmative vote of the holders of a majority
of the partnership interests of Grace Capital, which is the sole stockholder of
Grace.
The holders of a majority of the partnership interests of Grace Capital must
be present to constitute a quorum at the meeting.
IDA Meeting
Time, Place and Date
IDA will hold their meeting on October 5, 1999 at 169 Ramapo Valley Road,
Oakland, New Jersey 07436, commencing at 9:00 a.m. local time.
Purpose of the IDA Meeting
The IDA board is asking the holders of IDA voting common shares to approve
and adopt the merger agreement and the merger with a wholly-owned subsidiary of
Centerprise and to transact such other business as may properly come before the
meeting.
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Record Date; Shares Entitled to Vote
Record holders of IDA voting common shares at the close of business on
September 1, 1999 are entitled to receive notice of and to vote at the meeting.
On the record date, two record holders of voting common stock held all 149
outstanding IDA voting shares.
Vote Required
Approval and adoption of the IDA merger agreement and merger requires the
affirmative vote of the holders of a majority of the voting common shares. The
IDA board will count the votes.
Each record holder on the record date may cast one vote per share,
exercisable in person or by properly executed proxy, on each matter properly
submitted at the meeting.
The holders of a majority of the outstanding voting common shares on the
record date must be present to constitute a quorum at the meeting.
Mann Frankfort Meeting
Time, Place and Date
Mann Frankfort will hold their meeting on October 5, 1999 at 12 Greenway
Plaza, 8th Floor, Houston, Texas 77046, commencing at 8:00 a.m. local time.
Purpose of the Mann Frankfort Meeting
The Mann Frankfort board is asking the holders of Mann Frankfort common
shares to approve and adopt the merger agreement and the merger with a wholly-
owned subsidiary of Centerprise and to transact such other business as may
properly come before the meeting.
Record Date; Shares Entitled to Vote
Record holders of Mann Frankfort common shares at the close of business on
September 3, 1999 are entitled to receive notice of and to vote at the meeting.
On the record date, 17 record holders held an aggregate of 1574.29 common
shares.
Vote Required
Approval and adoption of the Mann Frankfort merger agreement and merger
requires the affirmative vote of the holders of 80% of the outstanding common
shares and the approval of a majority of shareholders. The Mann Frankfort board
will count the votes.
Each record holder on the record date may cast one vote per share,
exercisable in person or by properly executed proxy, on each matter properly
submitted at the meeting.
The holders of a majority of the outstanding common shares on the record
date must be present to constitute a quorum at the meeting. Mann Frankfort
intends to include abstentions as present or represented for purposes of
establishing a quorum.
Reppond Meeting
Time, Place and Date
Reppond Administrators, Reppond Company and VeraSource will hold their
meeting on October 5, 1999 at 10900 Northeast 4th Street, Suite 1200, Bellevue,
Washington 98004, commencing at 9:00 a.m. local time.
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Purpose of the Reppond Meeting
The Reppond board will ask the holders of Reppond Company common shares,
Reppond Administrators membership interests and VeraSource common shares to
approve and adopt the Reppond merger agreement and the merger with wholly-owned
subsidiaries of Centerprise and to transact such other business as may properly
come before the meeting.
Record Date; Shares Entitled to Vote
Record holders of Reppond Company common shares, Reppond Administrators
membership interests and VeraSource shares at the close of business on
September 1, 1999 are entitled to receive notice of and to vote at the meeting.
On the record date, two record holders of Reppond Company common stock held all
501 outstanding common shares, three record holders of Reppond Administrators
held all outstanding membership interests and two record holders of VeraSource
common stock held all 250 outstanding common shares.
Vote Required
Approval and adoption of the Reppond merger agreements and mergers requires
the affirmative vote of the holders of a majority of the common shares or
membership interests, as the case may be. The Reppond board will count the
votes.
Each record holder of Reppond Company common shares, Reppond Administrators
membership interests and VeraSource common shares on the record date may cast
one vote per share or interest, as the case may be, exercisable in person or by
properly executed proxy, on each matter properly submitted at the meeting.
The holders of a majority of the outstanding shares of Reppond Company
common stock, a majority of the outstanding membership interests of Reppond
Administrators and a majority of the outstanding shares of VeraSource common
stock on the record date must be present to constitute a quorum at the meeting.
Reznick Meeting
Time, Place and Date
Reznick will hold their meeting on October 5, 1999 at 4520 East West
Highway, Suite 300, Bethesda, Maryland 20814, commencing at 8:00 a.m. local
time.
Purpose of the Reznick Meeting
The board will be asking the holders of Reznick LLC membership interests to
cause Reznick to approve and adopt the merger agreement and the merger with a
wholly-owned subsidiary of Centerprise and to transact such other business as
may properly come before the meeting. Reznick LLC is the sole stockholder of
Reznick.
Record Date; Shares Entitled to Vote
Record holders of Reznick LLC membership interests at the close of business
on September 1, 1999 are entitled to receive notice of and to vote at the
meeting. On the record date, 29 record holders of Reznick LLC membership
interests held an aggregate of 2,900 membership interests.
Vote Required
An action to cause the approval and adoption by Reznick of the Reznick
merger agreement and merger requires the affirmative vote of the holders of 75%
of its membership interests. The Reznick board will count the votes.
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The holders of a majority of the membership interests of Reznick LLC must be
present to constitute a quorum at the meeting. Reznick intends to include
abstentions as present or represented for purposes of establishing a quorum.
Driver Meeting
Time, Place and Date
Driver will hold their meeting on October 5, 1999 at 1620 5th Avenue, San
Diego, California 92101, commencing at 10:00 a.m. local time.
Purpose of the Driver Meeting
The Driver board will be asking the holders of Driver Class A common shares
to approve and adopt the merger agreement and the merger with a wholly-owned
subsidiary of Centerprise and to transact such other business as may properly
come before the meeting.
Record Date; Shares Entitled to Vote
Record holders of Driver Class A common shares at the close of business on
September 1, 1999 are entitled to receive notice of and to vote at the Driver
meeting. On the record date, 104 record holders held all of the outstanding
Class A common shares.
Vote Required
Approval and adoption of the Driver merger agreement and merger requires the
affirmative vote of the holders of a majority of the outstanding Class A common
shares. The Driver board will count the votes.
Each record holder on the record date may cast one vote per share,
exercisable in person or by properly executed proxy, on each matter properly
submitted at the meeting.
The holders of a majority of the outstanding Class A common shares of Driver
must be present to constitute a quorum at the meeting. Driver intends to
include abstentions as present or represented for purposes of establishing a
quorum.
Simione Meeting
Time, Place and Date
Simione will hold their meeting on October 5, 1999 at 555 Long Wharf Drive,
New Haven, Connecticut 06511, commencing at 10:00 a.m. local time.
Purpose of the Simione Meeting
The Simione managers will be asking the holders of Simione membership
interests to approve and adopt the merger agreement and the merger with a
wholly-owned subsidiary of Centerprise and to transact such other business as
may properly come before the meeting.
Record Date; Shares Entitled to Vote
Record holders of Simione membership interests at the close of business on
September 1, 1999 are entitled to receive notice of and to vote at the Simione
meeting. On the Simione record date, 17 record holders held all of the
membership interests.
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Vote Required
Approval and adoption of the Simione merger agreement and merger requires
the approval of all of the managers of Simione and the affirmative vote of the
holders of a majority of the membership interests. The Simione board will count
the votes.
Each record holder on the record date may cast one vote per membership
interest, exercisable in person or by properly executed proxy, on each matter
properly submitted at the meeting.
Urbach Meeting
Time, Place and Date
Urbach and UKW Management will hold their joint meeting on October 5, 1999
at 66 State Street, Albany, New York 12207, commencing at 1:00 p.m. local time.
Purpose of the Joint Urbach/Management Meeting
At this joint meeting, the board and operating committee will be asking the
holders of Urbach common shares and UKW Management membership interests to
approve and adopt the merger agreement and the merger with a wholly-owned
subsidiary of Centerprise and to transact such other business as may properly
come before the meeting.
Record Date; Shares and Interests Entitled to Vote
Each record holder of Urbach common shares at the close of business on
September 1, 1999 is entitled to receive notice of and to vote at this joint
meeting. On the record date, 25 record holders of Urbach common stock held
18,830 shares, and 25 record holders of UKW Management membership interests
held all of the membership interests.
Vote Required
Approval and adoption of the Urbach merger agreement and merger requires the
affirmative vote of the holders of two-thirds of the outstanding common shares
and a majority of the UKW Management membership interests. The Urbach board and
UKW Management operating committee will count the votes.
Each record holder of Urbach common shares and UKW Management membership
interests on the record date may cast one vote per share or interest, as the
case may be, exercisable in person or by properly executed proxy, on each
matter properly submitted at the meeting.
The holders of a majority of the outstanding Urbach common shares and UKW
Management membership interests outstanding on the record date must be present
to constitute a quorum at the meeting. Urbach and Management intend to include
abstentions as present or represented for purposes of establishing a quorum for
the transaction of business.
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APPROVAL OF THE MERGERS AND RELATED TRANSACTIONS
Background of the Transaction
Centerprise was created to acquire the ten Centerprise companies in order to
become a leading provider of professional, business and financial services and
products to middle-market clients.
During the period May through August 1998, Centerprise and BGL Capital
Partners, L.L.C. developed a list of companies throughout the United States to
approach regarding possible affiliation with Centerprise. During this period,
Robert C. Basten and representatives of BGL Capital commenced discussions with
representatives of the firms on its target list and, by the end of August 1998,
entered into confidentiality agreements with Reznick, Mann Frankfort, IDA,
Grace and Driver and began negotiating letters of intent.
During August and September 1998, Centerprise continued its affiliation
development efforts and entered into confidentiality agreements with Berry
Dunn, Urbach and Simione; Centerprise also began to negotiate letters of intent
with these firms. On October 5, 1998, Centerprise met with representatives of
Urbach, Simione, Mann Frankfort, Reznick and Berry Dunn, for preliminary
discussions regarding the mergers and Centerprise's strategy. On November 15,
16 and 17, 1998, Centerprise held a meeting at which representatives of the
following companies were present: Reznick, Mann Frankfort, IDA, Grace, Driver,
Berry Dunn, Urbach and Simione. During those meetings, Centerprise management
along with representatives of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, PricewaterhouseCoopers LLP, Centerprise's auditors, and Katten
Muchin & Zavis, Centerprise's legal counsel, gave presentations regarding the
acquisitions of the Centerprise companies and the initial public offering of
Centerprise's common stock. During November 1998, Centerprise executed letters
of intent with Reznick, Mann Frankfort, IDA, Grace, Driver, Berry Dunn, Urbach
and Simione, and commenced its legal and financial due diligence of these
companies.
During November 1998, Messrs. Basten and Lang met with representatives of
Follmer and Holthouse Carlin & Van Trigt LLP and negotiated and entered into
letters of intent with these firms. Centerprise, PricewaterhouseCoopers LLP and
Katten Muchin & Zavis also began legal and financial due diligence of Follmer
and Holthouse during November 1998. In December 1998, Centerprise entered into
a letter of intent with Reppond which had already been in discussions with
Driver for an acquisition by Driver.
At the end of November 1998, Centerprise distributed the first draft of an
acquisition agreement for review and comment to each of Reznick, Mann
Frankfort, IDA, Grace, Driver, Berry Dunn, Urbach and Simione. Centerprise
distributed the first draft of an acquisition agreement for each of Follmer and
Holthouse in December 1998.
During December 1998 and January 1999, PricewaterhouseCoopers LLP began
financial audits of the Centerprise companies on behalf of Centerprise.
Centerprise, PricewaterhouseCoopers and Katten Muchin & Zavis also continued
legal and financial due diligence of the Centerprise companies throughout this
period. Centerprise also began negotiations and discussions with the
Centerprise companies regarding their respective merger agreements. Beginning
in late November 1998, representatives of Centerprise, BGL Capital,
PricewaterhouseCoopers LLP, Katten Muchin & Zavis and all of the Centerprise
companies began to conference by telephone on a weekly basis for further
discussions and negotiations regarding the mergers, the most recent one of
which was held on March 30, 1999. Effective March 31, 1999, the parties
executed the merger agreements. Since that time, the group's telephone
conferences have continued on at least a bi-weekly basis.
In August 1999, the merger agreement between Centerprise and Holthouse was
terminated by mutual consent.
On September 10, 1999, Centerprise began a rescission offer, registered
under the Securities Act, whereby Centerprise extended to the owners of the
Centerprise companies and some Reznick employees an offer to rescind alleged
unregistered offers to sell and/or sales of common stock that may have
previously taken place.
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In making the rescission offer, Centerprise did not admit that any violation of
securities laws occurred. The rescission offer was accepted by all recipients.
Centerprise believes that as a consequence of these acceptances, Centerprise's
potential liability to Centerprise company owners and the Reznick employees in
connection with the previous alleged offers and/or sales of common stock has
been eliminated. However, it is possible, during the one-year period following
the alleged violations, that persons who received the rescission offer could
make a claim that a federal right of rescission survived despite their
acceptance of the rescission offer. No person has asserted or threatened to
assert such a claim. Centerprise believes that there is no basis for any such
claim. If any recipients of the rescission offer pursued and were successful in
such claims, however, Centerprise could be required to repurchase such persons'
shares at a price equal to the consideration originally paid or a cash
equivalent, which could have a material adverse effect on Centerprise. While
federal rights of rescission may in some circumstances survive rescission
offers, Centerprise believes that such a determination would be incorrect in
this case and that the likelihood of a successful rescission claim is very
remote.
By accepting the rescission offer, the Centerprise company owners informed
Centerprise and the Centerprise companies that the owners no longer wish to be
bound by the merger agreements, voting agreements and escrow agreements they
previously signed. Accordingly, the voting and escrow agreements were
terminated. Effective September 24, 1999, each merger agreement was amended and
restated to remove the owners of the Centerprise companies as signatories and
to make other changes as discussed under "Recent Developments."
Centerprise's Reasons for the Mergers
Centerprise was formed on November 9, 1998 for the purpose of acquiring the
ten Centerprise companies. Centerprise was created to respond to the complex
needs of middle-market clients by providing comprehensive and effective
solutions through an integrated network of expert advisors. Centerprise
believes that industry trends have created a significant opportunity for a
company that provides high quality professional, business and financial
services and products to middle-market clients.
The Centerprise Companies' Reasons for the Mergers and Recommendations of the
Management of the Centerprise Companies
The management of each of the Centerprise companies has identified a number
of potential benefits of the mergers to security holders of the Centerprise
companies. The potential benefits include the following:
. Centerprise's management will offer the Centerprise companies management
resources and expertise in areas such as strategic planning, marketing,
business development and integration and coordination of the various
business units. In addition, through access to the collective knowledge
and information of all of the Centerprise companies, each Centerprise
company will be in a position to benefit from best practices and
operating efficiencies that will be used for training, continuing
education and practice development throughout Centerprise.
. As part of Centerprise's growth strategy, the Centerprise companies will
serve as platforms for future acquisitions and alliances with
professional, business and financial services firms in regions in which
the Centerprise companies are located. Through these acquisitions and
alliances, the Centerprise companies will be positioned to enhance their
local or regional presence in their markets, and add new business and
financial services and products.
. The mergers offer the Centerprise companies the opportunity to be a part
of a larger and more diversified company with greater financial resources
and visibility as a public company. This, in turn, will assist the
Centerprise companies in attracting, hiring and retaining high quality
professionals.
. The consideration the security holders are receiving in the mergers will
enable them to liquidate a portion of the equity they have in their
respective Centerprise companies. In addition, a substantial portion of
the consideration to be received by security holders of the Centerprise
companies is in the form of an equity interest in a larger and more
diversified professional, business and financial services company that is
expected to benefit strategically, competitively and operationally from
the mergers.
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The respective boards of directors or operating boards of the Centerprise
companies also identified a number of potential adverse effects of the mergers
on the security holders of each Centerprise company, including:
. Initial decrease in compensation for certain security holders.
. Dependence on the operating results of the other Centerprise companies.
. The lack of operating history as a combined company.
These and other risk factors may interfere with or undermine the realization
of the potential benefits described above. See "Risk Factors."
In reaching their decisions to approve the respective merger proposals, the
potential benefits described above influenced the boards of each of the
Centerprise companies. The importance of each benefit varied to some extent for
each board; however, each of the benefits positively influenced each board to
some degree.
Interested Persons in the Mergers
In considering the recommendations of the boards of directors or other
governing bodies of the Centerprise companies, the security holders of the
Centerprise companies should be aware that members of the boards or governing
bodies of the Centerprise companies who will be directors or officers of
Centerprise or its subsidiaries have interests in the mergers that may be
considered different from, or in addition to, the interests of the security
holders of the Centerprise companies. The boards of the Centerprise companies
were aware of such interests and considered them in approving the merger
agreements and the mergers.
Directors. Certain members of the boards of Centerprise companies will
become directors of Centerprise upon closing of the mergers. See "Centerprise
Management."
Driver Employment Agreements. Upon the closing of the Driver merger, Driver
and Centerprise will enter into a five-year employment agreement with P.
Gregory Zimmer pursuant to which he will serve as Senior Vice President and
Chief Financial Officer of Driver. Mr. Zimmer's annual base salary under this
agreement will be $200,000. Mr. Zimmer is also eligible to earn an annual bonus
of up to $200,000. Unless terminated or not renewed by Driver or Mr. Zimmer,
the term of the employment agreement will continue after the initial term on a
year-to-year basis on the same terms and conditions existing at the time of
renewal. If Driver terminates Mr. Zimmer's employment without cause, or if he
voluntarily terminates his employment within 90 days after a "constructive
termination," he will be entitled to severance benefits equal to the product of
three times the sum of the amount of his annual base salary and bonus, if any,
for the calendar year immediately preceding the year in which he is terminated.
Constructive termination under Mr. Zimmer's employment agreement includes:
. Driver assigning duties to Mr. Zimmer that are materially inconsistent
with his position as either Senior Vice President or Chief Financial
Officer of Driver;
. a reduction in salary or bonus opportunity; and
. a change in control of Driver other than pursuant to a change in control
of Centerprise.
In addition, the employment agreements of Mr. Zimmer, Jerold D. Hall and
Thomas W. Corbett contain reciprocal provisions under which the triggering of
Driver's obligations to pay severance to any of such individuals will
constitute a constructive termination of the other two employees.
Messrs. Zimmer, Corbett and Hall also have a limited right of first refusal
with respect to a sale of Centerprise's insurance business. Should Centerprise
decide to accept an offer for the sale of its insurance business to a
"competitor," Messrs. Zimmer, Corbett and Hall will be entitled to lead an
investment group which will have the right, for 45 days after notice, to
purchase Centerprise's insurance business on the same
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terms. This agreement defines competitor as commercial property/casualty
insurance and insurance brokerage companies. The agreement will contain a
covenant not to compete whereby, until the second anniversary of the date of
termination of employment, Mr. Zimmer is prohibited from:
. engaging in any business in direct competition with Driver or
Centerprise's business and financial services group in any territory
where Driver or Centerprise conducts such business;
. soliciting for employment a Centerprise employee;
. soliciting or selling any competitive products or services to any person
or entity which is, or has been within one year prior to the date of
termination, a customer of Driver or of Centerprise's business and
financial services group, or that was known by Mr. Zimmer to have been
actively solicited by Centerprise during such period;
. calling upon a prospective acquisition candidate which was approached or
analyzed by Centerprise within one year prior to the termination date,
for the purpose of acquiring the entity; or
. disclosing the identity of any agents or brokers that produce or finance
insurance through Centerprise or any current or prospective policyholder
or premium finance customer for any reason or purpose.
Upon the closing of the IPO, Driver and Centerprise will enter into a five-
year employment agreement with Jerold D. Hall pursuant to which he will serve
as Executive Vice President and Chief Operating Officer of Driver. Mr. Hall's
annual base salary under this agreement will be $230,000. Mr. Hall is also
eligible to earn an annual bonus of up to $250,000. Unless terminated or not
renewed by Driver or Mr. Hall, the term of the employment agreement will
continue after the initial term on a year-to-year basis on the same terms and
conditions existing at the time of renewal. If Driver terminates Mr. Hall's
employment without cause, or if he voluntarily terminates his employment within
90 days after a "constructive termination," he will be entitled to severance
benefits equal to the product of three times the sum of the amount of his
annual base salary, minimum base allowance and bonus, if any, for the calendar
year immediately preceding the year in which he is terminated. Provisions
related to constructive termination under Mr. Hall's employment agreement, as
well as the terms of the covenant not to compete, are substantially the same
provisions as described above for Mr. Zimmer.
IDA Employment Agreements. Upon the closing of the offering, IDA will enter
into a four-year employment agreement with Russell P. Minetti, pursuant to
which he will serve as IDA's President. Mr. Minetti's annual base salary under
this agreement will be $200,000. Mr. Minetti is also eligible to earn an annual
bonus of up to 50% of base salary for 1999 and up to 100% of base salary
thereafter. Unless terminated or not renewed by IDA or Mr. Minetti, the
agreement will continue after the initial term on a year-to-year basis on the
same terms and conditions existing at the time of renewal. If IDA terminates
Mr. Minetti's employment without cause or Mr. Minetti voluntarily terminates
his employment within 60 days after a "constructive termination," he will be
entitled to severance compensation which includes his base salary and prorated
bonus for the greater of the remainder of his employment term or two years.
Constructive termination under Mr. Minetti's agreement includes:
. demotion to a position substantially below that of IDA's President or the
assignment of duties and responsibilities that are not commensurate with
such position;
. substantial reduction in base salary;
. relocation of the place of employment outside the New Jersey area; or
. a change in control of IDA other than pursuant to a change in control of
Centerprise.
This employment agreement will contain a covenant not to compete whereby,
until the second anniversary of the date of termination of employment, Mr.
Minetti is prohibited from:
. engaging in any business in direct competition with IDA within any
business market where IDA conducts business;
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. soliciting or selling any competitive products or services to any person
or entity which is, or has been within one year prior to the date of
termination, a customer of IDA or that was known by Mr. Minetti to have
been actively solicited by IDA during such period;
. soliciting for employment an employee of IDA; or
. calling upon a prospective acquisition candidate which was approached or
analyzed by Centerprise within one year prior to the termination date,
for the purpose of acquiring the entity.
IDA will also enter into an employment agreement with Robert F. Gallo. See
"Centerprise Management--Employment Agreements; Covenants-Not-To-Compete" for a
detailed description of this agreement.
Reppond Employment Agreements. Upon the closing of the offering, Reppond
Company will enter into a five-year employment agreement with Ben Reppond,
pursuant to which he will serve as Reppond Company's Chief Executive Officer
and Senior Vice President and Director of Driver's Employee Benefits division.
Mr. Reppond's annual base salary under this agreement will be $400,000. Mr.
Reppond may be eligible for bonus compensation at the discretion of Driver's
board of directors. If Reppond Company terminates Mr. Reppond's employment
without cause or Mr. Reppond voluntarily terminates his employment within 60
days after a "constructive termination," he will be entitled to severance
compensation consisting of his base salary for the remainder of his employment
term. Constructive termination under Mr. Reppond's agreement includes:
. demotion to a position substantially below that of Reppond Company's
Chief Executive Officer or the assignment of duties and responsibilities
that are not commensurate with such position;
. substantial reduction in base salary; or
. relocation of the place of employment outside the greater Seattle,
Washington metropolitan area.
This employment agreement will contain a covenant not to compete whereby,
until the second anniversary of the date of termination of employment, Mr.
Reppond is prohibited from:
. engaging in any business in direct competition with Centerprise or its
subsidiaries within any business market where Centerprise or any of its
subsidiaries conduct business;
. soliciting or selling any competitive services to any person or entity
which is, or has been within one year prior to the date of termination, a
customer of Centerprise or any of its subsidiaries or that was known by
Mr. Reppond to have been actively solicited by Centerprise or any of its
subsidiaries during such period;
. soliciting for employment an employee of Centerprise or its subsidiaries;
or
. calling upon a prospective acquisition candidate which was approached or
analyzed by Centerprise or any of its subsidiaries within one year prior
to the termination date, for the purpose of acquiring the entity.
Upon the closing of the offering, Reppond Company will enter into a three-
year employment agreement with Louis R. Baransky, pursuant to which he will
serve as Vice President of Reppond Company and broker. Mr. Baransky will
receive compensation based on his "commission base income" on the following
basis: 20% of the first $1,000,000 in commission base income, 25% of the next
$300,000 in commission base income and 30% of any amount above $1,300,000 in
commission base income. Additionally, if Mr. Baransky is assigned the
administration of business developed by other employees of Reppond Company, Mr.
Baransky will receive a flat 20% commission on such business. If Reppond
Company terminates Mr. Baransky's employment without cause or Mr. Baransky
voluntarily terminates his employment within 60 days after a "constructive
termination," he will be entitled to severance compensation equal to the
average of his monthly compensation for the six months prior to such
termination for the remainder of his employment term. Provisions related to
constructive termination under Mr. Baransky's employment agreement, as well as
the terms of the covenant not to compete, are substantially the same provisions
as described above for Mr. Reppond.
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Upon the closing of the offering, VeraSource will enter into a three-year
employment agreement with Scott D. Perry, pursuant to which he will serve as
VeraSource's Vice President. Mr. Perry's annual base salary under this
agreement will be $92,000. Mr. Perry is entitled to bonus compensation in an
amount equal to 5% of the amount, if any, by which the actual revenue of
VeraSource for the applicable 12 month period exceeds $360,000. In the event
VeraSource terminates Mr. Perry's employment without cause or Mr. Perry
voluntarily terminates his employment within 60 days after a "constructive
termination," he will be entitled to severance compensation equal to the amount
of his base salary for the remainder of his employment term. Provisions related
to constructive termination under Mr. Perry's employment agreement, as well as
the terms of the covenant not to compete, are substantially the same provisions
as described above for Mr. Reppond.
Centerprise will also enter into an employment agreement with Thomas W.
Corbett and incentive compensation agreements with each professional services
firm and its former owners. See "Centerprise Management--Employment Agreements;
Covenants-Not-To-Compete" for a detailed description of these agreements.
Certain U.S. Federal Income Tax Consequences
The following is a summary of the material anticipated federal income tax
consequences of the mergers. It does not address any tax consequences to
persons who exercise dissenters' rights. This discussion may not apply to
certain classes of persons subject to special tax treatment, such as foreign
persons, tax-exempt organizations, persons who acquire Centerprise common stock
as compensation, or persons who hold their interests in the Centerprise
companies other than as a capital asset. This discussion is based upon existing
laws, regulations, rulings and decisions, all of which are subject to change,
possibly with retroactive effect. No ruling has been or will be requested from
the Internal Revenue Service on the tax consequences of these mergers.
It is the opinion of Katten Muchin & Zavis that for Federal income tax
purposes, each merger will qualify for treatment under Section 351 of the
Internal Revenue Code. Accordingly:
1. Centerprise company security holders will not recognize gain or loss
with respect to shares of Centerprise common stock received in exchange
for their founding company securities.
2. Each security holder of a Centerprise company who receives cash in
exchange for their company securities will recognize taxable income in
an amount equal to the lesser of:
(1) the amount of cash received in the merger, or
(2) an amount equal to the difference between:
(a)the amount of the cash and the fair market value of the shares of
the Centerprise common stock received, and
(b)the security holder's adjusted tax basis in the property exchanged
therefor. Such gain will be long-term capital gain if their holding
period in their company securities is more than twelve months.
3. A security holder's holding period for the Centerprise common stock
received in the merger will include the period during which such
security holder held the transferred property.
4. The tax basis of the Centerprise common stock received in the merger
will be equal to the adjusted tax basis that such exchanging security
holder has in the company securities transferred in the merger,
determined immediately before the merger, decreased by the amount of
cash received in the merger, and increased by the amount of gain
recognized by such security holder in the merger.
This analysis does not address any state, local or foreign tax consequences
of the mergers, and is not intended as a substitute for careful tax planning,
particularly since certain of the tax consequences of the mergers will not be
the same for all taxpayers. Consequently, you should consult your own tax
advisor as to the specific tax consequences of the mergers as they pertain to
you.
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Accounting Treatment
Centerprise will record the mergers under the purchase method of accounting.
Certain Federal Securities Law Consequences
The 12,488,981 shares of Centerprise common stock offered by this prospectus
have been registered under the Securities Act, thereby allowing such shares to
be freely traded without restriction under the Securities Act; provided,
however, that shares held by stockholders who are affiliates of Centerprise
will not be freely tradeable under the Securities Act. Affiliates may not sell
their shares of Centerprise common stock acquired in the mergers except
pursuant to:
(1) an effective registration statement under the Securities Act covering
such shares;
(2) the resale provisions of Rule 145 promulgated under the Securities Act;
or
(3) another applicable exemption from the registration requirements of the
Securities Act.
In general, Rule 145, as currently in effect, imposes restrictions on the
manner in which affiliates may make resales of Centerprise common stock and
also on the number of shares of Centerprise common stock that affiliates, and
others, including persons with whom the affiliates act in concert, may sell
within any three-month period. These restrictions will generally apply for at
least a period of one year after the mergers or longer if the person is an
affiliate of Centerprise.
In addition to securities law restrictions, agreements to be signed prior to
the closing will impose restrictions on the transferability of the shares of
common stock issued in the mergers and offered by this prospectus. All of the
owners of the Centerprise founding companies will agree not to sell, transfer
or otherwise dispose of any of the shares of Centerprise common stock acquired
in the mergers for a period of 18 months following the IPO. Effective 18 months
after the IPO, 20% of each stockholder's shares will be released from such
restrictions, and an additional 20% of the original number of restricted shares
will be released on the expiration of each six-month period thereafter.
Shares held by stockholders who are employees of Centerprise or a
Centerprise founding company are subject to additional restrictions. If a
stockholder's employment with a Centerprise company is terminated within 30
months of the IPO, other than through death, disability, retirement or
circumstances approved by management of the Centerprise company and by
Centerprise's chief executive officer, restricted shares then held by such
stockholder will remain restricted until the fifth anniversary of the IPO. The
owners and employees of the Centerprise companies have certain piggyback
registration rights beginning on the second anniversary of the IPO with respect
to shares that have been released from transfer restrictions. The certificates
representing the shares issued in the mergers and shares issued to initial
investors and management will bear a legend describing the applicable transfer
restrictions. In addition, Centerprise and the owners and employees of the
Centerprise companies will be required to agree, with certain exceptions, not
to offer, pledge, sell, contract to sell or otherwise dispose of any shares of
common stock, or any securities convertible into or exchangeable for common
stock, for a period of 180 days following the date of the prospectus related to
the IPO without the prior written consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
New York Stock Exchange Listing
The shares of Centerprise common stock to be issued in the merger, including
the shares of Centerprise common stock issuable pursuant to the bonus plans,
have been authorized for listing on The New York Stock Exchange.
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THE MERGER AGREEMENTS
Following is a summary that describes the structure and provides you with
the material provisions of the merger agreements, as amended and restated on
September 24, 1999. The amended and restated merger agreements have been filed
as exhibits to Centerprise's registration statement on Form S-4. See "Where You
Can Find More Information."
Structure of the Mergers
The following is a summary of the merger structure for each of the
Centerprise companies:
.Berry Dunn
Prior to the Berry Dunn merger, stockholders of Berry Dunn will
contribute their shares to a newly formed Maine limited liability
company. Berry Dunn will convert from a professional service corporation
to a business corporation. A wholly-owned subsidiary of Centerprise will
then merge with and into Berry Dunn, leaving Berry Dunn as the surviving
company and a wholly-owned subsidiary of Centerprise.
.Driver
Pursuant to the Driver merger, a wholly-owned subsidiary of Centerprise
will merge with and into Driver, leaving Driver as the surviving company
and a wholly-owned subsidiary of Centerprise.
.Follmer
Prior to the Follmer merger, the stockholders of Follmer will transfer
their shares to a newly formed Michigan limited liability company.
Follmer will convert from a professional corporation to a business
corporation. A wholly-owned subsidiary of Centerprise will then merge
with and into Follmer, leaving Follmer as the surviving company and a
wholly-owned subsidiary of Centerprise.
.Grace
The stockholders of Grace have transferred their shares to a newly formed
Missouri limited liability partnership. Grace will convert from a
professional corporation to a business corporation. A wholly-owned
subsidiary of Centerprise will then merge with and into Grace, leaving
Grace as the surviving company and a wholly-owned subsidiary of
Centerprise.
.IDA
Pursuant to the IDA merger, a wholly-owned subsidiary of Centerprise will
merge with and into IDA, leaving IDA as the surviving company and a
wholly-owned subsidiary of Centerprise.
.Mann Frankfort
Prior to the Mann Frankfort merger, Mann Frankfort will convert from a
professional corporation to a business corporation. A wholly-owned
subsidiary of Centerprise will merge with and into Mann Frankfort,
leaving Mann Frankfort as the surviving company and a wholly-owned
subsidiary of Centerprise.
.Reppond
Pursuant to the Reppond merger, wholly-owned subsidiaries of Centerprise
will merge with and into each of Reppond Company, Reppond Administrators
and VeraSource, leaving Reppond Company, Reppond Administrators and
VeraSource as the surviving entities and wholly-owned subsidiaries of
Centerprise.
.Reznick
The stockholders of Reznick have transferred their shares to a newly
formed Maryland limited liability company. Reznick will convert from a
professional corporation to a business corporation. A wholly-owned
subsidiary of Centerprise will then merge with and into Reznick, leaving
Reznick as the surviving company and a wholly-owned subsidiary of
Centerprise.
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.Simione
Simione will transfer to a wholly-owned Delaware limited liability
company substantially all of Simione's assets and liabilities other than
certain current assets and liabilities and the assets and liabilities
relating to the provision of attest services. This new limited liability
company will then merge with and into a wholly-owned subsidiary of
Centerprise, leaving such Centerprise subsidiary as the surviving entity
and a wholly-owned subsidiary of Centerprise.
.Urbach
Urbach will merge with and into a newly formed Massachusetts professional
corporation and convert to a business corporation. Following this merger
and conversion, the stockholders of Urbach will transfer their shares to
a newly formed Delaware limited liability company. A wholly-owned
subsidiary of Centerprise will merge with and into Urbach, leaving Urbach
as the surviving company and a wholly-owned subsidiary of Centerprise.
Conditions to Each Party's Obligations to Effect the Mergers
Completion of the mergers is subject to the satisfaction of the following
conditions:
. Underwriting Agreement. Centerprise and the underwriters shall have
executed the underwriting agreement related to the IPO and the closing of
the sale of Centerprise common stock to the underwriters pursuant thereto
shall have occurred simultaneously with the closing of the mergers.
. Closings of the Mergers. Centerprise and each of the ten founding
companies shall have closed all the mergers simultaneously, unless
terminated in accordance with the respective merger agreements.
. Securities Approvals. The registration statement containing this joint
information statement/prospectus and the registration statement on Form
S-1 registering the Centerprise shares to be offered in the IPO shall
have become effective under the Securities Act, and no stop order
suspending the effectiveness of such registration statements shall have
been issued and remain in effect, and no proceedings for that purpose
shall have been initiated or threatened by the SEC or any state
regulatory authorities.
. Injunctions. No preliminary or permanent injunction or other order or
decree shall be pending before or issued by any federal or state court,
which seeks to prevent or prevents the consummation of the IPO or any of
the mergers and remains in effect.
. Minimum Price. The owners of each founding company shall receive cash and
common stock with a value at least equal to the amount specified in the
applicable merger agreement.
. No Government Action. No state or federal government or government agency
in the United States shall have taken any action, and no statute, rule or
regulation shall have been enacted, which would prevent the completion of
any of the mergers or make the completion of the mergers illegal.
. Consents. All material governmental and third party waivers, consents and
members' approvals required for the completion of the mergers and the
transactions contemplated by the merger agreements shall have been
obtained and be in effect.
. No Legal Proceedings. No third party shall have filed or threatened an
action, suit or proceeding with respect to the mergers that remains
threatened or pending before any court, governmental authority or
regulatory person.
. Authorization. The requisite number of security holders of each
respective Centerprise company shall have approved and adopted the merger
agreements, the mergers and the transactions contemplated thereby in the
manner required by any applicable law and the respective organizational
documents.
. Credit Facility. Centerprise shall have entered into one or more credit
facilities providing for aggregate commitments of not less than $75
million.
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Conditions to Obligations of each Centerprise Company to Effect the Mergers
In addition, unless waived by the applicable Centerprise founding company,
the obligation of each Centerprise founding company to consummate each
respective merger is subject to additional conditions, including:
. Representations and Warranties. The representations and warranties of
Centerprise contained in each merger agreement shall be accurate in all
material respects.
. Covenants. Centerprise and each merger subsidiary shall have performed in
all material respects the covenants required by each merger agreement.
. Legal Opinion. Each Centerprise company shall have received a legal
opinion from counsel to Centerprise.
. Incentive Compensation Agreement. Each of the security holders of each of
the Centerprise founding companies, other than Driver, IDA and Reppond,
shall have been afforded the opportunity to enter into an incentive
compensation agreement with Centerprise.
. Employment Agreements. Certain officers of Driver, IDA and Reppond shall
have been afforded the opportunity to enter into employment agreements
with Centerprise.
. Stockholders' Agreement. The security holders of each Centerprise company
and the other stockholders of Centerprise, other than those acquiring
stock in the IPO, shall have entered into a stockholders' agreement.
. Other Mergers. The parties to the other mergers shall have satisfied all
conditions to their mergers.
Conditions to Obligations of Centerprise to Effect the Mergers
In addition, unless waived by Centerprise, the obligation of Centerprise to
complete each merger is subject to conditions, including:
. Representations and Warranties. The representations and warranties of
each Centerprise company contained in the applicable merger agreement
shall be accurate in all material respects.
. Covenants. Each Centerprise company shall have performed in all material
respects the covenants required by the applicable merger agreement.
. Legal Opinion. Centerprise shall have received a legal opinion from
counsel to each Centerprise company.
. Comfort Letters. Centerprise and the underwriters shall have received
comfort letters in customary form from each of the Centerprise company's
independent public accountants, dated the effective date of the Form S-1
and the closing date, or such other date reasonably acceptable to
Centerprise, with respect to certain financial statements and other
financial information included in the Form S-1 and any subsequent changes
in specified balance sheet and income statement items, including total
assets, working capital, total security holders' equity, total revenue
and the total per share amounts of net income.
. Stockholders' Agreement. The security holders of each Centerprise
founding company shall have executed the stockholders' agreement.
. Company Security Holders' Letter. The security holders of each
Centerprise founding company, other than Driver stockholders who own
5,036 or fewer Driver shares, shall have executed a letter agreement. The
agreement will contain representations and warranties from each security
holder as to:
(1) the holder's ownership of company securities;
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(2) the holder's authority to enter into the agreement;
(3) non-contravention of other agreements, statutes, licenses, or orders;
(4) completion of necessary approvals or consents;
(5) the absence of litigation;
(6) the absence of subscriptions, rights or other agreements with respect
to the founding company's securities;
(7) the absence of brokerage or finders' fees;
(8) the accuracy of the security holder's disclosures to Centerprise;
(9) the accuracy of the founding company's representations and
warranties; and
(10) the capitalization of the founding company.
The security holders' letter agreement also requires that each signing
security holder indemnify Centerprise for losses arising from:
(1)misrepresentations or breaches of representations, warranties,
covenants or agreements;
(2)material misstatements or omissions related to the founding company
and contained in any prospectus forming a part of the S-4 or the S-1;
(3)arrangements with respect to brokerage fees;
(4)disallowance of certain tax deductions;
(5)pre-existing litigation;
(6)assets and liabilities expressly excluded from the merger;
(7)payments made with respect to dissenters' rights; and
(8)under the Driver agreement, specified claims related to the Reppond
acquisition.
Under the letter agreement, the signing owners of each founding company
will agree not to compete with Centerprise, for three years following the
closing of the mergers, with respect to Driver and Reppond, within any
business market where Driver or Reppond conducts business and with respect
to the other founding companies, within a 50-mile radius of any location at
which the particular founding company conducts business. In addition, the
letter agreement will restrict the transfer of any shares received in the
mergers. Driver stockholders who do not sign the letter agreement will be
subject to identical transfer restrictions under the terms of an escrow
agreement upon the signing of which the closing of the Driver merger is
conditioned. For a detailed discussion of these provisions, see "Risk
Factors--You will be restricted in transferring the shares of Centerprise
common stock you receive in the mergers."
In addition, with respect to the mergers with the Centerprise companies
other than Driver, IDA and Reppond, it shall be a further condition to
Centerprise's obligation to close that these firms divest all attest services
to the Attest Firms and execute a separate practice agreement, services
agreement and incentive compensation agreement. See "Business of Centerprise
After the Mergers--Employee Incentives" and "Certain Transactions--The
Mergers."
Closing of the Mergers and Effective Time of the Mergers
The closing of the transactions provided for in each merger agreement will
occur on the date on which the IPO is completed. Each merger will occur at the
time specified in the applicable certificate of merger is filed with the
Secretary of State of the applicable state.
Conduct of the Centerprise Companies' Businesses Prior to the Mergers
Under each merger agreement, during the period from the date of the merger
agreement and continuing until the earlier of the termination of merger
agreement and the closing date, each Centerprise company agreed
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In addition, with respect to the mergers with the Centerprise companies
other than Driver, IDA and Reppond, it shall be a further condition to
Centerprise's obligation to close that these firms divest all attest services
to the Attest Firms and execute a separate practice agreement, services
agreement and incentive compensation agreement. See "Business of Centerprise
After the Mergers--Employee Incentives" and "Certain Transactions--The
Mergers."
Closing of the Mergers and Effective Time of the Mergers
The closing of the transactions provided for in each merger agreement will
occur on the date on which the IPO is completed. Each merger will occur at the
time specified in the applicable certificate of merger is filed with the
Secretary of State of the applicable state.
Conduct of the Centerprise Companies' Businesses Prior to the Mergers
Under each merger agreement, during the period from the date of the merger
agreement and continuing until the earlier of the termination of merger
agreement and the closing date, each Centerprise company agreed to conduct its
business in the ordinary and usual course and consistent with past practices,
to use commercially reasonable efforts to preserve intact its business
organization and goodwill, to keep available the services of its present
officers and key employees, to preserve the goodwill and business relationships
with clients and others having business relationships with it and not to engage
in any action, directly or indirectly, with the intent adversely to impact the
transactions contemplated by the applicable merger agreement. Each merger
agreement places restrictions on the ability of the applicable Centerprise
company to amend its organizational documents, issue or sell securities or
grant options therefor, alter its capital structure, pay dividends or
distributions, make material acquisitions, make material dispositions of
assets, incur indebtedness or increase employee compensation or severance
benefits.
No Solicitation
Prior to the closing date or earlier termination of the applicable merger
agreement, each Centerprise company and its security holders will not, and the
Centerprise company will use its diligent efforts to cause its subsidiaries,
directors, officers, agents and advisers not to, initiate, solicit, negotiate,
encourage or provide non-public or confidential information to facilitate any
proposal or offer to acquire all or any substantial part of the business and
properties of the Centerprise company or any equity interest therein, and
promptly advise Centerprise of the terms of any communications the Centerprise
company or its security holders may receive or become aware of relating to any
of the foregoing.
Termination of Each Merger Agreement
Each merger agreement may be terminated and the merger transactions may be
abandoned:
(a) at any time prior to the closing date by mutual agreement of all
parties;
(b) in the event that:
. a Centerprise company seeks to amend or supplement certain
schedules of the applicable merger agreement;
. such amendment or supplement constitutes or reflects a material
adverse effect on the operations, assets, condition, operating
results, client relations or prospects of the Centerprise company;
and
. Centerprise and a majority of the Centerprise companies do not
consent to such amendment or supplement;
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to conduct its business in the ordinary and usual course and consistent with
past practices, to use commercially reasonable efforts to preserve intact its
business organization and goodwill, to keep available the services of its
present officers and key employees, to preserve the goodwill and business
relationships with clients and others having business relationships with it and
not to engage in any action, directly or indirectly, with the intent adversely
to impact the transactions contemplated by the applicable merger agreement.
Each merger agreement places restrictions on the ability of the applicable
Centerprise company to amend its organizational documents, issue or sell
securities or grant options therefor, alter its capital structure, pay
dividends or distributions, make material acquisitions, make material
dispositions of assets, incur indebtedness or increase employee compensation or
severance benefits.
No Solicitation
Prior to the closing date or earlier termination of the applicable merger
agreement, each Centerprise company and its security holders will not, and the
Centerprise company will use its diligent efforts to cause its subsidiaries,
directors, officers, agents and advisers not to, initiate, solicit, negotiate,
encourage or provide non-public or confidential information to facilitate any
proposal or offer to acquire all or any substantial part of the business and
properties of the Centerprise company or any equity interest therein, and
promptly advise Centerprise of the terms of any communications the Centerprise
company or its security holders may receive or become aware of relating to any
of the foregoing.
Termination of Each Merger Agreement
Each merger agreement may be terminated and the merger transactions may be
abandoned:
(a) at any time prior to the closing date by mutual agreement of all
parties;
(b) in the event that:
. a Centerprise company seeks to amend or supplement certain
schedules of the applicable merger agreement;
. such amendment or supplement constitutes or reflects a material
adverse effect on the operations, assets, condition, operating
results, client relations or prospects of the Centerprise company;
and
. Centerprise and a majority of the Centerprise companies do not
consent to such amendment or supplement;
(c) at any time prior to the closing date by Centerprise:
. if the merger is not completed by November 15, 1999 other than on
account of delay or default on the part of Centerprise or any of
its stockholders or any of their affiliates or associates;
. if the merger is enjoined by a final, unappealable court order not
entered at the request or with the support of Centerprise or any
of its stockholders or any of their affiliates or associates; or
. if the applicable founding company fails to perform in any
material respect any of its material covenants in the respective
merger agreement and does not cure such default in all material
respects within 30 days after written notice of such default is
given to the applicable founding company by Centerprise;
(d) by mutual consent of the managers, general partners or boards of
directors of the founding company, as applicable, and the board of
directors of Centerprise;
(e) at any time prior to the closing date by the applicable founding
company:
. if the related merger is not completed by November 15, 1999 other
than on account of delay or default on the part of the applicable
founding company or any of its affiliates or associates;
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. if the related merger is enjoined by a final, unappealable court
order not entered at the request or with the support of the
applicable founding company or any of its affiliates or
associates; or
. if Centerprise fails to perform in any material respect any of its
material covenants in the related merger agreement and does not
cure such default in all material respects within 30 days after
written notice of such default is given to Centerprise.
Expenses; Fees
Each party will pay the fees and expenses it incurs in connection with the
merger agreements, whether or not the merger is completed. Centerprise will pay
the fees and expenses associated with its IPO and this joint information
statement/prospectus, whether or not the IPO is completed.
Exchange/Issuance of Stock Certificates in the Mergers
After each merger, each security holder in a founding company, other than
those security holders who take required actions to properly assert their
dissenters' rights under the applicable state law, will be entitled to receive
certificates evidencing the number of shares of Centerprise common stock into
which such securities are converted in each merger. Shares of Centerprise
common stock into which such securities are to be converted in each merger are
deemed to have been issued at the effective time of each merger.
Dissenters' Rights Regarding the Mergers
State law entitles the record holders of shares of founding companies who
follow the procedures specified by law to have their shares appraised and to
receive the "fair value" of such shares in place of the consideration paid in
the merger. The following discussion summarizes the applicable procedures that
a record holder of a founding company must follow to demand and perfect their
rights under state law. Because of the structure and mechanics of the various
merger transactions, the holders of Follmer, Grace, IDA, Reznick and Simione
are not entitled to dissenters' rights under applicable state law or their
charters, bylaws or other governing documents.
Berry Dunn
The following is a summary of Section 909 of the Maine Business Corporations
Act which sets forth the procedures that a dissenting Berry Dunn security
holder must follow in order to perfect dissenters' rights under Maine law.
If a Berry Dunn stockholder elects to exercise dissenters' right under Maine
law, such stockholder must do all of the following:
(1) before the vote is taken at the Berry Dunn meeting, file with Berry
Dunn a written objection to the proposed merger;
(2) not vote in favor of the merger;
(3) within 15 days from the Berry Dunn meeting that approved the merger,
file a written demand to Berry Dunn for payment of the fair value of his or
her shares. This demand must include the stockholder's current address; and
(4) within 20 days from the stockholder's written demand to Berry Dunn,
submit the Berry Dunn stock certificates representing his or her shares to
Berry Dunn.
All written objections and demands should be addressed to: President, Berry,
Dunn, McNeil & Parker, Chartered, 100 Middle Street, Portland, Maine 04104.
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Berry Dunn will deliver notice that the merger was approved to each
dissenting stockholder who timely filed written objection and who did not vote
in favor of the merger within 10 days after written demand was made or 10 days
after the merger was effected. This notice will include a written offer to each
dissenting stockholder to pay for the shares at a specified price deemed by
Berry Dunn to be fair and shall include the latest available balance sheet and
profit and loss statement of Berry Dunn. If within 20 days after Berry Dunn
makes a written offer to the dissenting stockholders, one or more dissenting
stockholders and Berry Dunn fail to agree on the fair value of the shares,
Berry Dunn or any dissenting stockholder may bring an action in Maine court
requesting that the court fix the value of the shares. No court action may be
brought more than six months after the merger was effected.
Driver
Although Driver is incorporated in Delaware, as a corporation conducting
substantial business in California with more than half of its record holders
having addresses in California, it is also subject to provisions of the
California Corporations Code. Record holders of Driver common stock who do not
desire to have their shares converted into shares of Centerprise common stock
pursuant to the merger may choose to follow the procedures specified by either
California law or Delaware law or both.
California Law
The following is a summary of Sections 1300 through 1304 of the California
Corporations Code, the provisions of which are reproduced as Appendix A to this
joint information statement/prospectus. Driver stockholders should carefully
review California law as well as the information discussed below to determine
their dissenters' rights.
If a Driver stockholder elects to exercise its dissenters rights under
California law, such stockholder must do ALL of the following:
(1) not vote in favor of the merger;
(2) within 30 days after Driver mails a notice of approval of the merger
mail or deliver to Driver a written demand stating:
. such dissenting stockholder's demand to have its shares purchased
. the number of shares held by such dissenting stockholder that the
stockholder demands that Driver purchase and
. such dissenting stockholder's claim of the fair market value of
the shares as of March 30, 1999, the day before the announcement
of the Driver merger. Such statement of fair market value
constitutes an offer by the dissenting stockholder to sell the
shares at such price; and
(3) within 30 days after Driver mails a notice of approval of the
merger, submit to Driver the dissenting stockholder's share certificates
stamped or endorsed with a statement that the shares are dissenting shares.
All written demands or submission of share certificates should be addressed
to: President, Robert F. Driver Co., Inc., 1620 Fifth Avenue, San Diego,
California 92101-2797.
Within 10 days after approval of the merger by Driver's security holders,
Driver will mail an approval notice to each dissenting security holder who has
not voted in favor of the merger, together with a statement of the price
determined by Driver to represent the fair market value of the shares held by
such dissenting security holder, a brief description of the procedures to be
followed in order for such dissenting security holder to pursue dissenters'
rights, and a copy of Sections 1300 through 1304 of the California code. The
statement of price by Driver constitutes an offer by Driver to purchase all
shares held by a dissenting security holder at the stated amount.
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If Driver and the dissenting security holder agree that such dissenting
security holder is entitled to receive payment for the shares of Driver held by
such dissenting security holder and agree upon the price of such shares, Driver
must pay the dissenting security holder such agreed upon price plus interest
thereon within 30 days from the later of the date upon which such price was
agreed or the date all contractual conditions to the applicable merger are
satisfied.
If Driver denies that such dissenting security holder is entitled to receive
payment for the shares of Driver held by such dissenting security holder or if
Driver and the dissenting security holder fail to agree upon the fair market
value of shares of Driver common stock, then within six months after the date
that the approval notice was mailed to the dissenting security holders, any
dissenting security holder who has made a valid written purchase demand and who
has not voted in favor of the Driver merger may file a complaint in California
superior court requesting a determination as to whether such dissenting
security holder is entitled to receive payment for the shares of Driver held by
such dissenting security holder or as to the fair market value of such
dissenting security holder's shares of Driver common stock.
Delaware law
The following is a summary of Section 262 of the Delaware General
Corporation Law, the provisions of which are reproduced as Appendix B to this
joint information statement/prospectus. Driver stockholders should carefully
review Delaware law as well as the information discussed below to determine
their dissenters' rights.
If a Driver stockholder elects to exercise its dissenters rights under
Section 262 of Delaware law, such stockholder must do ALL of the following:
(1) before the vote is taken at the Driver meeting, file with Driver a
written demand for appraisal identifying the stockholder and expressly
requesting an appraisal; this written demand for appraisal must be in
addition to and separate from any vote against the merger agreement;
neither voting against, abstaining from voting nor failing to vote on the
merger agreement will constitute a demand for appraisal within the meaning
of Section 262 of Delaware law;
(2) not vote in favor of the merger agreement; and
(3) continuously hold such shares through the effective time of the
merger.
All written demands for appraisal should be addressed to: President, Robert
F. Driver Co., Inc., 1620 Fifth Avenue, San Diego, California 92101-2797.
Within 10 days after the effective date of such merger, Driver will notify
each stockholder who has satisfied the requirements of Section 262 of Delaware
law and not voted for the merger that the merger became effective. Within 120
days after the effective date of the merger, Driver or any stockholder entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the Driver stock held by all dissenting
stockholders.
If a petition for appraisal is timely filed, the court will determine which
stockholders are entitled to appraisal rights and thereafter will determine the
fair value of the Driver shares held by dissenting stockholders, excluding any
element of value arising from the accomplishment or expectation of the merger,
but together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. In determining such fair value, the court
shall take into account all relevant factors. If a petition for appraisal is
not timely filed, then the right to appraisal shall cease.
The costs of the proceeding may be determined by the court and taxed upon
the parties as the court deems equitable in the circumstances. Upon application
of a stockholder, the court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without
36
<PAGE>
limitation, reasonable attorney's fees and the fees and expenses of experts,
to be charged pro rata against the value of all the shares entitled to an
appraisal.
From and after the effective date of the merger, no dissenting stockholder
shall have any rights of a Driver stockholder with respect to such holder's
shares for any purpose, except to receive payment of its fair value and to
receive dividends or other distributions payable to Driver stockholders of
record at a date which is prior to the effective date of the merger. If a
dissenting stockholder delivers to Driver a written withdrawal of the demand
for an appraisal within 60 days after the effective date of the merger or
thereafter with the written approval of Driver, then the right of such
stockholder to an appraisal shall cease and such dissenting stockholder will
be entitled to receive only the merger consideration.
Urbach
The following is a summary of Sections 623 and 910 of the New York Business
Corporations Law, which sets forth the procedures that a dissenting Urbach
security holder must follow in order to perfect dissenters' rights under New
York law. Urbach shareholders should carefully review New York law as well as
the information discussed below to determine their dissenters' rights.
If an Urbach shareholder elects to exercise its dissenters' rights under
New York law, such shareholder must do ALL of the following:
(1) before the vote is taken at the Urbach meeting, file with Urbach a
written objection that includes:
. a notice of election to dissent from the merger
. such shareholder's name and residence address
. the number and class of shares as to which such shareholder is
asserting dissenters' rights, and
. a demand for payment of the fair value of such shares if the
merger is approved;
(2) not vote in favor of the merger agreement; and
(3) within one month after filing with Urbach a written objection,
submit to Urbach all share certificates representing Urbach stock for which
such shareholder is asserting dissenters' rights.
All written objections and submissions should be addressed to: President,
Urbach Kahn & Werlin, 66 State Street, Albany, New York 12207.
Within 10 days after approval of the merger, Urbach will give written
notice of such approval to each dissenting security holder who filed a written
objection and who did not vote in favor of the merger. Within 15 days after
the effective time of the merger, Urbach will offer to pay each dissenting
security holder a price that Urbach believes to be a "fair value" for the
Urbach shares held by such dissenting holder. Urbach will offer the same price
per share to all dissenting shareholders. At the time such offer is made,
Urbach will provide to each dissenting security holder
(1) who has submitted the certificates evidencing the applicable shares
of Urbach an advanced payment equal to 80% of the offer price, and
(2) who has not yet submitted the requisite certificates, a statement
that it will make an advanced payment equal to 80% of the offer price
promptly upon the submission of such certificates.
Within 30 days after the date of such offer, a dissenting holder may accept
the offer or agree with Urbach upon an alternate value for the dissenting
security holder's shares. If the offer is accepted or an agreement reached,
Urbach will make payment for the shares within 60 days after the offer or the
effective date of the merger, whichever is later, upon the surrender of the
certificates representing the shares. If Urbach fails to make an offer within
the required 15-day period discussed above or a dissenting security holder
rejects the
37
<PAGE>
offer and does not otherwise agree with Urbach within such 30 day period upon
a value for the Urbach shares held by such holder, then Urbach will institute
a special proceeding in the New York Supreme Court within 20 days after the
expiration of the 15 or 30-day period discussed above, as the case may be, to
determine the rights of the dissenting security holder and to fix the fair
value of such holder's shares.
The court will determine whether the holders are entitled to dissenters'
rights and the fair value for such shares. In determining such fair value, the
court will consider the nature of the transaction giving rise to the
dissenting holder's right to receive payment, the effects of the transaction
on Urbach and the security holders, the concepts and methods customarily used
in the relevant securities and financial markets to determine the value of the
share of a corporation engaging in a similar transaction under comparable
circumstances, and all other relevant factors. Each party to the proceeding
must bear its own costs and expenses, including attorneys' and experts' fees,
unless the court, in its discretion, assesses all or part of such costs and
expenses against either the dissenting holder or Urbach, as applicable.
If a dissenting security holder delivers a written withdrawal of the notice
of election to dissent to Urbach prior to acceptance of Urbach's offer of fair
market value for the holder's shares and within 60 days of the effective date
of the merger or thereafter with the written approval of Urbach, then the
right to an appraisal shall cease and the dissenting stockholder will be
entitled to receive only the merger consideration.
Mann Frankfort
The following is a summary of Articles 5.11 and 5.12 of the Texas Business
Corporation Act, which sets forth the procedures that a dissenting Mann
Frankfort security holder must follow in order to perfect dissenters' rights
under Texas law.
If a Mann Frankfort shareholder elects to exercise its dissenters' rights
under Texas law, such shareholder must do ALL of the following:
(1) prior to the Mann Frankfort meeting, file with Mann Frankfort a
written objection that includes:
. a statement to the effect that such shareholder intends to
exercise dissenters' rights if the merger is approved, and
. such shareholder's address;
(2) not vote in favor of the merger; and
(3) within 10 days from the date of a notice from Mann Frankfort that
the merger has been approved, which notice is required to be given within
10 days of the approval, make a written demand to Mann Frankfort for
payment of the fair value of the Mann Frankfort shares held by such
shareholder. This demand must state the number and class of shares owned by
such shareholder and the estimated fair value of such shares determined by
such shareholder.
All written objections and demands should be addressed to: President, Mann
Frankfort Stein & Lipp, 12 East Greenway Plaza, Suite 800, Houston, Texas
77046.
Mann Frankfort will deliver notice that the merger was approved to each
shareholder who timely filed a written objection and who did not vote in favor
of the merger within 20 days after Mann Frankfort receives a demand for
payment of the fair value of Mann Frankfort shares held by such dissenting
holder, Mann Frankfort will send such holder a written notice to the effect
that Mann Frankfort will pay either the amount claimed or some other amount as
the fair value. If Mann Frankfort and the dissenting holder cannot agree upon
the fair value, either party may file a petition in Texas court asking for a
finding and determination of the fair value of such shares. Texas law defines
"fair value" to mean the value of the shares as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed merger. The parties shall allocate court costs
between themselves in such manner as the court shall determine to be fair and
equitable.
38
<PAGE>
Reppond
The following is a summary of Sections 23B.13.020 through 23B.13.310 of the
Washington Business Corporations Act, which sets forth the procedures that a
dissenting Reppond Company or VeraSource shareholder must follow in order to
perfect dissenters' rights under Washington law. Reppond Company and VeraSource
shareholders should carefully review Washington law, which is included as
Appendix C, as well as the information discussed below to determine their
dissenters' rights.
If a Reppond Company or VeraSource shareholder elects to exercise its
dissenters' rights, such stockholder must do ALL of the following:
(1) prior to the Reppond meeting, deliver to Reppond Company or
VeraSource a written notice demanding payment for its shares if the merger
is approved; and
(2) not vote in favor of the merger agreement.
All written objections and demands for payment should be addressed to:
President, The Reppond Company, 10900 N.E. 4th Street, Suite 1200, Bellevue,
Washington 98004.
Within 10 days of the effective date of the merger, Reppond will give
written notice to each dissenting shareholder stating where the demand for
payment must be sent, informing holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is received,
supplying a form for the demand of such payment and setting a date by which
Reppond must receive the payment demand.
By the date set forth in Reppond's notice, a dissenting shareholder must
demand payment, certify that it acquired beneficial ownership of the shares
before the date set forth in Reppond's notice and deposit with Reppond the
shareholder's certificates. Reppond will pay each dissenting shareholder who
timely complied with these requirements the amount Reppond estimates to be the
fair value of the dissenting security holder's shares, plus accrued interest.
Under Washington law, a dissenting shareholder may notify Reppond in writing
of its own estimate of the fair value of its shares and amount of interest due
if:
. it believes the amount paid is less than the fair value of its shares, or
the interest due was incorrectly calculated;
. Reppond fails to make payment within 60 days after the date set for
demanding payment; or
. Reppond does not effect the proposed merger and does not return the
deposited certificates or release the transfer restrictions imposed on
uncertificated shares within 60 days after the date set for demanding
payment.
If a demand for payment remains unsettled, within 60 days after receiving
the payment demand Reppond must petition the Washington court to determine the
fair value of the shares plus accrued interest. If Reppond does not timely
commence the proceeding, it must pay each dissenting shareholder whose demand
remains unsettled the amount demanded.
The following is a summary of Sections 25.15.425 through 25.15.480 of the
Washington Limited Liability Company Act which sets forth the procedures that a
dissenting Reppond Administrators member must follow in order to perfect
dissenters' rights under Washington law. Reppond Administrators members should
carefully review Washington law, which is included as Appendix C, as well as
the information discussed below to determine their dissenters' rights.
If a Reppond Administrators member elects to exercise its dissenters' rights
under Washington law, such member must do ALL of the following:
(1) prior to the Reppond Administrators meeting, deliver to Reppond
Administrators a written objection to the proposed merger; and
39
<PAGE>
(2) not vote in favor of the merger agreement.
All written objections and demands for payment should be addressed to:
President, The Reppond Company, 10900 N.E. 4th Street, Suite 1200, Bellevue,
Washington 98004.
Within 10 days of approval of the merger, Reppond Administrators will give
written notice to each dissenting member stating that the plan of merger was
approved, where the payment demand must be sent, the extent transfer of the
member's interest will be restricted after the payment demand is received. Such
notice will include a form for demanding payment and set a date by which
Reppond Administrators must receive the demand.
Within 30 days of the later of the date that the merger becomes effective or
the date payment demand is received, Reppond Administrators shall pay to the
dissenting member the amount it estimates to be the fair market value of the
dissenting member's interest, plus accrued interest.
Within 30 days of such payment, a dissenting member may notify Reppond
Administrators in writing of its own estimate of the fair value of its interest
and amount of interest due and demand payment of its estimate less payment
already made to it by Reppond Administrators if:
. it believes the amount paid is less than the fair value of its interest,
or the interest due was incorrectly calculated;
. Reppond Administrators fails to make payment within 60 days after the
date set for demanding payment; or
. Reppond Administrators, having failed to complete the merger, does not
release the transfer restrictions imposed on its interests within 60 days
after the date set for demanding payment.
If a demand for payment remains unsettled, Reppond Administrators must
commence a proceeding in superior court within 60 days after receiving the
payment demand and petition the court to determine the fair value of the
dissenting member's interest in Reppond Administrators plus accrued interest.
If Reppond Administrators does not timely commence the proceeding, it must pay
each dissenting member whose demand remains unsettled the amount demanded.
Government and Regulatory Approvals
It is a condition to the consummation of the transactions contemplated by
each merger agreement that each of the Centerprise companies must have received
necessary government and regulatory approvals prior to the merger. At any time
before or after the effective time of the mergers the Federal Trade Commission
or the Antitrust Division of the United States Department of Justice or any
state could take action pursuant to the federal or state antitrust laws to seek
to enjoin the consummation of a particular merger. Private parties may also
seek to take legal action under the antitrust laws. Based on information
available to them, each of the Centerprise companies believes that the merger
applicable to each such Centerprise company can be effected in compliance with
federal and state antitrust laws. None of the Centerprise companies is aware of
any governmental or regulatory approvals required for the completion of the
applicable merger, other than compliance with federal and applicable state
securities and corporate laws.
40
<PAGE>
CENTERPRISE SELECTED FINANCIAL DATA
(in thousands, except share and per share data)
Centerprise will acquire ten companies simultaneously with the completion of
the IPO. For financial statement presentation purposes, Centerprise has been
identified as the "accounting acquiror." The table below presents unaudited pro
forma combined financial data for Centerprise giving effect to the completion
of the mergers and pro forma adjustments to the historical financial
statements. The statement of operations data and the "as adjusted" balance
sheet data also reflect the closing of, and the application of the estimated
net proceeds from, the offering, at an assumed initial public offering price of
$12.50 per share.
The pro forma combined statement of operations data assume that the mergers
and the IPO were completed on January 1, 1998. The pro forma combined balance
sheet data assume that the mergers were completed on June 30, 1999. These data
do not necessarily indicate the operating results or financial position that
would have been achieved had the events described been completed on the dates
assumed. You should not view the results as representative of the future
operating results or financial position of Centerprise. See the unaudited pro
forma combined financial statements and related notes and the historical
financial statements of the Centerprise companies and related notes included
elsewhere in this prospectus. Selected financial data related to the historical
balance sheet and statement of operations for Centerprise have been omitted as
they are immaterial and do not provide meaningful information.
<TABLE>
<CAPTION>
Pro Forma Combined
----------------------------------
Six Months Ended
Year Ended June 30,
December 31, ---------------------
1998 1998 1999
------------ ---------- ----------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Professional services (1)................. $ 140,746 $ 80,011 $ 94,859
Business and financial services........... 52,691 28,497 36,571
---------- ---------- ----------
Total revenues.......................... 193,437 108,508 131,430
Expenses:
Professional services compensation and
related costs (2)........................ 87,689 48,259 61,530
Business and financial services
compensation and related costs (2)....... 35,458 17,961 21,488
Other operating expenses.................. 35,169 17,128 20,745
Non-cash stock compensation (3)........... 17,503 -- 3,763
Amortization of goodwill (4).............. 16,039 8,019 8,019
Depreciation expense...................... 4,854 2,425 2,090
---------- ---------- ----------
Income (loss) from operations............... (3,275) 14,716 13,795
Other income, net (5)....................... 101 280 389
---------- ---------- ----------
Income (loss) before income taxes........... (3,174) 14,996 14,184
Provision for income taxes (6).............. 5,146 9,206 8,881
---------- ---------- ----------
Net income (loss)........................... $ (8,320) $ 5,790 $ 5,303
========== ========== ==========
Net income (loss) per share................. $ (0.32) $ 0.22 $ 0.20
========== ========== ==========
Shares used in computing net income per
share (7).................................. 26,169,905 26,169,905 26,169,905
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
-------------------
Pro Forma As
Combined Adjusted
--------- --------
<S> <C> <C>
Balance Sheet Data:
Working capital (deficit)................................ $(92,751) $ 828
Total assets............................................. 337,627 335,996
Total long-term debt, net of current portion............. 23,210 7,981
Stockholders' equity..................................... 130,996 243,804
</TABLE>
41
<PAGE>
- --------
(1) Includes pro forma revenues associated with services agreements of $62,600,
$35,833 and $41,583 for the year ended December 31, 1998 and the six months
ended June 30, 1998 and 1999, respectively. The services agreements are
non-exclusive and, with twelve months notice, the attest firms may change
their staffing requirements. Accordingly, the pro forma service agreement
revenues reflected above are not necessarily representative of
Centerprise's results of operations for any future period. However,
Centerprise believes that were the agreements in place for the entire
period, the profits recognized by Centerprise would have materially
approximated the profits derived from attest services.
(2) Reflects pro forma reductions in compensation and benefits to certain
owners and employees of the founding companies. Such amounts include an
aggregate of approximately $26,569, $16,471 and $15,217 for the year ended
December 31, 1998 and the six months ended June 30, 1998 and 1999,
respectively. These individuals have agreed to these reductions in
employment and incentive compensation agreements which will take effect
upon completion of the IPO.
(3) Reflects non-cash, non-recurring stock compensation charges resulting from
the issuance of stock to Centerprise employees of $17,503 and $2,656 in the
year ended December 31, 1998 and the six months ended June 30, 1999,
respectively, and the issuance of stock to Driver employees of $1,107 in
the six months ended June 30, 1999. Centerprise anticipates no such stock
compensation charges for issuances of stock in the future.
(4) Reflects a non-cash amortization charge over a 15-year period related to
$240,580 of goodwill to be recorded as a result of the mergers and computed
on the basis described in the notes to the unaudited pro forma combined
financial statements.
(5) Reflects a reduction of net interest expense associated with long-term debt
of Driver to be repaid from the proceeds of the offering of $939, $234 and
$884 for the year ended December 31, 1998 and the six months ended June 30,
1998 and 1999, respectively.
(6) Assumes all income is subject to a corporate income tax rate of 40% and
assumes all goodwill is non-deductible.
(7) Includes:
(a) 12,488,981 shares to be issued to the owners and employees of the
founding companies in the mergers;
(b) 3,711,019 shares held by initial investors and management of
Centerprise; and
(c) 9,969,905 of the 10,500,000 shares of common stock sold in the IPO,
net of underwriting discounts, necessary to pay the cash portion of
the merger consideration, to repay indebtedness and fund other
obligations of the founding companies and to pay estimated expenses
of the IPO.
42
<PAGE>
CENTERPRISE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following in conjunction with "Centerprise Selected
Financial Data," the pro forma combined financial statements and related notes
and the historical financial statements of the founding companies and related
notes appearing elsewhere in this prospectus.
Introduction
General
Centerprise was created to become a leading provider of diversified
professional, business and financial services and products to a broad spectrum
of middle-market clients. Centerprise has conducted no operations and generated
no revenues to date and has entered into agreements to acquire the founding
companies simultaneously with the closing of the IPO. Centerprise's revenues
are derived primarily from professional services and business and financial
services and products. Centerprise's pro forma combined revenues for the year
ended December 31, 1998 totaled $193.4 million, of which approximately 73% was
derived from professional services and approximately 27% from business and
financial services and products.
Overview--Professional Services--Historical Results of Operations
Centerprise's professional services firms provide a full range of
consulting, accounting and tax services to middle-market clients. The following
table presents the combined historical revenues of Centerprise's professional
services firms for the periods shown:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
----------- -----------
(Dollars in thousands)
<S> <C>
$117,125 $139,834
</TABLE>
Professional services revenues are primarily affected by the number of
billable hours and the realized rates per hour. Professional services expenses
consist of member compensation and related costs, employee compensation and
related costs and other operating expenses. Member compensation and related
costs include all compensation and compensation-related expenses for senior
professionals who share in each firm's profits. Employee compensation and
related costs include all compensation and compensation-related expenses for
non-member professionals and administrative staff. Other operating expenses
consist of occupancy, information technology systems maintenance, practice
development, training, recruiting, office supplies and other such costs.
Member compensation is primarily affected by the overall profitability of
the firm which is affected by billable hours, realized rates per hour, employee
compensation and related costs and other operating expenses. Employee
compensation and related costs are primarily affected by the demand for
qualified professionals within the professional services industry, a firm's
leverage ratio and engagement efficiencies. Other operating expenses are
primarily affected by the number and experience level of professional and
administrative staff, prevailing rates of compensation, the amount and cost of
leased office space, the firm's investments in information technology, the
frequency of training and the extent to which a firm promotes its practice or
develops new product lines.
Overview--Business and Financial Services--Historical Results of Operations
Centerprise's business and financial services firms provide insurance
brokerage, employee benefits design and administration and related business and
financial services and products to middle-market clients. The following table
presents the combined historical revenues of Centerprise's business and
financial services firms for the periods shown:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
----------- -----------
(Dollars in thousands)
<S> <C>
$44,821 $51,274
</TABLE>
43
<PAGE>
Insurance brokerage commissions and related revenues are primarily affected
by prevailing insurance premium levels, brokerage commission rates, the number
of policies sold or renewed and the number of clients served. Revenues from
employee benefits design and administration are primarily affected by the
number of insured lives administered, the management fee per life and the
prevailing rates for other services provided. Business and financial services
expenses consist of producer compensation, employee compensation and related
costs and other operating expenses. Producer compensation represents
compensation paid to insurance brokerage producers. Employee compensation and
related costs include all compensation and compensation-related expenses for
management personnel and administrative staff. Other operating expenses consist
of occupancy, information technology systems maintenance, promotional,
training, office supplies and other such costs.
Insurance brokerage producer compensation depends primarily upon the number
of policies sold or renewed as such compensation is typically calculated as a
percentage of commission revenues. Employee compensation and related costs are
primarily affected by the size of the firm's staff, demand for qualified
personnel in the industry and the firm's administrative efficiency. Other
operating expenses are primarily affected by the size of the firm, the amount
and cost of leased office space, the frequency of training and the extent to
which a firm advertises or develops new lines of business.
Overview--Centerprise--Unaudited Pro Forma Combined Results of Operations
The following table sets forth the unaudited pro forma combined operating
results of Centerprise for the year ended December 31, 1998 and the six months
ended June 30, 1998 and 1999. For a discussion of the pro forma adjustments,
see the unaudited pro forma combined financial statements and the notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended Six Months Ended June 30,
December 31, ----------------------------
1998 1998 1999
--------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Professional services........ $140,746 72.8 % $80,011 73.7% $94,859 72.2%
Business and financial
services.................... 52,691 27.2 28,497 26.3 36,571 27.8
-------- ----- ------- ----- ------- -----
193,437 100.0 108,508 100.0 131,430 100.0
Expenses:
Compensation and related
costs....................... 123,147 63.7 66,220 61.0 83,018 63.2
Other operating expenses..... 35,169 18.2 17,128 15.8 20,745 15.8
Non-cash stock compensation.. 17,503 9.0 -- -- 3,763 2.9
Amortization of goodwill..... 16,039 8.3 8,019 7.4 8,019 6.1
Depreciation................. 4,854 2.5 2,425 2.2 2,090 1.6
-------- ----- ------- ----- ------- -----
Income (loss) from operations.. $ (3,275) (1.7)% $14,716 13.6% $13,795 10.5%
======== ===== ======= ===== ======= =====
</TABLE>
Centerprise's expenses consist of payroll and related costs of professional
and administrative personnel, occupancy costs, practice development expenses,
other operating expenses and depreciation and amortization expenses. Payroll
and related costs include base and incentive compensation, related payroll
taxes, group insurance and other employee benefit costs. Occupancy costs
include rent related to office space, parking and repair and maintenance
expenses. Practice development expenses include promotional expenses such as
marketing and advertising and the cost of developing new clients. Other
operating expenses include all other operating costs such as bad debt expense,
travel, computer-operating expenses and other such costs.
Depreciation and amortization expense relates primarily to the depreciation of
computer hardware and software and office furnishings and equipment as well as
the amortization of goodwill associated with the mergers.
44
<PAGE>
Amortization of goodwill reflects the non-cash charge related to the
amortization of the excess of purchase price over the fair value of assets
acquired. Because goodwill amortization is a non-cash charge and is not
deductible for tax purposes, it has a direct (dollar for dollar) effect in
reducing income from operations and net income. Centerprise uses a 15 year life
for amortization of goodwill, which management believes is substantially lower
than that used by other companies which may provide similar services.
Management believes this useful life to be appropriate, and because of its
relative conservatism and the material nature of the charge, management further
believes that analysts and investors will find it useful to have additional
data when evaluating Centerprise's performance versus its competitors who may
use a substantially longer life for amortization of goodwill. In the unaudited
pro forma combined results of operations, the loss from operations and the net
loss were approximately $3.3 million and $8.3 million, respectively, for the
year ended December 31, 1998, and income from operations and net income were
approximately $14.7 million and $5.8 million, respectively, for the six months
ended June 30, 1998 and approximately $13.8 million and $5.3 million,
respectively, for the six months ended June 30, 1999. Were it not for the
amortization of goodwill, income from operations and net income in the
unaudited pro forma combined results of operations would have been
approximately $12.8 million and $7.7 million, respectively, for the year ended
December 31, 1998, approximately $22.7 million and $13.8 million, respectively,
for the six months ended June 30, 1998 and approximately $21.8 million and
$13.3 million, respectively, for the six months ended June 30, 1999.
Centerprise has created a unique compensation program for its professional
services firms. Senior professionals' compensation is subject to contractual
agreements regarding the amount and timing of payments made thereunder. These
incentive compensation agreements provide for the retention by Centerprise of a
specified fixed dollar amount ("Centerprise Base Earnings") of each firm's
annual operating earnings before any compensation is paid to the firm's senior
professionals. Such compensation program is designed to provide Centerprise
with a baseline level of earnings before corporate expenses. Operating earnings
in excess of a threshold amount will be subject to a split, with 40% of any
such earnings retained by Centerprise and 60% allocated to the senior
professionals. For more information concerning the compensation agreements,
including the definitions of certain terms, see "Business of Centerprise after
the Mergers--Employee Incentives--Professional Services." See also the
unaudited pro forma combined financial statements and related notes included in
this prospectus.
On a pro forma combined basis, Operating Earnings, as defined below,
Centerprise Base Earnings and senior professionals' compensation would have
been as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1998 June 30, 1999
----------------- ----------------
(Dollars in thousands)
<S> <C> <C>
Operating Earnings................... $51,803 $41,643
Centerprise Base Earnings............ 29,671 20,211
------- -------
Senior professionals' compensation... $22,132 $21,432
Senior professionals' compensation as
a percentage of Operating Earnings.. 42.7% 51.5%
</TABLE>
As shown in this table, "Operating Earnings" means the combined operating
income of the professional services firms plus related depreciation,
amortization and senior professionals' compensation.
Centerprise expects to realize certain savings following the mergers as a
result of the integration of services, products and offices; operating
efficiencies and purchasing economies of scale in areas such as systems
components and development, telecommunications and other operating expenses;
and the consolidation of insurance, employee benefits and other administrative
expenses. Centerprise has not and cannot quantify these savings until
completion of the mergers and the integration of the founding companies.
Centerprise also expects to incur additional costs associated with public
ownership, corporate management and administration and the initial creation of
its technology infrastructure. However, these costs, except for prospective
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compensation payable pursuant to employment agreements with management, cannot
be quantified accurately at this time. Accordingly, except for such prospective
compensation, neither the expected savings nor the expected costs have been
included in the unaudited pro forma combined financial statements of
Centerprise. These various future costs and possible future cost savings may
make useful comparisons of future operating results with historical operating
results difficult.
Centerprise's professional services firms recognize revenues as the related
services are provided and bill clients based upon actual hours incurred on
client projects at expected net realizable rates per hour, plus any out-of-
pocket expenses. The cumulative impact of any subsequent revision in the
estimated realizable value of unbilled fees for a particular client project is
reflected in the period in which the change becomes known. Any anticipated
losses expected to be incurred in connection with the completion of a project
are recognized when known taking into account any fixed price agreements that
may be in process. Outstanding fees receivable are evaluated each period to
assess the adequacy of the allowance for doubtful accounts.
Centerprise's insurance brokerage businesses principally recognize
commission income on the later of the effective date of the policy or the
billing date. Commissions on premiums billed and collected directly by the
insurance company are principally recognized as income when received by
Centerprise. Contingent commissions are recorded when received. Service fee
income is recognized as earned, which is ordinarily over the period in which
the services are provided. Centerprise's third party administration business
recognizes revenues as the related services are provided. Centerprise bills
administration fees for administering its customers' self-insured health plans.
Administration fees are based on a fixed amount per eligible life per month and
Centerprise receives reinsurance commissions from the various reinsurance
carriers utilized. The reinsurance commissions are determined by the terms of
the reinsurance carrier agreements. Outstanding fees receivable are evaluated
each period to assess the adequacy of the allowance for doubtful accounts.
Seasonality
Centerprise's professional services firms regularly experience higher
revenues in the first and second calendar quarters due to a number of factors,
including the seasonality of accounting, tax processing, tax planning and
related professional services. On a pro forma combined basis for the year ended
December 31, 1998, Centerprise generated approximately 30% of its revenues in
the first quarter, 24% in the second quarter, 23% in the third quarter, and 23%
in the fourth quarter. Centerprise believes that quarter-to-quarter comparisons
of results of operations are not necessarily meaningful or indicative of the
results that Centerprise may achieve for any subsequent quarter or fiscal year.
On a prospective basis, Centerprise's baseline earnings from its
professional services firms will be recognized as earned on a basis consistent
with the seasonality of the underlying Subsidiary Operating Earnings.
Centerprise's earnings from professional services firms in excess of baseline
earnings will also be recognized as earned on a seasonal basis.
Historical Attest Revenues
Estimated combined revenues from attest services were approximately $64.8
million, $36.9 million and $42.7 million in the year ended December 31, 1998
and the six months ended June 30, 1998 and 1999, respectively. These estimated
revenues are based on estimates of historical attest services as defined from
state to state and historical average realization rates. Management believes
that the proportion of attest revenues as a percentage of total revenues in
these periods was not materially different from the proportion in 1996 and
1997. However, detailed records are not available to support amounts of
estimated attest revenues in 1996 and 1997.
While Centerprise will not be providing attest services, substantial
revenues are expected to be earned pursuant to non-exclusive services
agreements with the attest firms. Such services agreement revenues have been
reflected in the unaudited pro forma combined financial statements. Centerprise
believes that were the
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<PAGE>
services agreements in place for the entire period, the profits recognized by
Centerprise would have materially approximated the profits derived from attest
services. However, because the services agreements are non-exclusive, the
amounts reflected in the pro forma financial statements as "services
agreement" fees may not be representative of future ongoing operations. See
"Risk Factors--Regulation of the accounting profession will constrain
Centerprise's operations and impact its structure and numerous issues arising
out of that regulation, its interpretation or its evolution could impair
Centerprise's ability to provide services to some clients, including the
attest firms, reduce its revenues and cause the market value of the common
stock to decline."
Estimated historical attest revenues for each professional services firm
are set forth below. Except as noted, the following table represents estimated
attest revenues for the fiscal year ended December 31, 1998 and the six months
ended June 30, 1999.
<TABLE>
<CAPTION>
Estimated Historical
Attest Revenues
---------------------------
Year ended Six months
December 31, ended June 30,
1998 1999
------------ --------------
(In thousands)
<S> <C> <C>
Reznick............................................. $24,999 $18,126
Mann Frankfort...................................... 5,439 4,260
Follmer............................................. 7,973 5,168
Berry Dunn.......................................... 9,925 5,223
Urbach (a).......................................... 10,706 6,662
Grace............................................... 2,623 1,463
Simione............................................. 3,094 1,756
------- -------
$64,759 $42,658
======= =======
</TABLE>
- --------
(a) For the year ended January 31, 1999 and the six months ended July 31,
1999.
Pro forma combined results for the six months ended June 30, 1999 compared to
the six months ended June 30, 1998
Revenues. Professional services revenues increased $14.8 million, or 18.6%,
from $80.0 million in the six months ended June 30, 1998 to $94.9 million in
the six months ended June 30, 1999, primarily due to the expansion of the
professional services firms' practices, increases in billing rates, billable
hours, the addition of clients and an increase in revenues derived from
special projects. Business and financial services revenues increased $8.1
million, or 28.3%, from $28.5 million in the six months ended June 30, 1998 to
$36.6 million in the six months ended June 30, 1999 due to the acquisition of
insurance brokerage firms, an increase in the insurance premiums upon which
the revenues are based and the addition of new customers.
Compensation and Related Costs. Compensation and related costs increased
$16.8 million, or 25.4%, from $66.2 million in the six months ended June 30,
1998 to $83.0 million in the six months ended June 30, 1999, primarily due to
salary increases, and staff additions. As a percentage of revenues, these
expenses increased from 61.0% in the six months ended June 30, 1998 to 63.2%
in the six months ended June 30, 1999.
Other Operating Expenses. Other operating expenses increased $3.6 million,
or 21.1%, from $17.1 million in the six months ended June 30, 1998 to $20.7
million in the six months ended June 30, 1999, primarily due to an increase in
occupancy costs, selling, general and administrative expenses and legal fees
related to the mergers. As a percentage of revenues, these expenses remained
constant at 15.8% in the six months ended June 30, 1998 and 1999.
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Non-cash Stock Compensation. Non-cash, non-recurring stock compensation in
the six months ended June 30, 1999 totaled $3.8 million, or 2.9% of revenues.
This reflects charges resulting from the issuance of stock to employees of $2.7
million at Centerprise and $1.1 million at Driver. Centerprise anticipates no
such stock compensation charges for issuances of stock in the future.
Depreciation. Depreciation expense decreased $335,000, or 13.8%, from $2.4
million in the six months ended June 30, 1998 to $2.1 million in the six months
ended June 30, 1999, primarily due to sales of property, plant and equipment.
As a percentage of revenues, these expenses decreased from 2.2% in the six
months ended June 30, 1998 to 1.6% in the six months ended June 30, 1999.
Pro Forma Combined Liquidity and Capital Resources
The principal sources of liquidity for the founding companies have
historically been cash flows from operating activities. After the completion of
the mergers and the IPO, Centerprise will have a working capital deficit of
approximately $828,000. Centerprise expects to repay approximately $18.0
million of short-term and long-term debt of Driver, from the net proceeds of
the IPO. Driver incurred the debt in connection with a recapitalization.
Centerprise is seeking to obtain a revolving credit facility of up to $100
million. Although the facility is expected to be available upon the completion
of the IPO, Centerprise has not obtained any commitment nor can there be any
assurance that Centerprise will be able to obtain this facility or other
financing it may need on terms it deems acceptable. It is expected that the
facility, if obtained, will require Centerprise to comply with various loan
covenants, including maintenance of certain financial ratios, including minimum
tangible net worth, restrictions on additional indebtedness and restrictions on
liens, guarantees, advances and dividends. The facility is intended to be used
for acquisitions, capital expenditures, working capital and other general
corporate purposes. Obtaining a credit facility in an amount not less than $75
million is a condition to closing of the mergers.
Capital expenditures for the founding companies were $4.9 million for the
year ended December 31, 1998, primarily for purchases of equipment. Centerprise
believes that cash flow from operations, borrowings under the proposed
revolving credit facility and the unallocated net proceeds of the IPO, if any,
will be sufficient to fund Centerprise's expected working capital needs, debt
service requirements and planned capital expenditures for at least the next 12
months. Centerprise anticipates borrowing up to $30.0 million under the
facility during the six months following the closing of the IPO to fund a
portion of its working capital needs. These working capital needs arise
primarily because most of the existing working capital of the founding
companies is being distributed in connection with the mergers. The working
capital borrowings will be repaid as Centerprise begins to generate cash flow
from operations, which is anticipated to occur between 90 and 120 days
following the closing of the IPO.
Centerprise will incur contingent payment obligations in connection with the
mergers. See "Certain Transactions--The Mergers" for detailed information
concerning these payments. Centerprise intends to fund any required payments
from operating cash flow, borrowings under the proposed revolving credit
facility, unallocated offering proceeds or a combination of these sources.
Centerprise intends to pursue selected acquisition opportunities but cannot
predict the timing or success of any acquisition efforts. Accordingly,
Centerprise is unable to estimate its expected capital commitments. Funding for
future acquisitions will likely come from a combination of the unallocated net
proceeds of the offering, internally generated cash flow from operations,
borrowings under the anticipated revolving credit facility or other debt
financings and the issuance of additional equity. See "Risk Factors--
Centerprise may not be able to obtain adequate financing to implement its
strategies."
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SAB 97
SEC Staff Accounting Bulletin No. 97 ("SAB 97") requires the application of
purchase accounting when three or more substantive operating entities combine
in a single business combination effected by the issuance of stock just prior
to or simultaneously with an initial public offering and the combination does
not meet the pooling-of-interest criteria of Accounting Principles Board
Opinion No. 16. Centerprise has been identified as the accounting acquiror in
accordance with the provisions of SAB 97, which states that the recipient of
the largest portion of voting rights in the combined corporation is presumed to
be the accounting acquiror for financial statement presentation purposes.
Accordingly, the excess purchase price over the fair value of the net assets
acquired from the founding companies of approximately $240.6 million will be
amortized over a period of 15 years as a non-cash charge to Centerprise's
income. This amortization will be approximately $16.0 million per year.
Amortization of Intangible Assets
The $240.6 million of goodwill resulting from the mergers represents
approximately 71.6% of Centerprise's pro forma total assets as of June 30,
1999. The non-cash amortization of this intangible asset over 15 years at $16.0
million per year will have a significant impact on the income from operations
and net income of Centerprise. Further, Centerprise plans to evaluate
continually whether events or circumstances have occurred that indicate that
the remaining useful life of goodwill may warrant revision. Additionally, in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," Centerprise will evaluate any potential
goodwill impairments by reviewing the future cash flows of respective acquired
entities' operations and comparing these amounts with the carrying value of the
associated goodwill.
Recently Issued Accounting Standards
Segment Reporting. In June 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 131, "Disclosures About Segments of An Enterprise and
Related Information." SFAS No. 131 establishes standards for reporting
information about operating segments in annual financial statements and in
interim financial reports issued to stockholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. In general, such information must be reported externally in the same
manner used for internal management purposes. SFAS No. 131 is effective for
financial statements issued for periods beginning after December 15, 1997. In
the initial year of adoption, comparative information for earlier years must be
restated. Since SFAS No. 131 only requires disclosure of certain information,
its adoption will not affect Centerprise's financial position or results of
operations.
Accounting for Derivative Instruments and Hedging Activities. In June 1998,
FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes a new model for accounting for
derivatives and hedging activities, supersedes and amends a number of existing
standards. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000, but earlier adoption is permitted. Upon initial application, all
derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value.
Recognition of changes in fair value depends on whether
the derivative is designated and qualifies as a hedge, and the type of hedging
relationship that exists. Centerprise does not currently hold any derivative
instruments or participate in any hedging activities.
Inflation
Substantially all of Centerprise's client services agreements and insurance
policies allow, at the time of renewal, for adjustments in the fees payable
thereunder and thus may enable Centerprise to seek increases in the amounts
charged. Such increases have historically allowed the founding companies to
respond to increases in their costs, the most significant component of which is
compensation expense. The substantial majority of
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these agreements and policies are for one year or less and the remaining
agreements and policies are for terms of up to two years. The short-term
nature of these agreements and contracts generally reduce the risk to
Centerprise of the adverse effect of inflation.
Year 2000 Compliance
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have time-sensitive hardware and software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, bill and collect
fees, or engage in similar normal business activities.
Each founding company has undertaken the following five-phase approach to
assessing its year 2000 risks:
1. appoint internal teams and assess systems;
2. evaluate assessment results and perform project planning;
3. execute system upgrades and replacements based on plan;
4. test systems; and
5. develop contingency planning.
Each founding company has completed phases 1 and 2 for all critical
hardware and software systems. Because of the founding companies' reliance on
third party industry specific software products and mainstream hardware
components, they have focused their preparation for year 2000 almost
exclusively on upgrading software and hardware products to vendor-certified
year 2000 compliant versions. In cases where vendors did not provide upgrade
solutions, or where business needs indicated that a change in software and/or
hardware solutions was appropriate, new solutions were identified for
implementation.
Centerprise believes that it has satisfactorily assessed its internal risks
with respect to its information technology systems and is in the process of
identifying its non-information technology systems to assess their year 2000
readiness. Critical information technology systems include time and billing,
accounts receivable and cash collections, accounts payable and general ledger,
human resources and payroll, cash management, fixed assets and all information
technology hardware, such as desktop/laptop computers and data networking
equipment. Critical non-information technology systems include telephone
systems, fax machines, copy machines and building security systems. To date,
Centerprise has not identified any material year 2000 problems with
information technology or non-information technology systems.
At this time, Centerprise assesses its year 2000 status for its significant
systems as follows:
. Laptop/desktop/servers. Each founding company reports substantial
completion of equipment upgrades or replacements.
. General accounting systems. All of the founding companies have
completed the upgrades and replacements, with the exception of
Grace which expects to purchase and install new software by
November 1, 1999.
. Time and billing/practice management. All of the professional
services firms utilize vendor-certified year 2000 compliant
versions of their practice management systems.
. Tax processing software. All of the professional services firms
report successful migration to year 2000 compliant versions of
their tax processing software.
. Agency management. All of the business and financial services
firms report that their core business record keeping and billing
systems are on vendor-certified year 2000 compliant versions of
software.
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. Non-information technology systems. Berry Dunn has a non-year 2000
compliant voicemail system that must be replaced, and Reppond has
a non-compliant phone system. Each of these systems is scheduled
for replacement by November 1, 1999.
Based on an ongoing survey of year 2000 project progress, Centerprise
currently estimates that the total cost of its year 2000 compliance and
remediation activities will be approximately $600,000 to $650,000, of which
approximately $420,000 had been incurred as of June 30, 1999. Of the estimated
total year 2000 costs, approximately $200,000 represents costs associated with
repair of software problems and approximately $425,000 represents the purchase
of replacements or upgrades of software or hardware. However, Centerprise
cannot guarantee that actual compliance costs will fall within the range of
this estimate, that any future acquisition of a business will not require
substantial year 2000 compliance expenditures or that precautions that
Centerprise has taken to protect its business from or minimize the impact of
year 2000 issues will be adequate. Any damage to Centerprise's information
processing system, failure of telecommunications lines or breach of the
security of its computer systems could result in an interruption of operations
or other loss which may not be covered by insurance and could harm
Centerprise's business, financial condition or results of operations.
Each of the founding companies is assessing the year 2000 readiness of its
significant customers, business partners and vendors to determine the extent to
which Centerprise's interface systems are vulnerable to the failure of those
third parties to remediate their own year 2000 issues. To date, Centerprise is
not aware of any significant customers, business partners or vendors with a
year 2000 issue that would materially affect Centerprise or a founding company.
However, Centerprise cannot guarantee that the systems of other companies, on
which Centerprise's operations rely, will be timely converted or that failure
to timely convert would not harm Centerprise's business, financial condition or
results of operations.
Centerprise believes that each founding company has a program in place to
resolve the year 2000 issue in a timely manner. In assessing their year 2000
risks, none of the founding companies have engaged in any independent
verification or validation processes.
Centerprise has commenced its contingency planning for critical operational
areas that might be affected by the year 2000 issue if compliance by
Centerprise is delayed. Elements of Centerprise's contingency plans include
switching vendors and third party suppliers and using manual processes that do
not rely on computers. Centerprise expects to complete its contingency planning
by October 31, 1999. Aside from catastrophic failure of banks, utilities or
governmental agencies, Centerprise believes that it could continue its normal
business operations. Unless such catastrophic failure occurs, Centerprise does
not believe that the year 2000 issue will impair its results of operations,
liquidity or capital resources.
Several of the Centerprise companies have information technology consulting
practices that have periodically been asked by clients to provide certain year
2000 consulting services. Although Centerprise believes, based on the services
the founding companies have provided to date, that it has limited exposure to
claims that may be asserted by clients whose systems might be compromised as a
result of a year 2000 related malfunction, there can be no assurance that
material claims will not be made.
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INDUSTRY OVERVIEW
The Competitive Environment
According to the U.S. Department of Commerce, firms providing traditional
accounting services--accounting, auditing and bookkeeping--generated
approximately $59.3 billion in revenues in 1997. Such revenues were projected
to grow to $65.8 billion for 1998, with further growth expected at an annual
rate of 9% to 10% from 1999 through 2002, assuming moderate U.S. economic
growth.
According to a report published by the American Institute of Certified
Public Accountants in 1996, the distribution of AICPA members employed by
accounting firms was as shown below. The italicized headings reflect
Centerprise's categorizations.
<TABLE>
<CAPTION>
Total
Number of AICPA Average
Number of Members in Number of AICPA
Firm Size Firms Firms Members per Firm
------------------------------ --------- --------------- ----------------
<S> <C> <C> <C>
The Big Five
Big Five.................... 5 20,928 4,185
Regional Firms
Next six largest firms...... 6 3,516 586
Firms with more than 100
members.................... 16 2,237 139
Firms with 50 to 99
members.................... 50 3,265 65
Firms with 25 to 49
members.................... 215 6,948 32
Local Firms
Firms with 10 to 24
members.................... 1,218 17,003 13
Firms with 5 to 9 members... 2,937 18,767 6
Tax and Bookkeeping Firms
Firms with 2 to 4 members... 11,586 29,547 2
1 member.................... 30,406 30,406 1
------ -------
46,439 132,617
====== =======
</TABLE>
Based on the pro forma combined revenues of Centerprise's seven professional
services firms for the fiscal year ended December 31, 1998, Centerprise would
have been ranked No. 13 in Accounting Today's 1999 Top 100 Accounting Firms had
the firms been combined throughout such period.
Centerprise categorizes the competitive environment in the following manner:
. The Big Five. This segment consists of Arthur Andersen, Deloitte &
Touche, Ernst & Young, KPMG and PricewaterhouseCoopers. These
multinational firms provide diversified professional, business and
financial services and products primarily to publicly-held corporations
and large privately-held companies, focusing mainly on Fortune 1000
companies.
. Regional Firms. These firms provide services primarily to privately-held,
middle-market clients. Firms in this segment continue to expand service
and product offerings beyond traditional accounting.
. Local Firms. This segment is comprised of firms whose clients are
primarily small, local businesses. Many of these firms have also begun to
offer non-traditional services and products, typically on a niche basis.
. Tax and Bookkeeping Firms. These businesses generally provide basic
bookkeeping, tax return preparation and traditional accounting services
to small businesses and individuals. This segment is extremely
fragmented, consisting of approximately 42,000 firms and/or sole
practitioners. This category also includes storefront operations of
franchisors.
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Centerprise believes that its primary competitors in the accounting industry
are the regional firms, although it also competes for certain clients and in
certain markets with the Big Five, other national firms and larger local firms.
Although a trend toward consolidation among accounting firms is emerging, the
regional and local segments are still highly fragmented, with no single firm
accounting for more than 1% of the industry's total revenues. Centerprise
believes that the fragmented nature of these segments presents opportunities
for future acquisitions.
Industry Opportunities
Centerprise believes that certain industry trends have created a significant
opportunity for a company that provides high quality professional, business and
financial services and products to middle-market clients. Centerprise intends
to capitalize on this opportunity by using its professional services firms as
focal points for delivering its high quality services and products. Industry
trends include the following:
Client-Driven Expansion of Services Provided by Trusted Advisors
Centerprise believes that client demands are redefining the lines that once
separated the delivery of traditional accounting services from other
professional, business and financial services and products. Management believes
that this has occurred primarily because clients are willing to use outside
service providers to meet their increasingly complex needs.
According to U.S. Department of Commerce analysts, the accounting profession
is facing greater demand for consulting services. Revenues of the Accounting
Top 100 increased 24% to $31.6 billion in 1998 from $25.5 billion in 1997.
Consulting services represented the biggest factor in this growth, outpacing
growth in revenues from tax services and from accounting and auditing services.
Clients whose engagements have traditionally been limited to accounting and tax
services are increasingly looking to their accounting professionals to
provide--or refer them to--additional services such as management consulting,
insurance brokerage, employee benefits design and administration and
information technology consulting. Centerprise believes that clients are
increasingly seeking a single provider of multiple outsourced services and that
accounting professionals are uniquely situated to respond to these demands
because of their existing position as trusted advisors to these clients.
Centerprise believes that it is able to capitalize on this trend through its
network of trusted advisors and its expertise in business and financial
services and products, including insurance brokerage and employee benefits
design and administration services.
Increasingly Complex Needs of Middle-Market Clients
Centerprise believes that the Big Five are increasingly focused on the needs
of their largest, publicly-held corporate clients. A 1998 survey by Public
Accounting Report stated that of the approximately 14,000 publicly-held clients
served by the top 100 accounting firms in that survey, approximately 90% were
being served by the Big Five. The Big Five have developed globally diversified
business, financial and consulting services in response to the complex needs of
these large clients. Centerprise believes that the needs of middle-market
clients are increasingly complex, creating opportunities for large, regional
accounting firms to expand their service and product offerings beyond
traditional accounting. Revenues of the Top 100 other than the Big Five grew to
$4.9 billion in 1998, an increase of 23% from 1997. Consulting revenues were
the most significant contributor to this growth.
Changing Regulatory Environment
As demand for non-traditional services from accounting firms has increased,
state regulations are evolving to keep pace with this new industry dynamic.
Accordingly, as more states allow CPAs to diversify into new business lines,
there is increasing opportunity for and competitive pressure on accounting
firms to enter into these businesses. Centerprise believes that many local and
regional accounting firms do not have access to capital, possess the expertise
necessary or offer the diversified services required to compete effectively in
this evolving market environment.
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BUSINESS OF CENTERPRISE AFTER THE MERGERS
Introduction
Centerprise is a leading provider of professional, business and financial
services and products to middle-market clients. Centerprise offers a full range
of consulting, accounting, tax and related professional services, as well as
complementary business and financial services and products such as insurance
brokerage and employee benefits design and administration. More than 2,000
employees provide these services and products to clients located throughout the
United States. Centerprise principally focuses on middle-market clients that
are privately-held companies in a variety of industries, governmental and not-
for-profit entities and affluent individuals and families.
Centerprise has assembled a group of founding companies with expert
capabilities, reputations for quality, effective leadership and strong "trusted
advisor" relationships with clients. These companies have been in business an
average of 29.5 years. On a combined historical basis, revenues of these
companies increased from $161.9 million in fiscal 1997 to $191.1 million in
fiscal 1998, representing an annual growth rate of 18.0%.
Business Strategy
Centerprise's goal is to provide middle-market clients with personalized,
local service backed by the resources and capabilities of a national firm. To
implement its business strategy, Centerprise will:
. Develop and Deliver High Quality Services and Products. Centerprise
currently offers a broad range of high quality professional, business and
financial services and products. Centerprise intends to improve and
develop its service and product offerings through innovation and selected
acquisitions and alliances.
. Create National Practices by Capitalizing on Existing Expertise. Several
of Centerprise's founding companies have developed strong national or
regional reputations relating to a particular industry, service or
product. For example, Centerprise has significant advisory expertise in
the real estate, manufacturing, health care and construction industries.
It provides specialized services including litigation consulting and
information technology consulting. Centerprise also has expertise in
insurance brokerage and employee benefits administration services.
Centerprise intends to use its national practices as:
. Clearinghouses of knowledge that provide industry, service or product
expertise to all Centerprise business units.
. Resources for the development of "best practices" that will be used
for training, continuing education and practice development
throughout Centerprise.
. Platforms for identifying, integrating and managing future
acquisitions and alliances.
. Expand Presence in Key Geographic Markets. Capitalizing on the strong
reputations of its founding companies, Centerprise intends to build upon
its local presence through selected acquisitions in its current markets.
At the same time, Centerprise intends to take advantage of its geographic
diversity by adopting a marketing strategy that promotes the Centerprise
brand nationally and highlights Centerprise's expanded functional
capabilities and market presence.
. Integrate its Management and its Information Systems. Centerprise
recognizes the importance of integrating and coordinating its business
units and systems and has hired a chief integration officer to lead this
process. Centerprise's executive management team will work closely with
the business units to implement and integrate Centerprise's business and
growth strategies.
Internal Growth Strategy
To execute its growth strategy, Centerprise will:
. Build Upon Trusted Advisor Relationships. Centerprise believes that its
trusted advisor relationships present an opportunity to provide
additional services and products to clients. Centerprise intends to build
upon these relationships by using its professional services firms as the
focal points for delivering
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Centerprise's diversified services and products. By capitalizing on its
client relationships as well as its reputation for quality, each
Centerprise business unit can help direct its clients to the expertise,
services and products that provide the best solutions to their business
and personal needs.
. Institute Incentives for Client and Knowledge Sharing. Centerprise
intends to implement incentives to motivate the sharing of client
relationships and expertise throughout Centerprise. In addition,
Centerprise uses stock ownership to align the objectives of its business
units.
. Capture Benefits of Scale. Centerprise believes that it can achieve
certain benefits as a result of its size. Its combined client base,
number of professionals and industry and product specialties provide
opportunities to create national practices. Centerprise's broad
geographic coverage will enable it to serve clients as they expand into
new markets. In addition, Centerprise believes that it can reduce costs
through greater purchasing power in key expense areas and by eliminating
or consolidating certain duplicative administrative functions.
Acquisitions and Alliances
Centerprise believes that the emergence of a diversified professional,
business and financial services industry will create acquisition opportunities.
Centerprise believes that many regional and local firms will need to join
larger enterprises that provide the resources and breadth of service and
product offerings necessary to fulfill client needs and to compete successfully
in this evolving market. As a result, Centerprise expects that numerous firms
will explore alternatives to independent ownership.
Centerprise intends generally to focus on acquisition targets that have a
strong financial history, offer effective management and entrepreneurial
leadership and have strong client relationships. In particular, Centerprise
intends to seek acquisition and alliance candidates that:
. provide a professional services practice with a national or regional
reputation;
. expand Centerprise's offerings and expertise to build and enhance
national practices;
. function as a distribution point by providing a local presence in new
geographic markets; or
. expand the presence of Centerprise's existing platforms in their
geographic markets.
Centerprise believes that the opportunity to be acquired by Centerprise will
be attractive to many local and regional firms. Centerprise will offer owners
of such firms the benefits of its business strategy, including:
. the opportunity to better serve their clients' needs;
. opportunity to enhance current and future profitability;
. access to new technology and operational processes; and
. enhanced financial resources and visibility as a public company.
As a result of discussions with many companies during its formation process,
Centerprise has developed a significant list of potential acquisition
candidates. In addition, each founding company has memberships in industry
associations and relationships with other firms that will be used to further
expand the list of potential acquisition candidates. These candidates include
accounting firms, information technology consulting firms, financial service
firms, business consulting firms, insurance brokerage firms, third party
administrators and professional staffing firms.
As consideration for future acquisitions, Centerprise intends to use various
combinations of cash, debt and common stock. Other than in connection with the
mergers, Centerprise is not currently a party to any agreements regarding any
acquisitions.
In addition to acquisitions, Centerprise will pursue alliances with other
providers who offer quality services and products that are not directly offered
by Centerprise. For example:
. Centerprise is the only U.S. member of Urbach Hacker Young International
Limited, an international strategic alliance of 42 international firms
from 36 countries. Through this alliance, Centerprise can assist clients
in achieving their business and financial objectives in the international
marketplace.
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. Centerprise has an alliance with Omnitech Corporate Solutions, Inc., an
information technology consulting firm located in the Northeast. Through
this non-exclusive arrangement, Omnitech has been identified as one of
Centerprise's preferred providers of network services, internet design
and implementation, software development, sales force automation and
other information technology services to Centerprise's clients.
Services and Products
Professional Services
Consulting Services. Centerprise offers a broad array of consulting and
other advisory services including:
. management, profit improvement and mergers and acquisitions consulting;
. international business advisory services;
. succession and estate planning;
. business valuations; and
. personal financial planning.
The number and variety of these services reflect the breadth of the expertise
of Centerprise's professionals as well as the diversity of its clients.
Centerprise has designed many of these services for clients in particular
industries.
Accounting Services. Centerprise provided accounting services such as:
. budgets;
. business plan preparation and related cash flow projections;
. internal control and operational review;
. insolvency services;
. receivables and cash flow management;
. due diligence review; and
. controllership activities.
These services are often tailored and packaged to serve clients' particular
needs. Under non-exclusive services agreements, Centerprise provides
professional personnel to perform field work and other accounting services for
the Attest Firms.
Tax Services. Centerprise provides clients with a complete range of tax
services. Centerprise assists its clients in planning their overall business
structures and operations to minimize federal, state, local and foreign taxes.
Centerprise provides tax return preparation, tax compliance services and
business, individual and estate planning services. A significant portion of
these tax services are nondiscretionary and compliance driven.
Specialized Services. Centerprise has developed significant practices in
certain specialized services offered to clients across industry lines.
Centerprise intends to build national practices based on these specialized
services, which include:
. Litigation Consulting Services. Centerprise provides litigation
consulting services, which include analyzing and providing expert
opinions and testimony on complex financial disputes.
. Information Technology Consulting Services. Centerprise's information
technology consultants advise clients as to strategic systems planning,
application systems selection and procurement, network design and
installation, software implementation management and systems security.
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Industry Expertise. Centerprise has considerable expertise with respect to
certain industries and can tailor its consulting, accounting and tax services
to specific business, regulatory or competitive environments. Centerprise
intends to build national practices based on these areas of expertise, which
include:
. Real Estate. Centerprise has a nationally recognized practice serving the
unique needs of the real estate industry. It advises clients as to
structuring real estate investments, financings and transactions,
investment analysis, tax compliance and planning, due diligence, real
estate syndication and operational real estate projections.
. Manufacturing. Centerprise advises its manufacturing clients as to
implementing inventory management systems, cost and pricing systems and
quality management systems required for industry recognized
certifications such as ISO and QS 9000 registration.
. Health Care. Centerprise advises hospitals, nursing homes and other
health care industry clients as to physician practice valuation, billing
code and rate audits, medicare and medicaid reporting and auditing,
medical records management and patient billing systems.
. Construction. Centerprise advises construction contractors and related
clients as to estimating and job cost management systems, contract
auditing, bonding capacity analysis, capital equipment financing options
and other special projects.
Business and Financial Services
Insurance Brokerage Services. Centerprise offers its clients access to a
variety of insurance products, including property and casualty insurance,
workers compensation coverage, surety bonds and health and life insurance
programs. Centerprise brokers property and casualty insurance to companies with
diverse insurance requirements, ranging from comprehensive business packages
for small, local businesses to large portfolios for international corporations.
Centerprise also brokers life and health insurance products, administers
benefits and provides other services for its clients' employee benefits
programs. In addition, Centerprise has established relations with most major
bonding companies, that allow it to provide a variety of surety bond products.
Centerprise also counsels business owners and executives as to 401(k) products,
comprehensive risk management planning and analysis of retirement, executive
benefits and financial and estate plans.
Centerprise's insurance services businesses do not currently engage in
activities that involve bearing the risk of an insured's loss. Centerprise may
in the future enter this segment of the industry, through acquisition or
otherwise, by underwriting certain products in which Centerprise has particular
expertise through its brokerage activities. Centerprise has no current plans to
engage in risk-bearing activities. Expansion into this area would involve
risks. See "Risk Factors--Centerprise may expand its insurance business to
include activities that involve bearing the risk of loss."
Employee Benefits Design and Administration. Centerprise offers
comprehensive employee benefits design and third party administration services
to businesses and governmental units. Centerprise designs self-funded employee
benefits plans that allow an employer to structure a traditional indemnity plan
or to take advantage of preferred provider or managed care options. Centerprise
procures quotes for insurance from stop loss carriers and provides claims
processing, plan performance and other administrative services. Centerprise
administers a wide variety of plans, including medical, dental, group life,
group disability, COBRA and Section 125 plans. Revenues from these services
primarily consist of per employee fees for administrative services and
commissions from stop loss carriers. Centerprise believes that the systems,
programming and data processing infrastructure in place for these services has
the capacity to handle significantly greater number of plans and covered
employees without significant incremental investment.
Employee Incentives
The performance of Centerprise's employees is critically important to its
success. Senior employees, many of whom were the owners or principals of the
founding companies before the mergers, must continue to
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generate and maintain business as they have historically. In addition, because
of their prominence and client relationships, Centerprise anticipated that
these employees will play an important role in generating cross-selling
opportunities and attracting acquisition candidates.
The principal objectives of Centerprise's compensation program include:
. motivating employees to increase Centerprise's overall profitability
through new business, cross-selling and the integration of services,
products and offices;
. creating incentives that motivate each business unit to increase its
profitability; and
. retaining and motivating top performing employees and attracting
additional employees and acquisition candidates by providing competitive
compensation.
Professional Services
Centerprise's senior professionals are taking significant cuts in cash
compensation--in some cases more than 50%--in order to join Centerprise.
However, Centerprise believes that these individuals will continue to be highly
motivated to perform through their significant equity interests in Centerprise
as a result of the mergers and the issuance of stock options and their
opportunity to share in the growth of their firm's earnings as discussed below.
Other professionals who are on the "partner track" will be eligible to receive
Centerprise stock options and upon "making partner" will be able to share in
potential increases in their firm's earnings. The mergers will not directly
affect the current compensation of such employees.
Compensation Program. The senior professionals of each Centerprise
professional services firm will enter into firm-specific incentive compensation
agreements with Centerprise. These agreements allocate significant portions of
the Subsidiary Operating Earnings of each professional services firm to its
senior professionals (the "participants") as compensation.
On an annual basis, Centerprise will retain a specified fixed dollar amount
of earnings before any compensation is paid to a firm's participants. The
amount retained by Centerprise is referred to as "Centerprise Base Earnings."
The amount of Centerprise Base Earnings has been negotiated with each
professional services firm and varies from firm to firm. Agreed-upon
Centerprise Base Earnings range from 36.0% to 68.9% of the adjusted earnings of
the respective professional services firms in the four calendar quarters ending
June 30, 1999 ("Initial Operating Earnings"). The amount allocated to each
professional services firm for compensation of participants is referred to as
"Subsidiary Base Compensation." Subsidiary Base Compensation equals Initial
Operating Earnings less Centerprise Base Earnings.
In addition to Subsidiary Base Compensation, each professional services firm
has agreed to a 40%/60% split of any amount by which future Subsidiary
Operating Earnings exceed Initial Operating Earnings, with 40% to be retained
by Centerprise and 60% to be allocated to participants (the "Bonus"). For
purposes of the incentive compensation agreements, "Subsidiary Operating
Earnings" generally means a firm's earnings before taxes, interest expense not
related to capital leases, certain depreciation expense, amortization of merger
transaction costs, extraordinary items, allocations of corporate overhead,
expenses incurred in connection with acquisitions completed prior to the
mergers and the base salary, bonus and indirect costs of any participant.
Indirect costs are all costs paid by the professional services firm with
respect to a participant's employment, such as social security and medicare
taxes, medical, life and disability insurance, costs associated with employee
benefit plans and fringe and personal benefits. Centerprise believes that this
Bonus provides participants with a powerful, direct incentive to continue the
growth of their Subsidiary Operating Earnings. If Subsidiary Operating Earnings
for any year are less than Initial Operating Earnings, Subsidiary Base
Compensation will be reduced by the amount of the shortfall.
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The following summarizes the mechanics of the incentive compensation
agreements:
[ORGANIZATION CHART APPEARS HERE]
This compensation program is designed to provide Centerprise with a baseline
level of earnings, before corporate expenses, equal to the Centerprise Base
Earnings. Participants can only enjoy increased compensation if they improve
their firm's profitability, which in turn will result in additional profits,
before corporate expenses, for Centerprise.
Administration. Each professional services firm will administer the
incentive compensation agreement for its participants including the allocation
among the participants of Subsidiary Base Compensation and Bonus. In addition,
for corporate cash flow management reasons, participants will only be paid a
portion of their compensation throughout the year--in an amount equal to a
specified percentage of their total compensation in the prior year. The
applicable percentage is 85% in 1999 and 2000 and 75% thereafter. The balance
of the Subsidiary Base Compensation plus Bonus, if any, will be paid on or
about April 1 of the next fiscal year. If the amount paid to a firm's
participants during the year exceeds the Subsidiary Base Compensation and
Bonus, if any, to be paid for such year, Centerprise will reduce future
compensation to recover the deficiency.
A single incentive compensation agreement may be amended with the agreement
of Centerprise, the professional services firm and a specified percentage of
such firm's participants which may vary among the firms. "Blanket" amendments
to all of the incentive compensation agreements will require, for three years
following the offering, the approval of Centerprise and representatives of all
of the original professional services firms. Thereafter, any such amendments
will require the approval of Centerprise and representatives of 75% of the
original professional services firms.
The incentive compensation agreements have been designed to accommodate and
support Centerprise's growth and acquisition strategies. They provide
mechanisms for adding new participants by allowing the firms
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to continue to "make partners" of their successful professionals. The incentive
compensation agreements can also be modified to accommodate the acquisitions of
additional professional services practices, as well as individual lateral
hires. With the approval of Centerprise, a promoted professional, the former
owners of an acquired firm or a lateral hire may be added as participants, and
the incentive compensation agreements will appropriately adjust the definitions
of Subsidiary Base Compensation and other relevant terms to appropriately
reflect their promotion/addition to the firm's revenues and expenses.
Other Incentives. The incentive compensation agreements contain additional
provisions that are designed to foster Centerprise's profit growth objectives.
For example, Centerprise intends to establish incentives for cross-selling and
cross-servicing of clients and integration of services among all of
Centerprise's operating units. These incentives will generally be included in
the Subsidiary Operating Earnings and flow through the compensation mechanisms
established under the incentive compensation agreements. Moreover,
participants' benefits and perquisites are included in the determination of the
Subsidiary Operating Earnings, subjecting these expenses to the self-
disciplining features of the incentive compensation agreement structure.
Business and Financial Services
At the closing of the mergers, Centerprise will enter into employment
agreements with key employees in its business and financial services group.
Generally, such agreements will provide for competitive base salaries and
performance bonuses based upon such factors as the financial performance of
Centerprise and the particular business unit, the achievement of certain
operating objectives and the achievement of personal performance goals. These
key employees are receiving Centerprise common stock in the mergers, and
Centerprise may also grant stock options to these and other key employees.
Centerprise intends to create incentive programs to motivate its business and
financial services group employees to expand their businesses, use the
distribution platforms provided by the professional services firms and pursue
and integrate acquisitions. See "Centerprise Management--Employment Agreements;
Covenants--Not-to-Compete" and "Approval of the Mergers and Related
Transactions--Interests of Certain Persons in the Mergers."
Technology and Infrastructure
Each of the founding companies maintains its information systems on a local
area or wide area network architecture that supports both local and remote
processing. The software portfolio used by the professional services firms
includes leading programs for electronic workpapers, tax preparation, time
reporting and billing and financial control and management reporting, as well
as CD-based software for tax and accounting research. In its insurance
brokerage business, Centerprise maintains a wide area network using 14 servers
located at the six offices that house the insurance operations. In providing
employee benefit administration services, Centerprise uses a fully automated,
high volume claims adjudication system that allows it to integrate claims
administration, group billing and administration, and accounting.
Centerprise recognizes the importance of technology in facilitating the
management of its geographically diverse operations and the sharing of
knowledge and professional resources. Accordingly, over time Centerprise
intends to implement an integrated communications and management control
system. During the initial phase of the implementation, Centerprise will focus
on developing a communications network using virtual private network facilities
to establish enterprise wide communications capability. This network will serve
as a "bridge," carrying financial and operating data from the individual
company systems into a corporate data warehouse. This system will also
standardize the different data elements into a form that can be used to manage,
analyze, and report information on a consistent basis. Centerprise also intends
to deploy workgroup technology that facilitates communication and collaboration
across its workforce. In the next phase, Centerprise plans to design and
implement centralized financial control systems. During the final phase,
Centerprise intends to design and implement centralized operational control
systems.
Centerprise believes that its middle-market clients will increasingly use
technology to access the diverse expertise that they are seeking from their
outside advisors. Consistent with its client-focused strategy,
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Centerprise has created a web site that will link clients to each of its
companies, and it intends to develop and provide additional on-line connections
to a network of technical expertise and consulting capabilities.
The technology Centerprise utilizes in providing its services and products
is rapidly changing. Centerpoint's continued success will depend on its ability
to keep pace with technological developments.
Competition
Competitors in the accounting industry range from the Big Five to storefront
tax firms or sole proprietors. Centerprise competes in this industry primarily
with regional firms that also provide services to middle-market clients,
although it also competes for some clients and in some markets with the Big
Five and larger local firms. Centerprise's insurance brokerage business
competes with numerous firms, primarily regional and local insurance brokers,
for customers and insurance carriers. Centerprise's employee benefit plan
business competes with fully insured plan providers and, to a lesser extent,
other third party administrators. Centerprise also competes with in-house
operations of some existing and prospective clients. New competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. Many of Centerpoint's competitors have significantly greater financial
technical, marketing and other resources.
The markets in which Centerprise competes are fragmented and competitive.
This has resulted in the consolidation of many companies in the professional,
business and financial services industries and strategic alliances across
industry lines. As a result, consolidators have emerged. These firms, like
Centerprise, offer professional services and business and financial services.
Centerprise believes that the principal competitive factors in its markets are
the strength of client relationships, quality and breadth of service and
product offerings and professional reputation. Centerprise believes that it
will be able to compete effectively based on its:
. range of high quality services and products;
. expertise and reputation for quality;
. broad geographic coverage;
. operational economies of scale; and
. integrated operating structure.
Regulation
Accounting Profession. Each state has adopted an accountancy law that
establishes procedures for licensing CPAs and grants the exclusive right to
practice accountancy to licensed CPAs and accounting firms that are wholly-
owned by CPAs. The term "attest services" means services that can be provided
only by a licensed CPA or firm under applicable state laws and regulations. The
definition of attest services varies from state to state as described under
"Risk Factors--Regulation of the accounting profession will constrain
Centerprise's operations and impact its structure and numerous issues arising
out of that regulation, its interpretation or its evolution could impair
Centerprise's ability to provide services to some clients, including the attest
firms, reduce its revenues and cause the market value of the common stock to
decline." The state accountancy laws also contain rules and regulations
covering a variety of issues including:
. the permissible forms and ownership of accounting firms;
. the use of the CPA designation;
. the payment and receipt of referral fees;
. the use of contingent fee arrangements;
. engaging in incompatible occupations; and
. the maintenance of independence.
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These rules and regulations differ from state to state. Many state laws
restricting the practice of accountancy to licensed CPAs and firms incorporate
the "holding out" concept under which a person could be deemed to be practicing
accountancy simply by proclaiming expertise in accounting principles or
auditing standards or by using the "CPA" designation on business cards,
letterhead or promotional materials while providing non-attest services.
Working with special regulatory counsel, Centerprise has developed protocols
designed to ensure compliance with states' "holding out" restrictions. Under
these protocols, CPA owners of attest firms in all jurisdictions will be asked
to carry separate business cards, maintain separate mailing addresses and
signage, separate phone and fax numbers, and separate letterhead and marketing
materials so as to clearly communicate to clients and prospects the
organization they are representing and the services they are providing on any
given issue or interaction. Centerprise expects the attest firms to conduct due
diligence to confirm that employees leased from Centerprise under the services
agreements have been trained in, and are current with respect to, the
principles and practices of accounting and auditing. Further, Centerprise's
employees are encouraged and expected to pursue their CPA certifications to
further demonstrate their competency in these areas. At the same time, due to
state regulations, Centerprise will not be communicating their expertise in
these areas to clients or client prospects, as that is the defined role and
responsibility of the CPAs who own the attest firms.
Under the "holding out" concept, many state regulators have taken the
position that the rendering of other financial services by CPAs while holding
themselves out as CPAs constitutes the practice of accountancy and therefore is
subject to their regulations. Accordingly, CPAs who will be employed by
Centerprise may be subject to regulation not only with respect to attest
services, but also with respect to other activities which they may undertake as
employees of Centerprise. Although Centerprise believes that its separate
practice structure is not likely to result in a successful challenge to the
activities of its CPA employees in the states in which Centerprise currently
has material operations, should state regulators deem activities undertaken by
CPAs as employees of Centerprise to be in violation of applicable laws,
regulations or codes of ethics, the CPAs could lose their licenses and their
ability to provide attest services to the clients which the attest firms share
with Centerprise.
In recent years, accounting firms have sought to expand the scope of their
services, often placing them in competition with investment advisors,
management consultants, actuaries, business brokers and others who are not
required to operate under the constraints imposed upon CPAs. This expansion of
services has also prompted many accounting firms to employ non-CPA
professionals to assist them in providing these new services. As a result, the
accounting profession and its regulators have been engaged in discussions over
the past ten years as to ways in which the accountancy laws might be changed so
that accounting firms can effectively compete in providing these additional
services without compromising the objectivity and integrity of CPAs. These
discussions have resulted in the Uniform Accountancy Act, which was proposed in
1997 by the AICPA and the National Association of State Boards of Accountancy.
Certain provisions of the Uniform Accountancy Act have been proposed in various
state legislatures. If and where the Uniform Accountancy Act is adopted as
proposed, state accountancy laws would become more hospitable to an expanded
scope of services and more uniform. Among the principal changes that the
Uniform Accountancy Act, as proposed, would effect are the following:
. permitting non-CPA employees to own up to 49% of the equity interests in
an accounting firm;
. employing a more narrow definition of services that can only be provided
by licensed CPAs than is currently included in many state statutes;
. permitting CPA firms to accept commissions and contingent fees with
respect to clients for whom they do not render reports on financial
statements; and
. facilitating CPAs licensed in one state to practice in other states.
Centerprise believes that its separate practice structure makes a successful
challenge to its operations unlikely under existing regulatory regimes in the
states in which it currently has material operations and that this structure
would comply with the proposed provisions of the Uniform Accountancy Act.
However, only six
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states have published interpretations that specifically address alternative
practice structures. Connecticut has issued a ruling recognizing Centerprise's
proposed structure as being in compliance with its laws, and New York, Texas,
Ohio, Kansas and Idaho have issued rulings recognizing separate practice
formats similar to Centerprise's as being in compliance with their laws. Each
of these rulings contains conditions to the findings that such format complies
with the applicable state's laws, including conditions related to the
maintenance of the separate attest entity's economic independence, management
autonomy and separate public identity. Some of these conditions vary among the
states.
State laws prohibit CPAs from paying or receiving referral fees with respect
to their clients or using fee arrangements that are contingent upon the outcome
of their engagements or the results imparted to their clients. Certain of these
restrictions would be relaxed with the passage of the Uniform Accounting Act,
as currently proposed. Centerprise will comply with these restrictions in
implementing its compensation arrangements.
The accounting profession and accounting regulators require that CPAs
maintain objectivity and independence while performing attest services. These
independence standards prohibit CPAs, employees of accounting firms and members
of the immediate families of such CPAs and employees from having certain
ownership and other financial relationships with attest clients and
participating in the management, operations or accounting functions of such
clients. Independence can also be impaired as a result of litigation or other
disputes with the client, common investments with the client or indemnity
agreements relating to attest services. Under recent interpretations, as
applied to Centerprise's proposed operations, these standards will extend to
Centerprise's executives, board members and controlling stockholders as well as
CPA employees who own the attest firms. With respect to attest firm clients
that are public reporting companies, Centerprise must comply with independence
rules as applied by the SEC staff. For a discussion of these rules as they
apply to Centerprise and the attest firms, see "Risk Factors--Regulation of the
accounting profession will constrain Centerprise's operations and impact its
structure and numerous issues arising out of that regulation, its
interpretation or its evolution could impair Centerprise's ability to provide
services to some clients, including the attest firms, reduce its revenues and
cause the market value of the common stock to decline." In addition to the
independence standards, CPAs who provide litigation consulting services on
behalf of Centerprise or an attest firm will be subject to rules designed to
avoid conflicts of interest, e.g., simultaneous representation of, or other
relationships with, adverse parties. Centerprise intends to comply with
applicable requirements related to independence and avoidance of conflicts of
interest.
Many state accountancy laws and regulations prohibit CPAs from engaging in
"incompatible" occupations. Few states have provided guidance as to what
activities are encompassed by these prohibitions.
Existing state laws and regulations are subject to evolving interpretations
and enforcement policies and practices and present numerous risks to
Centerprise's operations, primarily those described under "Risk Factors--
Regulation of the accounting profession will constrain Centerprise's operations
and impact its structure and numerous issues arising out of that regulation,
its interpretation or its evolution could impair Centerprise's ability to
provide services to some clients, including the attest firms, reduce its
revenues and cause the market value of the common stock to decline."
Insurance Business. Centerprise or its insurance employees must be licensed
to act as agents by state regulatory authorities in the states in which it
provides insurance services. Regulations and licensing laws vary in individual
states and are often complex. The applicable licensing laws and regulations in
all states are subject to amendment or reinterpretation by state regulatory
authorities, and such authorities are vested in most cases with broad
discretion as to the granting, revocation, suspension and renewal of licenses.
State insurance departments and the National Association of Insurance
Commissioners continually re-examine existing laws and regulations. Centerprise
cannot predict the future impact of potential state and federal regulations on
its insurance operations, and there can be no assurance that those changes in
insurance-related laws and regulations, or their interpretation or enforcement,
will not harm Centerprise's insurance brokerage business.
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Employee Welfare Plans. Federal law regulates many aspects of Centerprise's
services relating to employee welfare plans, including the duties and
responsibilities of persons who provide services or sell products to such
plans, and such persons may be held to a fiduciary standard when providing
these services or selling these products. The states also regulate many aspects
of employee benefit plans, principally through the regulation of insurance
products, including stop-loss insurance products sold to self-insured plans.
States also directly regulate third party administrators by requiring licensing
and compliance with state regulations in each state in which they do business.
Federal and state regulations are susceptible to statutory and regulatory
changes that could reduce or eliminate the need for Centerprise's services with
respect to employee benefit plans.
Sales and Marketing
Centerprise's marketing efforts are primarily relationship based.
Historically, the founding companies have acquired new clients and marketed
their services by pursuing client referrals, responding to requests for
engagement proposals, attending trade and industry conferences and using
targeted direct marketing efforts. Many of the professional services firms
generate business through their employees' membership in trade organizations
and civic and community organizations, while other professional services firms
partner with smaller accounting firms that do not have the technological
expertise or resources to take on certain engagements. Generally, the
professional services firms obtain a significant portion of client referrals by
focusing their marketing efforts on existing clients. In addition, some of the
professional services firms have dedicated sales and marketing personnel.
Centerprise sells its insurance services and products through approximately
107 producers who are full-time employees. These producers are assigned to, and
become experts with respect to, a variety of specialty risk groups for which
Centerprise designs specific programs.
In its employee benefits design and administration, Centerprise's sales and
marketing occurs primarily through referrals and its reputation. In addition,
Centerprise employs two full time salespeople who market its services and
products.
As a key component of its marketing strategy, Centerprise will introduce its
various services and products to its existing client base and to cross-service
its existing clients through multiple Centerprise operating units with
complementary service or product expertise. To encourage cross-selling and
servicing of clients, Centerprise intends to establish incentives among its
operating units. In addition, management intends to pursue marketing,
advertising and training programs to establish national identification for the
Centerprise name, while preserving and enhancing the value of the established
regional and local names of its various business units.
Employees
As of June 30, 1999, Centerprise had a total of 2,015 employees, of which
1,475 were employed by Centerprise's professional services firms, 536 were
employed by Centerprise's business and financial services firms and four were
members of Centerprise's corporate management. Of the 1,475 people employed in
connection with professional services, approximately 570 are licensed CPAs. Of
the 407 people employed in connection with insurance brokerage services, 107
are producers. Of the 129 people employed in connection with third party
administrative services, two are in sales and 94 are in claims administration.
None of these employees is represented by a labor union. Centerprise believes
that the founding companies' relations with their employees are good.
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Facilities
Centerprise currently operates 35 leased facilities. The chart below sets
forth information regarding such facilities.
<TABLE>
<CAPTION>
Approximate
Location of Facility Company and Operations Conducted Square Feet
---------------------- --------------------------------------- -----------
<S> <C> <C>
Albany, NY............ Urbach--Professional Services 42,000
Atlanta, GA........... Reznick--Professional Services 20,000
Baltimore, MD......... Reznick--Professional Services 33,200
Bangor, ME............ Berry Dunn--Professional Services 26,000
Bellevue, WA.......... Reppond--Insurance Brokerage 25,300
Bethesda, MD.......... Reznick--Professional Services 68,500
Boston, MA............ Reznick--Professional Services 11,000
Brooklyn Park, MN..... Reppond--Insurance Brokerage 350
Charlotte, NC......... Reznick--Professional Services 6,700
Escondido, CA......... Driver--Insurance Brokerage 8,700
Florissant, MO........ Grace--Professional Services 3,000
Fresno, CA............ Driver--Insurance Brokerage 2,600
Glens Falls, NY....... Urbach--Professional Services 4,000
Hamden, CT............ Simione--Professional Services 800
Hartford, CT.......... Simione--Professional Services 225
Houston, TX........... Mann Frankfort--Professional Services 41,600
Lebanon, NH........... Berry Dunn--Professional Services 5,000
Los Angeles, CA....... Urbach--Professional Services 5,200
Manchester, NH........ Berry Dunn--Professional Services 7,900
New Haven, CT......... Simione--Professional Services 14,100
New York, NY.......... Urbach--Professional Services 9,600
Newport Beach, CA..... Driver--Insurance Brokerage 11,900
Oakland, NJ........... IDA--Benefits Design and Administration 17,900
Ontario, CA........... Driver--Insurance Brokerage 12,600
Portland, ME.......... Berry Dunn--Professional Services 21,800
Poughkeepsie, NY...... Urbach--Professional Services 1,300
Sacramento, CA........ Driver--Insurance Brokerage 2,300
St. Louis, MO......... Grace--Professional Services 28,900
San Diego, CA......... Driver--Insurance Brokerage 39,400
San Francisco, CA..... Driver--Insurance Brokerage 3,600
San Rafael, CA........ Driver--Insurance Brokerage 3,200
Southfield, MI........ Follmer--Professional Services 35,300
Sterling Heights, MI.. Follmer--Professional Services 19,400
Washington, DC........ Urbach--Professional Services 3,100
Yakima, WA............ Reppond--Insurance Brokerage 1,700
</TABLE>
Litigation
Centerprise is not involved in any legal proceedings which it believes are
material to its business, financial condition or results of operations.
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CENTERPRISE MANAGEMENT
Executive Officers and Directors
The following table lists Centerprise's directors and executive officers, as
well as those persons who will become directors and executive officers upon
completion of the offering. In addition to the persons named as directors
below, stockholders of Centerprise intend to elect one additional independent
director prior to the closing of the IPO. Centerprise is in the process of
selecting this individual.
<TABLE>
<CAPTION>
Name Age Position
--------------------- --- ----------------------------------------------
<C> <C> <S>
Robert C. Basten..... 39 Chairman of the board, president and chief
executive officer
Thomas W. Corbett.... 53 Executive vice president, president and chief
operating officer of business and financial
services and a director
DeAnn L. Brunts...... 37 Executive vice president, chief financial
officer and a director
Rondol E. Eagle...... 53 Executive vice president and chief integration
officer
Dennis W. Bikun...... 43 Vice president, chief accounting officer and
treasurer
David Reznick........ 62 Director
Richard H. Stein..... 46 Director
Anthony P. Frabotta.. 48 Director
Charles H. Roscoe.... 55 Director
Steven N. Fischer.... 56 Director
Robert F. Gallo...... 53 Director
Wayne J. Grace....... 59 Director
Anthony P. Scillia... 42 Director
Scott H. Lang........ 53 Director
Louis C. Fornetti.... 49 Director
William J. Lynch..... 57 Director
John M. Cook......... 57 Director
</TABLE>
Robert C. Basten joined Centerprise in November 1998 as chairman of the
board, president and chief executive officer. Prior to joining Centerprise, Mr.
Basten was a senior executive at American Express Company and most recently
served as president and chief executive officer of American Express Tax and
Business Services, a subsidiary of American Express. As head of this unit, Mr.
Basten led the firm's development and emergence as one of the fastest-growing
and most innovative professional and business advisory services firms in the
country. American Express Tax and Business Services was ranked by Accounting
Today as the 11th largest accounting firm in the United States based on fiscal
1997 revenues. Mr. Basten has extensive experience in leading the development
of new businesses both inside and outside of American Express. From 1984 to
April 1998, he held leadership roles at American Express in technology,
financial services marketing and brokerage.
Thomas W. Corbett will become a director and the president and chief
operating officer of Centerprise's business and financial services group upon
the closing of the offering. Mr. Corbett joined Driver in 1977 and assumed the
responsibilities of chief executive officer and chairman of the board of Driver
in 1994. Prior to joining Driver, Mr. Corbett was associated with Allendale
Insurance and spent three years as a loss prevention engineer at Factory Mutual
Engineering Association.
DeAnn L. Brunts joined Centerprise in March 1999 as executive vice
president, chief financial officer and a director. From 1985 until joining
Centerprise, Ms. Brunts was associated with PricewaterhouseCoopers LLP, where
she became a partner in 1996. Ms. Brunts' experience includes strategic
planning, mergers and acquisitions consulting and auditing services for public
and private companies. Ms. Brunts received an MBA in 1992 from the Wharton
School.
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Rondol E. Eagle joined Centerprise in January 1999 as executive vice
president and chief integration officer. From 1990 until joining Centerprise,
Mr. Eagle was a partner and managing director of management consulting services
at Olive LLP, one of the country's 20 largest accounting and consulting firms.
Mr. Eagle is the chairman of the board of the Information Technology Alliance,
one of the oldest and largest trade associations in the accounting profession.
In 1997 and 1998, Mr. Eagle was named in the Accounting Profession's 100 Most
Influential People List as compiled by Accounting Today magazine.
Dennis W. Bikun joined Centerprise in February 1999 as a vice president,
chief accounting officer and treasurer. Prior to joining Centerprise, Mr. Bikun
was a senior executive and most recently a vice president and chief financial
officer of Associated Estates Realty Corporation, a publicly-held real estate
investment trust that owned over 120 multifamily apartment properties located
throughout the United States.
David Reznick will become a director of Centerprise upon the closing of the
offering. Mr. Reznick has been a principal of Reznick since its founding in
1977. Prior to joining Reznick, he was an audit partner of Alexander Grant &
Company, the predecessor to Grant Thornton LLP.
Richard H. Stein will become a director of Centerprise upon the closing of
the offering. Mr. Stein joined Mann Frankfort in 1977 and is a member of its
management committee. Prior to joining Mann Frankfort, Mr. Stein was associated
with Ernst & Ernst from 1974 to 1977.
Anthony P. Frabotta will become a director of Centerprise upon the closing
of the offering. Mr. Frabotta joined Follmer in 1974 and has served as chairman
of Follmer's executive committee since 1997.
Charles H. Roscoe will become a director of Centerprise upon the closing of
the offering. Mr. Roscoe joined Berry Dunn in 1979 and became its president and
managing principal in 1990. Prior to joining Berry Dunn, Mr. Roscoe was
associated with Coopers & Lybrand for 12 years.
Steven N. Fischer will become a director of Centerprise upon the closing of
the offering. Mr. Fischer has served as president and chief executive officer
of Urbach since 1985. Mr. Fischer is the chairman of Urbach Hacker Young
International Limited and also serves as a trustee for Adelphi University.
Robert F. Gallo will become a director of Centerprise upon the closing of
the offering. Mr. Gallo has served as chief executive officer of IDA since
1991. Prior to joining IDA, Mr. Gallo practiced law at a firm which he founded.
Wayne J. Grace will become a director of Centerprise upon the closing of the
offering. Mr. Grace has been a partner of Grace since its founding in 1983 and
served as its managing partner from 1983 to 1998. Prior to establishing Grace,
he was a partner in the accounting firm, Fox & Company from 1969 to 1983, and
served as the managing partner of its St. Louis office from 1979 to 1983. Mr.
Grace served as a director of Petrolite Corporation from 1995 until its merger
with Baker Hughes Incorporated in 1997.
Anthony P. Scillia will become a director of Centerprise upon the closing of
the offering. Mr. Scillia co-founded Simione in 1996. From 1991 to 1996, Mr.
Scillia was a principal with the accounting firm of Scillia & Larrow, P.C. Mr.
Scillia was associated with McGladrey & Pullen from 1988 to 1991 and Ernst &
Young from 1979 to 1988. Mr. Scillia is a member of the Construction Financing
Committee of the Associated General Contractors of America and the National
Construction Industry Conference Committee of the AICPA.
Scott H. Lang became a director of Centerprise in November 1998. Since 1996,
Mr. Lang has been managing member of BGL Management Company, LLC, which is the
managing member of BGL Capital Partners L.L.C., a merchant banking firm which
originates and finances industry consolidations. Mr. Lang is also a managing
director and principal of Brown, Gibbons, Lang & Company, L.P., an investment
banking
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firm, a position he has held since 1995. From 1985 to 1995, he served as
executive vice president and managing director of investment banking at Rodman
& Renshaw, Inc., a Chicago-based securities firm. Prior to 1985, Mr. Lang
practiced law in Washington, D.C., where he was a partner at Arnold & Porter.
Mr. Lang is a director of Compass International Services Corporation.
Louis C. Fornetti will become a director of Centerprise upon the closing of
the offering. From 1995 to 1997, Mr. Fornetti was the executive vice president
and chief financial officer of Interra Financial Inc., now known as Dain
Rauscher, Inc., a regional brokerage firm, and president and chief executive
officer of Interra Clearing Services. From 1985 to 1995, Mr. Fornetti held
various management positions, including senior vice president and chief
financial officer, with American Express Financial Advisors, formerly IDS, a
subsidiary of American Express Corporation and a manufacturer and distributor
of financial products.
William J. Lynch will become a director of Centerprise upon the closing of
the offering. Since 1996, Mr. Lynch has been a managing director of Capstone
Partners, LLC, a special situations venture capital firm. From October 1989 to
March 1996, Mr. Lynch was a partner in the law firm Morgan, Lewis & Bockius
LLP. Mr. Lynch is a director of Coach USA, Inc.
John M. Cook will become a director of Centerprise upon the closing of the
offering. Mr. Cook is chairman of the board and chief executive officer of The
Profit Recovery Group International, Inc., an audit recovery services firm, and
has served in such capacities since founding PRG in November 1990. Mr. Cook
served as president of PRG from November 1990 through January 1998. Prior to
forming PRG, Mr. Cook served as president and chief operating officer of Roy
Greene Associates from 1989 to 1990. From 1987 to 1989, Mr. Cook served as
senior vice president of Caldor Stores, Inc., a division of May Department
Stores Co.
Board of Directors
After completion of the mergers, the board of directors of Centerprise will
consist of 16 directors, each serving for a term of one year. At each annual
meeting of stockholders, stockholders will elect all directors. The current
stockholders of Centerprise have entered into an agreement with respect to
nominating and electing directors through the fifth annual meeting following
the offering. See "Description of Centerprise's Capital Stock--Stockholders'
Agreement" for a description of the agreement. Centerprise expects that the
board of directors will establish an executive committee, an audit committee, a
compensation committee, and such other committees as the board may determine.
The board expects to appoint the members of each committee at the first meeting
of the board of directors following the completion of the IPO.
Director Compensation
Directors who are also employees of Centerprise or one of its subsidiaries
do not receive compensation for serving as directors. Each director who is not
an employee of Centerprise or one of its subsidiaries will receive an annual
stipend of $15,000, a fee of $2,000 for attendance at each board of directors
meeting and $1,000 for each committee meeting unless held on the same day as a
board of directors meeting. Centerprise will also reimburse directors for out-
of-pocket expenses incurred in attending board of directors or committee
meetings or otherwise incurred in their capacity as directors. Upon completion
of the offering, Centerprise will grant each non-employee director options to
purchase 15,000 shares of common stock at an exercise price equal to the
initial public offering price.
Employment Agreements; Covenants-Not-To-Compete
BGL Capital has entered into agreements with Robert C. Basten, DeAnn L.
Brunts, Rondol E. Eagle and Dennis W. Bikun pursuant to which these individuals
provide consulting services to BGL Capital in connection with the mergers and
the offering. As compensation for his consulting services, Mr. Basten is
receiving annual consulting fees of $225,000 and a signing bonus of $210,000.
Ms. Brunts is receiving annual consulting fees of
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$175,000 and a signing bonus of $100,000. Mr. Eagle is receiving annual
consulting fees of $190,000. Mr. Bikun is receiving annual consulting fees of
$175,000. These arrangements will remain in effect until the earliest of the
closing of the offering, the execution of an employment agreement with
Centerprise or termination of the consulting agreement. Amounts paid by BGL
Capital under the consulting agreements, together with interest at 8% per
annum, will be reimbursed by Centerprise from the offering proceeds.
Prior to the closing of the offering, Mr. Basten, Ms. Brunts, Mr. Eagle and
Mr. Bikun will enter into three-year employment agreements with Centerprise
providing for annual base salaries of $250,000, $225,000, $190,000 and
$175,000, respectively. Each employment agreement will also provide for an
annual bonus of up to 100% of the employee's base salary based upon achieving
performance targets established by the compensation committee of the board of
directors. Unless terminated or not renewed by Centerprise or the executive,
the term of each employment agreement will continue after the initial term on a
year-to-year basis on the same terms and conditions existing at the time of
renewal. Each employment agreement will contain a covenant not to compete with
Centerprise for a period ending on the second anniversary of the date of
termination of employment. Under this covenant, the executive cannot:
. engage in any business in competition with Centerprise anywhere in the
United States;
. solicit for employment a Centerprise managerial employee unless that
person has been out of the employ of Centerprise for at least 180 days;
. solicit or sell any competitive products or services to any person or
entity which is, or has been within one year prior to the date of
termination, a customer of Centerprise, or that was known by the employee
to have been actively solicited by Centerprise during such period; or
. call upon a prospective acquisition candidate which was approached or
analyzed by Centerprise within the one year prior to the termination
date, for the purpose of acquiring the entity.
These provisions may be enforced by injunctions or restraining orders and will
be construed in accordance with the changing activities, businesses and
locations of Centerprise.
Each of these employment agreements will provide that, if Centerprise
terminates the executive's employment without cause or if the executive
terminates for "good reason," Centerprise will pay severance compensation.
Severance compensation consists of the executive's then current salary plus the
bonus paid for the last fiscal year for a period of two years following the
date of termination and bonus for the current year prorated through the
termination date. If termination of employment occurs prior to a change in
control of Centerprise, Centerprise will pay severance in equal installments on
the normal payroll payment dates during the severance period. If the
termination occurs after a change in control of Centerprise, Centerprise will
pay severance in a lump sum within 30 days of the termination date.
Cause is defined under the agreements to include:
. a final, non-appealable conviction of a felony or a crime involving moral
turpitude;
. employee's willful failure to comply with reasonable directions of the
board of directors following notice and opportunity to cure;
. the determination by the board of directors that employee has committed
fraud, willful dishonesty, material misconduct or misappropriation of
Centerprise property in the course of employment;
. material breach by employee of the non-competition provisions in the
agreement; and
. material breach by employee of other provisions of the agreement
following notice and opportunity to cure.
So long as the executive does not engage in conduct giving rise to the right to
terminate employment for cause, "good reason" includes:
. the failure to elect the executive to the office previously held, the
removal of the executive from his or her position or the assignment to
the executive of any additional duties or responsibilities or a
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reduction in executive's duties or responsibilities which, in either
case, are inconsistent with those customarily associated with such
position;
. a relocation by Centerprise of the executive's place of employment
beyond a specified area;
. a material decrease in the executive's salary or bonus opportunities;
. material breach by Centerprise of the agreement following notice and
opportunity to cure; and
. subject to certain exceptions, termination by Centerprise of any
employee benefit plan in which the executive participates.
Each of these employment agreements will provide that if, within 30 months
from the closing of the offering, the executive voluntarily terminates his or
her employment other than for "good reason" or under circumstances approved by
the board of directors with respect to the chief executive officer, or approved
by the chief executive officer with respect to other members of management,
restricted shares held by the executive at the date of termination will remain
restricted until the fifth anniversary of the offering. Mr. Basten's employment
agreement will further provide that if within 30 months after the closing of
the offering, he voluntarily terminates his employment other than for "good
reason" or under circumstances approved by the board of directors, he will be
required to pay liquidated damages to Centerprise within 30 days of his
termination. The amount of liquidated damages will be equal to three times the
sum of his base salary and maximum bonus, in each case as in effect at the time
of termination.
Business Services Employees
Upon the closing of the offering, Centerprise and Driver will enter into a
five-year employment agreement with Thomas W. Corbett pursuant to which he will
serve as chairman of the board and chief executive officer of Driver and as
president and chief operating officer of Centerprise's business and financial
services group. Mr. Corbett's annual base salary under this agreement will be
$350,000. Mr. Corbett is also entitled to an annual bonus of up to $250,000 and
additional commission-related compensation of $400,000 per year. Unless
terminated or not renewed by Driver or Mr. Corbett, the term of the employment
agreement will continue after the initial term on a year-to-year basis on the
same terms and conditions existing at the time of renewal. If Driver terminates
Mr. Corbett's employment without cause, or if he voluntarily terminates his
employment within 90 days after a "constructive termination," he will be
entitled to severance benefits equal to $800,000 times the greater of the
number of years left in the employment period or three years. Constructive
termination under Mr. Corbett's employment agreement includes:
. demotion from the position of chairman of the board or chief executive
officer of Driver;
. a reduction in salary, additional compensation, bonus opportunity or
expense allowance, and
. a change in control of Driver other than pursuant to a change in control
of Centerprise.
In addition, the employment agreements of Mr. Corbett, Jerold D. Hall and
Gregory P. Zimmer contain reciprocal provisions under which the triggering of
Driver's obligations to pay severance to any of such individuals will
constitute a constructive termination of the other two employees. Messrs. Hall
and Zimmer are executive officers of Driver. Driver's obligation to pay
severance to Messrs. Hall and Zimmer under their employment agreements would be
triggered by circumstances similar to those provided for in Mr. Corbett's
agreement. Severance benefits for each of Messrs. Hall and Zimmer would equal
their salary and bonus, as then in effect, for a three year period. Messrs.
Hall and Zimmer's annual base salaries will be $200,000 and $250,000,
respectively, and each of them will be entitled to receive an annual bonus in
an amount up to 100% of his base salary.
Under Mr. Corbett's employment agreement, Messrs. Corbett, Hall and Zimmer
have a limited right of first refusal with respect to a sale of Centerprise's
insurance business. Should Centerprise decide to accept an offer for the sale
of its insurance business to a company engaged in the commercial insurance
business, Messrs. Corbett, Hall and Zimmer will have the right, for 45 days
after notice, to purchase Centerprise's insurance
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business on the same terms. A covenant not to compete provides that, until the
second anniversary of the date of termination of employment, other than by the
expiration of Mr. Corbett's employment at the end of the employment period
without renewal of the agreement, Mr. Corbett is prohibited from:
. engaging in any business in direct competition with Driver or
Centerprise's business and financial services group in any territory
where Driver or Centerprise conducts such business;
. soliciting for employment a Centerprise employee;
. soliciting or selling any competitive products or services to any person
or entity which is, or has been within one year prior to the date of
termination, a customer of Driver or of Centerprise's business and
financial services group, or that was known by Mr. Corbett to have been
actively solicited by Centerprise during such period;
. calling upon a prospective acquisition candidate which was approached or
analyzed by Centerprise within one year prior to the termination date,
for the purpose of acquiring the entity; or
. disclosing the identity of any agents or brokers that produce or finance
insurance through Centerprise or any current or prospective policyholder
or premium finance customer for any reason or purpose.
Upon the closing of the offering, IDA will enter into a four-year employment
agreement with Robert F. Gallo, pursuant to which he will serve as IDA's chief
executive officer at an annual base salary of $200,000. This agreement also
provides for an annual bonus of up to 50% of base salary for 1999 and up to
100% of base salary thereafter. Unless terminated or not renewed by IDA or Mr.
Gallo, the agreement will continue after the initial term on a year-to-year
basis on the same terms and conditions existing at the time of renewal. In the
event IDA terminates Mr. Gallo's employment without cause or Mr. Gallo
voluntarily terminates his employment within 60 days after a "constructive
termination," Mr. Gallo will be entitled to severance
compensation which includes his base salary and prorated bonus for the
remainder of his employment term. Constructive termination under Mr. Gallo's
agreement includes:
. demotion to a position substantially below that of IDA's chief executive
officer or the assignment of duties and responsibilities that are not
commensurate with such position;
. substantial reduction in base salary;
. relocation of the place of employment outside the New Jersey area; or
. a change in control of IDA other than pursuant to a change in control of
Centerprise.
This employment agreement will contain a covenant not to compete whereby, until
the second anniversary of the date of termination of employment, Mr. Gallo is
prohibited from:
. engaging in any business in direct competition with IDA within any
business market where IDA conducts business;
. soliciting or selling any competitive products or services to any person
or entity which is, or has been within one year prior to the date of
termination, a customer of IDA or that was known by Mr. Gallo to have
been actively solicited by IDA during such period;
. enticing an employee of IDA away from IDA; or
. calling upon a prospective acquisition candidate which was approached or
analyzed by Centerprise within one year prior to the termination date,
for the purpose of acquiring the entity.
Professional Services Employees
Upon the closing of the mergers, each professional services firm and its
former owners and principals will enter into an incentive compensation
agreement with Centerprise. For a more detailed description of the incentive
compensation agreements, see "Business of Centerprise After the Mergers--
Employee Incentives--
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Professional Services." The incentive compensation agreements include
nonsolicitation covenants by each employee which are effective until the second
anniversary of the date of termination of employment. Generally, during this
period, if the employee directly or indirectly provides services to any person
or entity who was a client of Centerprise at or within one year of the
employee's termination, the employee must pay to Centerprise 125% of the
greater of the average annual fees charged by Centerprise to such client during
the prior three-year period and the fees charged by Centerprise to such client
during the most recent 12-month period. In addition, if during the restricted
period the employee entices an employee of Centerprise away from Centerprise,
the employee must pay to his or her firm 50% of the greater of the solicited
person's total cash compensation for the 12 months preceding such person's
termination of employment or, if known, the 12 months following such
termination. The incentive compensation agreements also prohibit employees,
until the second anniversary of their employment termination date, from calling
upon prospective acquisition candidates which were approached or analyzed by
Centerprise within the six months preceding the employment termination date.
Employee Incentive Compensation Plan
The board of directors and stockholders of Centerprise have adopted an
employee incentive compensation plan. The purpose of this plan is to provide
directors, officers, employees, consultants and independent contractors with
additional incentives by increasing their ownership interests in Centerprise.
Individual awards may take the form of incentive stock options or non-qualified
stock options, stock appreciation rights, restricted or deferred stock,
dividend equivalents, and cash awards or other awards not otherwise provided
for, the value of which is based in whole or in part upon the value of the
common stock. Centerprise's compensation committee will administer the plan,
select the individuals who will receive awards and determine the terms and
conditions of those awards.
Centerprise has reserved 5,759,488 shares of common stock for use in
connection with the plan. However, the number of shares available for use under
the plan at any given time will not exceed 15% of the total number of shares of
common stock outstanding at that time. Shares attributable to awards which have
expired, terminated, canceled or forfeited are available for issuance for
future awards.
The plan will remain in effect until terminated by the board of directors.
The board of directors may amend the plan without the consent of the
stockholders, except that any amendment, although effective when made, will be
subject to stockholder approval if required by law or by the rules of any
national securities exchange or over-the-counter market on which the common
stock may then be listed or quoted.
Upon completion of the IPO, Centerprise will grant non-qualified stock
options to purchase a total of 1,997,442 shares of common stock to corporate
management, employees of the founding companies and non-employee directors.
Centerprise will grant options to purchase an aggregate of 290,000 shares of
common stock to its corporate management including 100,000 options to Mr.
Basten, 100,000 options to Ms. Brunts, 50,000 options to Mr. Eagle and 40,000
options to Mr. Bikun. Centerprise will grant options to purchase an aggregate
of 1,632,442 shares to the employees of the founding companies. The grants will
be effective as of the date of the IPO and each option will have an exercise
price equal to the initial public offering price. These options will vest over
periods ranging from three to five years and will expire 10 years from the date
of grant or earlier if there is a termination of employment. Subject to
policies established by Centerprise's compensation committee, each founding
company will have discretion to determine the allocation of options among its
employees.
The plan provides for the automatic grant to each non-employee director
serving at the closing of the IPO of an option to purchase 15,000 shares of
common stock, and after the IPO, the automatic grant to each non-employee
director of an option to purchase 15,000 shares when the director is initially
elected. In addition, the plan provides for an automatic annual grant to each
non-employee director of an option to purchase 7,500 shares at each annual
meeting of stockholders following the IPO. However, if the first annual meeting
of stockholders following a non-employee director's initial election is within
three months of the date of the election or appointment, the non-employee
director will not be granted an option at the annual meeting. These
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options will have an exercise price per share equal to the fair market value of
a share at the date of grant, will expire at the earlier of 10 years from the
date of grant or one year after termination of service as a director, and will
be immediately exercisable upon grant.
Centerprise's compensation committee has discretion to grant performance
awards for eligible participants with incentives the committee deems
appropriate. It permits the issuance of awards in cash or common stock based on
the satisfaction of specific performance criteria. The performance goals for
any year may be based on a broad array of performance measures as selected by
the compensation committee, including financial results on a consolidated basis
or an operating unit basis depending on the responsibility of the employee, as
well as achievement of personal performance goals. The maximum value of these
awards for any employee in any year is 100% of the employee's salary. In
addition, the compensation committee has discretion to pay, cancel or provide
for the substitution or assumption of these bonus awards.
Employee Stock Purchase Plan
The board of directors and stockholders of Centerprise have adopted an
employee stock purchase plan, under which a total of 2,000,000 shares of common
stock will be reserved for issuance. The stock purchase plan, which is intended
to qualify under Section 423 of the Internal Revenue Code of 1986, permits
eligible employees of Centerprise to purchase common stock through payroll
deductions with all such deductions credited to an account under the stock
purchase plan. Payroll deductions may not exceed $25,000 for all purchase
periods ending within any year.
The stock purchase plan operates on a quarterly basis. To be eligible to
participate, an employee must file all requisite forms prior to a specified due
date known as the "grant date." Generally the first day of each quarter will be
the grant date and the last day of each quarter will be an exercise date. The
determination of the grant dates and the exercise dates is within the
discretion of the committee appointed to administer the stock purchase plan. On
each exercise date, payroll deductions credited to participants' accounts will
be automatically applied to the purchase price of common stock at a price per
share equal to eighty-five percent (85%) of the fair market value of the common
stock on the grant date or the exercise date, whichever is less. Employees
may end their participation in the stock purchase plan at any time during an
offering period, and their payroll deductions up to the date of termination
will be refunded. Participation ends automatically upon termination of
employment with Centerprise.
Employees are eligible to participate in the stock purchase plan if they are
customarily employed by Centerprise or a designated subsidiary for at least 20
hours per week and for more than six months in any calendar year. No employee
will be able to purchase common stock under the stock purchase plan if such
person, immediately after the purchase, would own stock possessing 5% or more
of the total shares of common stock outstanding or 5% of the value of all
outstanding shares of all classes of stock of Centerprise.
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CERTAIN TRANSACTIONS
Organization of Centerprise
Centerprise was incorporated in November 1998 and is currently a wholly-
owned subsidiary of CPA Holdings, LLC, a Delaware limited liability company.
CPA Holdings is 71.4% owned by a group of investors that includes BGL Capital,
Reznick, Fedder & Silverman, C.P.A.s, L.L.C., MFSL Investments, L.P. and the
CCP Group, which served as one of Centerprise's sponsors and consists of Steven
P. Colmar, Benjamin H. Crawford, William G. Parkhouse, William J. Lynch,
Leonard A. Potter and James G. Lynch. William J. Lynch will become a director
of Centerprise upon the closing of the IPO. Centerprise has agreed to issue
warrants to the CCP Group to purchase a total of 100,000 shares of common stock
at the initial public offering price and reimburse PSG Funding Corp., a company
affiliated with the CCP Group, for offering expenses totaling $345,000.
Scott H. Lang, a director of Centerprise, is a managing member of BGL
Management Company, LLC, which is the managing member of BGL Capital which is,
in turn, the managing member of CPA Holdings. Reznick LLC was created by
certain owners of Reznick to hold its co-sponsor interest in Centerprise. David
Reznick, who will become a director of Centerprise upon the closing of the IPO,
is a member of Reznick LLC. MFSL Investments was created by Mann Frankfort's
shareholders and employees to hold its co-sponsor interest. Richard H. Stein,
who will become a director of Centerprise upon the closing of the IPO, is a
managing member of the general partner of MFSL Investments.
The remaining 28.6% of CPA Holdings' outstanding membership interests are
held by Mr. Basten, Ms. Brunts, Mr. Eagle, Mr. Bikun, Jonathan R. Rutenberg and
Reznick LLC.
Following the IPO, CPA Holdings intends to distribute its shares of
Centerprise common stock to its members who, in turn, may further distribute
such shares to their respective members or partners. Notwithstanding such
distributions, these shares will remain subject to transfer restrictions
imposed by the underwriters and the stockholders' agreement.
Following the approximate 212.05817-for-one stock split to be effected prior
to the closing of the IPO, the 17,500 shares of common stock initially issued
by Centerprise to its initial investors and management will total 3,711,019
shares. This number will be reduced if and to the extent additional shares are
paid to founding companies as described below the table under "The Mergers."
The Mergers
The aggregate purchase price to be paid by Centerprise in the mergers
consists of approximately $82.8 million in cash, promissory notes for
approximately $4.2 million and 12,488,981 shares of common stock, plus certain
contingent payments as described below. The following table sets forth the
purchase price to be paid to the stockholders of each of the founding companies
and the percentage of Centerprise's outstanding common stock to be beneficially
owned by the former owners of each founding company following the closing of
the IPO.
<TABLE>
<CAPTION>
Percentage
Promissory Shares of Ownership of
Company Cash note common stock Centerprise
------------------------------ ------- ---------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Reznick....................... $16,899 $ -- 1,810,554 6.8%
Driver........................ 500 -- 2,944,445 11.3
Mann Frankfort................ 19,223 -- 2,059,629 7.7
Follmer....................... 14,416 -- 1,544,571 5.8
Berry Dunn.................... 6,821 -- 931,357 3.5
Urbach........................ 10,006 -- 1,149,014 4.3
IDA........................... 7,814 -- 837,240 3.1
Grace......................... 2,840 -- 304,286 1.1
Reppond....................... -- 4,176 447,428 1.7
Simione....................... 4,297 -- 460,457 1.7
------- ------ ---------- ----
Total..................... $82,816 $4,176 12,488,981 46.8%
======= ====== ========== ====
</TABLE>
74
<PAGE>
The number of shares shown in the table assumes an initial public offering
price of at least $11.90 per share. If the price is below such level, the
number of shares issued to each founding company will increase on a pro rata
basis in accordance with the numbers shown in the table such that the aggregate
value of the shares issued equals $148,618,879.
The former stockholders of Driver will also be entitled to receive a
contingent cash payment equal to 6.75 times the amount, if any, by which
Driver's adjusted earnings before interest, taxes, depreciation and
amortization ("EBITDA") for 2000 exceed $11.6 million. The former stockholders
of IDA will also be entitled to a contingent cash payment equal to the lesser
of (a) $3,414,500 and (b) 6.75 times the amount, if any, by which IDA's
adjusted EBITDA for 2000 exceeds $3,155,027. The former stockholders of Reppond
will also be entitled to receive a contingent cash payment which will be
calculated with respect to a specified twelve month period ending in 2003 and
based on the amount by which the adjusted EBITDA of Centerprise's employee
benefits business, excluding IDA, exceeds specified thresholds. One of
Reppond's stockholders will also be entitled to receive contingent cash
payments with respect to each of the first five twelve month periods following
the closing of the mergers. Such payments will be based on the amount by which
Reppond's adjusted EBITDA for the applicable period exceeds specified
thresholds.
Centerprise and representatives of each founding company determined the
price to be paid for the founding companies through arm's-length negotiations.
The parties considered several factors including the amount of Centerprise Base
Earnings for each professional services firm, and the historical operating
results, net worth, level and type of indebtedness and future prospects of each
founding company. Each founding company was represented by independent counsel
in the negotiation of the terms and conditions of the merger agreement between
Centerprise and the founding company.
Each merger agreement contains standard representations and warranties of
each party. Furthermore, each merger agreement provides that the consummation
of the merger is subject to certain conditions. These conditions include:
. the continuing material accuracy on the closing date of the mergers of
the representations and warranties of the founding company and
Centerprise;
. the performance by each of them of all covenants included in the merger
agreement;
. the absence of a material adverse change in the results of operations,
financial condition or business of the founding company;
. the simultaneous closing of all of the mergers;
. the approval of the merger agreement and related transactions by the
owners of the founding company as required by applicable law; and
. Centerprise's having entered into one or more credit facilities providing
for aggregate commitments of not less than $75 million.
Under applicable state laws, shareholders of Mann Frankfort, Driver, Urbach
and Reppond may dissent by voting against the merger. Dissenting owners who
comply with the requirements of state law will have the right to demand
appraisal of and payment for their shares. Under applicable law, no dissenting
shareholder has any right to contest the validity of the merger or to have the
merger set aside or rescinded, except in an action to test whether the number
of shares required to approve the merger have legally been voted in favor of
the merger and, in the case of the holders of Reppond, in circumstances
involving fraud. The shareholders of the companies will indemnify Centerprise
for any payments required to be made with respect to dissenting shares.
75
<PAGE>
Pursuant to agreements to be signed prior to the closing, the owners of the
founding companies will agree not to compete with Centerprise, for three years
following the closing of the mergers, with respect to Driver and Reppond,
within any business market where Driver or Reppond conducts business and with
respect to the other founding companies, within a 50-mile radius of any
location at which the particular founding company conducts business. The owners
of the founding companies will also agree to restrictions on the transfer of
the shares of common stock they receive in the mergers. Any requested waiver of
such transfer restrictions must be approved by a majority of the members of the
board of directors who are not subject to transfer restrictions at the time of
such proposed waiver.
In connection with the mergers, and as consideration for their interests in
the founding companies, certain directors and officers of Centerprise will
receive cash and shares of common stock as follows:
<TABLE>
<CAPTION>
Shares of
Name Cash common stock
--------------------------------------------------- ---------- ------------
<S> <C> <C>
David Reznick...................................... $1,708,672 108,973
Thomas W. Corbett.................................. -- 509,388
Richard H. Stein................................... 3,234,191 332,982
Anthony P. Frabotta................................ 1,787,033 197,638
Charles H. Roscoe.................................. 380,000 45,142
Steven N. Fischer.................................. 793,000 88,684
Robert F. Gallo.................................... 4,453,980 477,227
Wayne J. Grace..................................... 583,000 54,714
Anthony P. Scillia................................. 200,000 135,582
</TABLE>
For information regarding these individuals' beneficial ownership of
Centerprise's common stock, see "Security Ownership of Management and Principal
Stockholders of Centerprise."
Ancillary Agreements with Professional Services Firms and their Affiliates
With respect to the professional services firms, the closing of their
respective mergers will be conditioned on the execution and delivery of several
ancillary documents. These documents are as follows:
Incentive Compensation Agreements. Upon the closing of the mergers,
Centerprise and each professional services firm will enter into an incentive
compensation agreement with each of the firm's former owners and principals.
Messrs. Reznick, Stein, Frabotta, Roscoe, Fischer, Grace and Scillia will be
parties to their firms' incentive compensation agreements. For a more detailed
description of these agreements, see "Business of Centerprise after the
Mergers--Employee Incentives--Professional Services."
Separate Practice Agreements. Under current state laws and regulations
governing the accounting profession, Centerprise is prohibited from providing
attest services to its clients. Centerprise has required that each professional
services firm divest its attest services prior to the closing of the mergers.
Following the closing, all attest services formerly provided by a professional
services firm will be provided by a separate attest firm in which Centerprise
has no ownership interest. Centerprise and the attest firm and its owners will
enter into a separate practice agreement, which permits the attest firm to
provide attest services to Centerprise's clients. Under such agreement, the
attest firm is responsible for the attest services provided by it and
compliance with applicable ethical, professional and legal requirements. While
the primary risk of professional liability for attest services lies with the
attest firm and the supervising CPA, it does not preclude the possibility that
Centerprise could be drawn into disputes surrounding attest services where
Centerprise employees were involved pursuant to services agreements. With
respect to non-attest services provided by Centerprise employees to clients
other than attest firms, Centerprise will bear the risk of professional
liability. Consequently, Centerprise will maintain a high degree of commitment
to training and internal quality control, as well as appropriate professional
liability insurance coverage. Each attest firm will be required to obtain its
own firm professional liability coverage.
76
<PAGE>
The term of each separate practice agreement will be 40 years. Either
Centerprise's professional services firm or the attest firm may terminate the
separate practices agreement if a court or accounting or other regulatory body
finds that the separate practice structure violates applicable laws, rules or
regulations or subject to applicable cure periods, upon a breach of the
separate practice agreement or services agreement by the non-terminating party.
Under the separate practice structure, CPA employees who are also attest
firm owners will divide their time between Centerprise and the attest firms.
Decisions of how to allocate their time will be left to these individuals. As
was the case prior to the mergers, much of this decision making is expected to
be driven by client demands and schedules.
Services Agreements. Pursuant to non-exclusive services agreements between
Centerprise and the attest firms, Centerprise will manage and administer the
business functions and business affairs of each attest firm. Each attest firm
will retain the exclusive authority to direct the professional and ethical
aspects of the attest services that it provides. Centerprise is responsible for
providing:
.general administrative services, such as billing, collection, bookkeeping
and cash management;
.office space, facilities, equipment, furniture and other personal
property;
.professional, administrative, clerical and other personnel; and
.inventory and supplies.
In connection with the mergers, each of the attest firms will enter into a
binding commitment to use Centerprise to provide for budgeted levels of these
services, including professional and other personnel, for a period of one year.
This binding commitment will continue throughout the term of the services
agreements until and unless an attest firm provides Centerprise with a twelve-
month advance notice of its intention to obtain one or more of the services
previously provided by Centerprise from another source. If such notice were
received, the services agreement, which will initially be priced anticipating
significant usage of Centerprise staffing and other services, would be modified
to identify an alternative computational basis for recovery of the occupancy
and administrative costs that are still being incurred, for example, a cost per
square foot, or cost plus, or flat rate charge.
The term of each agreement will be 40 years. Centerprise's professional
services firm may terminate a services agreement upon certain bankruptcy events
related to the attest firm or if the attest firm or any of its employees fails
to adhere to any compliance plan, policy or manual of Centerprise, engages in
conduct or is formally accused of conduct for which the attest firm's license
would be expected to be subject to revocation or suspension or is otherwise
disciplined by any licensing, regulatory or professional entity or institution.
The attest firm may terminate a services agreement upon certain bankruptcy
events related to Centerprise, or subject to applicable cure periods, if
Centerprise engages in gross negligence or fraud in the performance of any
material duty or material obligation imposed under the services agreement,
which gross negligence or fraud has not been cured. The attest firm may also at
any time terminate Centerprise's duties to provide general and administrative
services, inventory and supplies by delivering written notice one year in
advance of the termination.
Under each of the services agreements, Centerprise and the attest firm have
agreed that if any provision of the agreement is found to be in violation of
applicable laws or regulations, Centerprise and the attest firm will amend the
agreement as necessary to preserve the underlying economic and financial
arrangements without substantial economic detriment to either party. If the
agreement cannot be so amended, it will terminate. These terms of the services
agreements could limit Centerprise's flexibility to modify its operations in
response to regulatory issues. See "Risk Factors--Regulation of the accounting
profession will constrain Centerprise's operations and impact its structure and
numerous issues arising out of that regulation, its interpretation or its
evolution could impair Centerprise's ability to provide services to some
clients, including the attest firms, reduce its revenues and cause the market
value of the common stock to decline."
77
<PAGE>
Other Transactions
As of June 30, 1999, BGL Capital had funded $2.8 million in expenses in
connection with Centerprise's formation, the IPO and the mergers. This amount
includes legal, accounting and other fees including consulting fees and signing
bonuses payable to Mr. Basten, Ms. Brunts, Mr. Eagle and Mr. Bikun under their
consulting agreements. Centerprise anticipates that additional amounts will be
advanced by BGL Capital on Centerprise's behalf prior to the closing of the
IPO. All amounts advanced by BGL Capital to Centerprise or paid by BGL Capital
under the consulting agreements, together with interest at an annual rate of 8%
from the date of payment by BGL Capital, will be repaid by Centerprise from the
proceeds of the IPO.
Follmer leases its Southfield, Michigan space from Lincoln Development
Corporation, a company which is 50% owned by Follmer Rudzewicz Development.
Follmer Rudzewicz Development is a limited partnership which is owned in part
by Anthony P. Frabotta. The lease term began in 1988 and expires in 2004. The
current
annual rent is approximately $680,000, which amount increases over the term of
the lease. The annual rent for the 2003 to 2004 term is approximately $736,000.
At June 30, 1999, the outstanding balance of working capital advances to
Grace from Wayne J. Grace was approximately $60,000.
All loans and advances between the founding companies and their
shareholders, affiliates or employees will be paid in full prior to or at the
time of the closing of the mergers.
78
<PAGE>
INFORMATION REGARDING THE CENTERPRISE COMPANIES
Berry, Dunn, McNeil & Parker
General
Berry, Dunn, McNeil & Parker, Chartered, founded in 1974, provides a wide
range of accounting, tax and business consulting services to a variety of
business clients in both the private and public sectors. Berry Dunn is one of
the largest accounting firms in the Northeast in terms of number of
professionals, and was ranked No. 53 in the Top 100. Berry Dunn has significant
expertise serving clients in the health care, financial institutions,
telecommunications, real estate and construction industries. The firm also
provides information technology consulting services to clients in a variety of
industries. Berry Dunn maintains offices in Portland, Maine; Bangor, Maine;
Manchester, New Hampshire; and Lebanon, New Hampshire. In addition to providing
Centerprise with a regional distribution point in New England, Berry Dunn will
participate significantly in developing Centerprise's anticipated national
practice in health care consulting services. Its principal executive offices
are located at 100 Middle Street, Portland, Maine 04104.
Regulation
As a service provider in the accounting profession, Berry Dunn's operations
are subject to state regulation. See "Business of Centerprise After the
Mergers--Regulation."
Employees
As of June 30, 1999, Berry Dunn employed approximately 150 professional
employees, of which 78 were licensed CPAs, and 40 non-professional employees.
None of Berry Dunn's employees is represented by a labor union. Management of
Berry Dunn believes its employee relations are good.
Selected Financial Data
The following table sets forth selected financial data for Berry Dunn on a
historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------
1997 1998 1999
------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $16,812 100.0% $17,916 100.0% $18,604 100.0%
Expenses:
Member compensation and related
costs.......................... 6,214 37.0 7,113 39.7 6,574 35.3
Employee compensation and
related costs.................. 6,441 38.3 6,318 35.3 7,513 40.4
Other operating expenses........ 4,113 24.4 4,405 24.6 4,461 24.0
------- ----- ------- ----- ------- -----
Income from operations........... $ 44 0.3% $ 80 0.4% $ 56 0.3%
======= ===== ======= ===== ======= =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Year Ended June 30, 1999 Compared to the Year Ended June 30,
1998--Berry Dunn
Revenues. Revenues increased $688,000, or 3.8%, from $17.9 million in the
year ended June 30, 1998 to $18.6 million in the year ended June 30, 1999,
primarily due to a net increase in billings for recurring services as well as
special projects.
79
<PAGE>
Member Compensation and Related Costs. Member compensation and related costs
decreased $539,000, or 7.6%, from $7.1 million in the year ended June 30, 1998
to $6.6 million in the year ended June 30, 1999, primarily due to the departure
of two members. As a percentage of revenues, these expenses decreased from
39.7% in the year ended June 30, 1998 to 35.3% in the year ended June 30, 1999.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $1.2 million, or 18.9%, from $6.3 million in the year ended
June 30, 1998 to $7.5 million in the year ended June 30, 1999, primarily due to
staff additions and salary increases. As a percentage of revenues, these
expenses increased from 35.3% in the year ended June 30, 1998 to 40.4% in the
year ended June 30, 1999.
Other Operating Expenses. Other operating expenses increased $56,000, or
1.3%, from $4.4 million in the year ended June 30, 1998 to $4.5 million in the
year ended June 30, 1999, primarily due to increased business development
costs, depreciation, occupancy costs and expenditures for new tax software. As
a percentage of revenues, these expenses decreased from 24.6% in the year ended
June 30, 1998 to 24.0% in the year ended June 30, 1999.
Results for the Year Ended June 30, 1998 Compared to the Year Ended June 30,
1997--Berry Dunn
Revenues. Revenues increased $1.1 million, or 6.6%, from $16.8 million in
the year ended June 30, 1997 to $17.9 million in the year ended June 30, 1998,
primarily due to an increase in the hourly billing rates for information
technology and other consulting projects.
Member Compensation and Related Costs. Member compensation and related costs
increased $899,000, or 14.5%, from $6.2 million in the year ended June 30, 1997
to $7.1 million in the year ended June 30, 1998, primarily due to increased
profits. As a percentage of revenues, these expenses increased from 37.0% in
the year ended June 30, 1997 to 39.7% in the year ended June 30, 1998.
Employee Compensation and Related Costs. Employee compensation and related
costs decreased $123,000, or 1.9%, from $6.4 million in the year ended June 30,
1997 to $6.3 million in the year ended June 30, 1998, primarily due to
reduction in administrative staff offset in part by salary increases. As a
percentage of revenues, these expenses decreased from 38.3% in the year ended
June 30, 1997 to 35.3% in the year ended June 30, 1998.
Other Operating Expenses. Other operating expenses increased $292,000, or
7.1%, from $4.1 million in the year ended June 30, 1997 to $4.4 million in the
year ended June 30, 1998, primarily due to an increase in depreciation of
personal computers. As a percentage of revenues, these expenses increased from
24.4% in the year ended June 30, 1997 to 24.6% in the year ended June 30, 1998.
Liquidity and Capital Resources--Berry Dunn
Berry Dunn generated net cash flow from operating activities of
approximately $897,000, $1.6 million and $1.1 million in the years ended June
30, 1999, 1998 and 1997, respectively. Net cash used in investing activities
was approximately $1.5 million for the year ended June 30, 1999 and $1.1
million in each of the years ended June 30, 1998 and 1997. Net cash used in
financing activities was approximately $1.3 million for the year ended June 30,
1999, principally due to payments of debt net of capital contributed by
principals and repayments from related parties. In the years ended June 30,
1998 and 1997, net cash provided by financing activities was approximately
$337,000 and $1.1 million, respectively, principally from repayments from
related parties, proceeds from debt and capital contributed by principals. At
June 30, 1999, Berry Dunn had a net working capital deficit of $2.2 million.
Interest of Continuing Directors
Upon completion of the IPO, Charles H. Roscoe will become a director of
Centerprise. See "Centerprise Management."
80
<PAGE>
Principal Stockholders
The following table sets forth, as of September 1, 1999, the number of
shares beneficially owned by all of the stockholders of Berry Dunn. Unless
otherwise indicated, the persons named below have sole voting and investment
power with respect to all shares shown as beneficially owned by them:
<TABLE>
<CAPTION>
Shares Approximate
Name Beneficially Owned Percent Owned
---- ------------------ -------------
<S> <C> <C>
Charles H. Roscoe........................ 484.694 4.97
Richard R. Gossellin..................... 382.653 3.93
Gerald R. Lavigne........................ 382.653 3.93
Erick L. Wordon.......................... 382.653 3.93
Kenneth L. Roberts....................... 178.571 1.83
Lee J. Chick............................. 255.102 2.62
Edward G. Asherman, Jr................... 382.653 3.93
Elliot D. Lerner......................... 204.082 2.09
Christopher T. Tyson..................... 178.571 1.83
Harry E. Meyer........................... 382.653 3.93
Janice D. Latulippe...................... 153.061 1.57
James R. Maynard......................... 382.653 3.93
Lawrence E. Parker, Jr................... 663.265 6.81
Raymond L. Cunliffe...................... 382.653 3.93
Stephanie Rice........................... 153.061 1.57
John T. Gurley........................... 382.653 3.93
Michael T. McNeil........................ 612.245 6.28
John H. Jackson, Jr...................... 382.653 3.93
Drew E. Swenson.......................... 331.633 3.40
John M. Chandler......................... 331.633 3.40
Tracy W. Harding......................... 331.633 3.40
Clifford C. Abbott, Jr................... 178.571 1.83
Francis P. Johnson....................... 382.653 3.93
Rodney F. Irish.......................... 484.694 4.97
Kenneth S. Jones......................... 331.633 3.40
Ralph A. Pascale, Jr..................... 204.082 2.09
Jeffrey D. Walla......................... 255.102 2.62
J. Maurice L. Bisson..................... 382.653 3.93
Richard A. Charpentier................... 204.082 2.09
--------- ------
9,744.898 100.00
</TABLE>
Follmer, Rudzewicz & Company, P.C.
General
Follmer, Rudzewicz & Company, P.C., the predecessor of which was founded in
1968, provides a broad range of accounting, tax and business consulting
services to closely held companies with an emphasis on manufacturing companies.
Follmer is headquartered in Southfield, Michigan and also maintains an office
in Sterling Heights, Michigan. After the Big Five, Follmer is the second
largest firm in the Detroit metropolitan area based on the number of
professionals, and was ranked No. 46 in the Top 100. Follmer will provide
Centerprise with a regional distribution point in the upper Midwest and a
platform for Centerprise's anticipated national practice focused on the
manufacturing industry. Its principal executive offices are located at 12900
Hall Road, Suite 500, Sterling Heights, Michigan 48313.
81
<PAGE>
Regulation
As a service provider in the accounting profession, Follmer's operations are
subject to state regulation. See "Business of Centerprise After the Mergers--
Regulation."
Employees
As of June 30, 1999, Follmer employed 146 professional employees, of which
74 were licensed CPAs, and 52 non-professional employees. None of Follmer's
employees is represented by a labor union. Management of Follmer believes its
employee relations are good.
Selected Financial Data
The following table sets forth selected financial data for Follmer on a
historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------------------
1997 1998 1999
------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $17,954 100% $19,417 100% $22,525 100%
Expenses:
Member compensation and
related costs......... 6,646 37.0 7,339 37.8 8,797 39.0
Employee compensation
and related costs..... 7,567 42.1 8,225 42.4 9,949 44.2
Other operating
expenses.............. 4,042 22.6 3,891 20.0 4,688 20.8
------- ---- ------- ---- ------- ----
Income (loss) from
operations............. $ (301) (1.7)% $ (38) (0.2)% $ (909) (4.0)%
======= ==== ======= ==== ======= ====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Year Ended May 31, 1999 Compared to the Year Ended May 31,
1998--Follmer
Revenues. Revenues increased $3.1 million, or 16.0%, from $19.4 million in
the year ended May 31, 1998 to $22.5 million in the year ended May 31, 1999,
primarily due to an expansion of the firm's computer information service,
organizational development and training ("ODT") and ISO service lines. Follmer
was also able to increase its realization rates as demand for its services
increased.
Member Compensation and Related Costs. Member compensation and related costs
increased $1.5 million, or 19.9%, from $7.3 million in the year ended May 31,
1998 to $8.8 million in the year ended May 31, 1999, primarily due to an
increase in operating income of the firm over the comparable period. As a
percentage of revenues, these expenses increased from 37.8% in the year ended
May 31, 1998 to 39.0% in the year ended May 31, 1999.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $1.7 million, or 21.0%, from $8.2 million in the year ended May
31, 1998 to $9.9 million in the year ended May 31, 1999, primarily due to an
increase in base compensation levels of the professional staff in an effort to
be more competitive with the Big Five in the Detroit metropolitan area. As a
percentage of revenues, these expenses increased from 42.4% in the year ended
May 31, 1998 to 44.2% in the year ended May 31, 1999.
Other Operating Expenses. Other operating expenses increased $797,000, or
20.5%, from $3.9 million in the year ended May 31, 1998 to $4.7 million in the
year ended May 31, 1999, primarily due to an increase in occupancy costs and
consulting fees related to the outsourcing of personnel used to staff the
firm's ODT services product. As a percentage of revenues, these expenses
increased from 20.0% in the year ended May 31, 1998 to 20.8% in the year ended
May 31, 1999.
82
<PAGE>
Results for the Year Ended May 31, 1998 Compared to the Year Ended May 31,
1997--Follmer
Revenues. Revenues increased $1.5 million, or 8.2%, from $18.0 million in
the year ended May 31, 1997 to $19.4 million in the year ended May 31, 1998,
primarily due to an increase in realized billing rates, a modest number of new
clients and the growth in the firm's valuation services, ODT and ISO service
lines.
Member Compensation and Related Costs. Member compensation and related costs
increased $693,000, or 10.4%, from $6.6 million in the year ended May 31, 1997
to $7.3 million in the year ended May 31, 1998. This increase was due to the
growth in the firm's net operating income available for member compensation. As
a percentage of revenues, these expenses increased from 37.0% in the year ended
May 31, 1997 to 37.8% in the year ended May 31, 1998.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $658,000, or 8.7%, from $7.6 million in the year ended May 31,
1997 to $8.2 million in the year ended May 31, 1998, primarily due to an
increase in base compensation levels of the professional staff in an effort to
be more competitive with the Big Five in the Detroit metropolitan area. As a
percentage of revenues, these expenses increased from 42.1% in the year ended
May 31, 1997 to 42.4% in the year ended May 31, 1998.
Other Operating Expenses. Other operating expenses decreased $151,000, or
3.7%, from $4.0 million in the year ended May 31, 1997 to $3.9 million in the
year ended May 31, 1998, primarily due to a reduction in bad debts and practice
development expenses. As a percentage of revenues, these expenses decreased
from 22.6% in the year ended May 31, 1997 to 20.0% in the year ended May 31,
1998.
Results for the Year Ended May 31, 1997 Compared to the Year Ended May 31,
1996--Follmer
Revenues. Revenues increased $2.4 million, or 15.6%, from $15.5 million in
the year ended May 31, 1996 to $18.0 million in the year ended May 31, 1997.
This increase was due to an increase in realized billing rates, a modest number
of new clients and the growth in the firm's valuation services, ODT and ISO
service lines.
Member Compensation and Related Costs. Member compensation and related costs
increased $1.8 million, or 37.5%, from $4.8 million in the year ended May 31,
1996 to $6.6 million in the year ended May 31, 1997. This increase was due to
the addition of one new partner and an increase in net operating income upon
which member compensation is determined. As a percentage of revenues, these
expenses increased from 31.1% in the year ended May 31, 1996 to 37.0% in the
year ended May 31, 1997.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $918,000, or 13.8%, from $6.6 million in the year ended May 31,
1996 to $7.6 million in the year ended May 31, 1997, primarily due to the
addition of 20 professional staff members and annual performance-based
compensation increases. As a percentage of revenues, these expenses decreased
from 42.8% in the year ended May 31, 1996 to 42.1% in the year ended May 31,
1997.
Other Operating Expenses. Other operating expenses increased $261,000, or
6.9%, from $3.8 million in the year ended May 31, 1996 to $4.0 million in the
year ended May 31, 1997, primarily due to increases in training, occupancy,
advertising, promotional and depreciation expenses. As a percentage of
revenues, these expenses decreased from 24.4% in the year ended May 31, 1996 to
22.6% in the year ended May 31, 1997.
Liquidity and Capital Resources--Follmer
Follmer used cash in operating activities of approximately $228,000 in the
year ended May 31, 1999. Net cash flow from operating activities was
approximately $1.4 million and $226,000 in the years ended May 31, 1998 and
1997, respectively. Net cash used in investing activities was approximately
$1.1 million, $927,000
83
<PAGE>
and $1.2 million in the years ended May 31, 1999, 1998 and 1997, respectively,
primarily for purchases of property and equipment. Net cash provided by
financing activities for the year ended May 31, 1999 was approximately $1.4
million and was generated primarily by advances from shareholders and proceeds
from borrowings on line of credit net of payments of debt and the acquisition
and retirement of stock. In the year ended May 31, 1998, cash provided by
financing activities totaled $37,000 and was generated primarily from advances
from shareholders and the issuance of stock net of proceeds and payments of
debt. Net cash provided by financing activities in the year ended May 31, 1997
totaled $1.2 million and was provided by net advances from shareholders and
payments of debt. At May 31, 1999, Follmer had a working capital deficit of
$1.8 million.
Interest of Continuing Directors
Upon completion of the IPO, Anthony P. Frabotta will become a director of
Centerprise. See "Centerprise Management."
Principal Stockholders
The following table sets forth, as of September 1, 1999, the number of
shares beneficially owned by all of the stockholders of Follmer. The persons
named below have sole voting and investment power with respect to all shares
shown as beneficially owned by them:
<TABLE>
<CAPTION>
Shares Approximate
Name Beneficially Owned Percent Owned
---- ------------------ -------------
<S> <C> <C>
Michael Santicchia....................... 200 2.8
Anthony P. Frabotta...................... 1,100 15.2
Timothy J. Caughlin...................... 900 12.4
Peter E. Meagher, III.................... 550 7.5
Patrick J. Gregory....................... 350 4.8
Daniel P. Markey......................... 350 4.8
James J. Bauters......................... 300 4.1
Gordon R. Follmer........................ 1,450 20.0
John J. Rudzewicz........................ 1,450 20.0
Dennis J. Petri.......................... 200 2.8
Gerald J. Grady.......................... 200 2.8
Dennis J. LaPorte........................ 200 2.8
----- ------
Total.................................. 7,250 100.00
</TABLE>
Grace & Company, P.C.
General
Grace & Company, P.C., founded in 1983, provides a full range of accounting,
tax and consulting services to clients in a spectrum of industries including
manufacturing, construction and real estate. Grace is headquartered in St.
Louis, Missouri and, after the Big Five, is the second largest accounting firm
in St. Louis in terms of number of professionals. Grace will provide
Centerprise with a lower-Midwest regional distribution point. Its principal
executive offices are located at 3117 South Big Bend Boulevard, Suite 100, St.
Louis, Missouri 63143.
Regulation
As a service provider in the accounting profession, Grace's operations are
subject to state regulation. See "Business of Centerprise After the Mergers--
Regulation."
84
<PAGE>
Employees
As of June 30, 1999, Grace employed 88 professional employees, of which 50
were licensed CPAs, and 36 non-professional employees. None of Grace's
employees is represented by a labor union. Management of Grace believes its
employee relations are good.
Selected Financial Data
The following table sets forth selected financial data for Grace on a
historical basis and as a percentage of revenues for the period indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
Year Ended --------------------------
December 31, 1998 1998 1999
------------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $ 9,691 100.0% $5,684 100.0% $6,269 100.0%
Expenses:
Member compensation and
related costs........... 2,709 28.0 1,395 24.6 1,464 23.4
Employee compensation and
related costs........... 5,075 52.4 2,713 47.7 2,955 47.1
Other operating
expenses................ 1,380 14.2 761 13.4 838 13.4
--------- -------- ------ ----- ------ -----
Income from operations..... $ 527 5.4% $ 815 14.3% $1,012 16.1%
========= ======== ====== ===== ====== =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Six Months Ended June 30, 1999 Compared to the Six Months
Ended June 30, 1998--Grace
Revenues. Revenues increased $585,000, or 10.3%, from $5.7 million for the
six months ended June 30, 1998 to $6.3 million for the six months ended June
30, 1999, primarily due to a net increase in billings to clients for recurring
work as well as special projects.
Member compensation and related costs. Member compensation and related
costs remained relatively constant at approximately $1.4 million for the six
months ended June 30, 1998 and 1999, respectively. As a percentage of
revenues, these expenses decreased from 24.6% in the six months ended June 30,
1998 to 23.4% in the six months ended June 30, 1999.
Employee compensation and related costs. Employee compensation and related
costs increased $242,000, or 8.9%, from $2.7 million in the six months ended
June 30, 1998 to $3.0 million in the six months ended June 30, 1999, primarily
due to annual performance-based compensation increases. As a percentage of
revenues, these expenses decreased from 47.7% in the six months ended June 30,
1998 to 47.1% in the six months ended June 30, 1999.
Other operating expenses. Other operating expenses increased $77,000, or
10.1%, from $761,000 in the six months ended June 30, 1998 to $838,000 in the
six months ended June 30, 1999. The increase was primarily due to increased
occupancy costs related to a recent expansion. As a percentage of revenues,
these expenses remained constant at 13.4% in the six months ended June 30,
1998 and 1999, respectively.
Liquidity and Capital Resources--Grace
Grace used cash in operating activities of approximately $59,000 in the six
months ended June 30, 1999. Cash provided by operating activities was $613,000
for the six months ended June 30, 1998. For the six months ended June 30, 1999
and 1998, net cash used in investing activities was approximately $80,000 and
$176,000,
85
<PAGE>
respectively, principally for property and equipment purchases and an increase
in the cash surrender value of life insurance. In the six months ended June 30,
1999, net cash provided by financing activities was approximately $152,000,
principally from short-term borrowings. Net cash used in financing activities
was $446,000 for the six months ended June 30, 1998, principally for repayments
of short-term borrowings. At June 30, 1999, Grace had working capital of
approximately $196,000.
Interest of Continuing Directors
Upon completion of the IPO, Wayne J. Grace will become a director of
Centerprise. See "Centerprise Management."
Principal Stockholders
Grace Capital owns 100% of the common stock of Grace. The following table
sets forth, as of September 1, 1999, the membership interests beneficially
owned by all of the members of Grace Capital. The persons named below have sole
voting and investment power with respect to all interests shown as beneficially
owned by them.
<TABLE>
<CAPTION>
Approximate
Name Percent Owned
---- -------------
<S> <C>
Wayne J. Grace.............................................. 19.4
Paul E. Schiavo............................................. 9.4
Frank H. Brandhorst......................................... 11.8
Patrick P. Rohrkaste........................................ 8.1
Jeffrey R. Greene........................................... 7.0
Patrick E. Stark............................................ 13.9
Robert J. Bauer............................................. 6.5
David W. Gresham............................................ 5.6
Lawrence J. Porschen........................................ 10.9
Kent T. Cornell............................................. 5.2
Larry R. Jourden............................................ 0.7
Gerald P. Townsend.......................................... 0.7
Larry H. Weber.............................................. 0.7
-----
Total..................................................... 100.0
</TABLE>
Insurance Design Administrators
General
Self Funded Benefits, Inc., which does business under the trade name
Insurance Design Administrators, was founded in 1979. IDA is an independent
healthcare management company that designs healthcare programs and provides
claims administration services in both the private and public sectors. IDA has
made significant investments in technology to develop a scalable infrastructure
capable of handling a large volume of business. IDA is headquartered in
Oakland, New Jersey. In addition to designing healthcare programs, IDA also
manages healthcare claims of its clients. Based on the annual volume of claims
handled, IDA was ranked by Employee Benefit News in July 1998 as the 11th
largest third party administrator in the United States. IDA will provide the
platform for Centerprise's anticipated national practice in third party
administration and self insurance services. Its principal executive offices are
located at 169 Ramapo Valley Road, Oakland, New Jersey 07436.
Regulation
As a service provider in the employee benefit plan business, IDA's
operations are subject to state regulation. See "Business of Centerprise After
the Mergers--Regulation."
86
<PAGE>
Employees
As of June 30, 1999, IDA had 129 employees, of which 12 were in management,
2 in sales, 94 in claims administration and 21 in general administration.
Selected Financial Data
The following table sets forth selected financial data for IDA on a
historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
--------------------------- --------------------------
1997 1998 1998 1999
------------ ------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $9,661 100.0% $10,496 100.0% $4,992 100.0% $5,502 100.0%
Expenses:
Employee compensation
and related costs.... 6,047 62.6 6,461 61.6 2,930 58.7 3,156 57.4
Other operating
expenses............. 2,668 27.6 2,751 26.2 1,588 31.8 1,708 31.0
------ ----- ------- ----- ------ ----- ------ -----
Income from operations.. $ 946 9.8% $ 1,284 12.2% $ 474 9.5% $ 638 11.6%
====== ===== ======= ===== ====== ===== ====== =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Six Months Ended June 30, 1999 Compared to the Six Months
Ended June 30, 1998--IDA
Revenues. Revenues increased $510,000, or 10.2%, from $5.0 million for the
six months ended June 30, 1998 to $5.5 million for the six months ended June
30, 1999, primarily due to an increase in the number of lives for which IDA
provides benefits administration services.
Employee compensation and related costs. Employee compensation and related
costs increased $226,000, or 7.7%, from $2.9 million in the six months ended
June 30, 1998 to $3.2 million in the six months ended June 30, 1999, primarily
due to staff additions, an increase in overtime compensation, salary increases
and bonuses. As a percentage of revenues, these expenses decreased from 58.7%
in the six months ended June 30, 1998 to 57.4% in the six months ended June 30,
1999.
Other operating expenses. Other operating expenses increased $120,000, or
7.6%, from $1.6 million for the six months ended June 30, 1998 to $1.7 million
for the six months ended June 30, 1999, primarily due to increases in
commission and postage expenses. As a percentage of revenues, these expenses
decreased from 31.8% in the six months ended June 30, 1998 to 31.0% in the six
months ended June 30, 1999.
Results for the Year Ended December 31, 1998 Compared to the Year Ended
December 31, 1997--IDA
Revenues. Revenues increased $835,000, or 8.6%, from $9.7 million for the
year ended December 31, 1997 to $10.5 million for the year ended December 31,
1998, primarily as a result of the addition of a major customer in January 1998
for which IDA provides benefits administration for an approximate enrollment of
2,300 lives. In addition IDA experienced an increase in COBRA and PPO
administration fees.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $414,000, or 6.8%, from $6.0 million in the year ended December
31, 1997 to $6.5 million in the year ended December 31, 1998, as a result of
annual performance-based compensation increases, additional staffing and an
increase in overtime compensation. As a percentage of revenues, these expenses
decreased from 62.6% in the year ended December 31, 1997 to 61.6% in the year
ended December 31, 1998.
87
<PAGE>
Other Operating Expenses. Other operating expenses remained relatively
constant at $2.7 million for the years ended December 31, 1997 and 1998. As a
percentage of revenues, these expenses decreased from 27.6% in the year ended
December 31, 1997 to 26.2% in the year ended December 31, 1998.
Liquidity and Capital Resources--IDA
IDA generated net cash flow from operating activities of approximately
$810,000 and $1.1 million in the six months ended June 30, 1999 and 1998,
respectively. IDA generated net cash from operating activities of approximately
$1.8 million and $996,000 in the years ended December 31, 1998 and 1997,
respectively. For the six months ended June 30, 1999 and 1998, net cash used in
investing activities was approximately $59,000 and $10,000, respectively, for
property and equipment purchases. Net cash used in investing activities was
approximately $105,000 and $451,000 in the years ended December 31, 1998 and
1997, respectively, primarily for purchases of property and equipment. In the
six months ended June 30, 1999 and 1998, net cash used in financing activities
was approximately $972,000 and $761,000, respectively, for payments of long-
term debt and dividends. Cash used in financing activities was approximately
$1.1 million and $730,000 in the years ended December 31, 1998 and 1997,
respectively, primarily for payments of dividends of $850,000 and $980,000 in
1998 and 1997, respectively, and payments of long-term debt of $202,000 in 1998
and net proceeds from the issuance of debt long-term of $250,000 in 1997. At
June 30, 1999, IDA had working capital of approximately $516,000.
Interest of Continuing Directors
Upon completion of the IPO, Robert F. Gallo will become a director of
Centerprise. Further, upon completion of the offering, Mr. Gallo will enter
into a four-year employment agreement with IDA pursuant to which Mr. Gallo will
serve as IDA's chief executive officer, at an annual base salary of $200,000,
This agreement also provides for a bonus of up to 50% of base salary for 1999
and up to 100% of base salary thereafter. See "Centerprise Management."
Principal Stockholders
The following table sets forth, as of September 1, 1999, the number of
shares beneficially owned by all of the stockholders of IDA. The persons named
below have sole voting and investment power with respect to all shares shown as
beneficially owned by them.
<TABLE>
<CAPTION>
Shares Beneficially Owned of Shares Beneficially Owned of Class B Approximate
Name Class A Voting Common Stock Non-Voting Common Stock Percent Owned
---- ---------------------------- ------------------------------------ -------------
<S> <C> <C> <C>
Robert F. Gallo......... 75 7,425 50.6
Russell Minetti......... 74 7,235 49.4
--- ------ -----
Total................. 149 14,660 100.0
</TABLE>
Mann Frankfort Stein & Lipp, P.C.
General
Mann Frankfort Stein & Lipp, P.C., founded in 1971, provides accounting,
tax, financial reporting, consulting and litigation consulting services
primarily to closely held clients in a wide range of industries. Mann
Frankfort, located in Houston, Texas, is Houston's largest accounting firm
other than the Big Five based on the number of professionals, and was ranked
No. 44 in the Top 100. Mann Frankfort provides a regional distribution point in
Texas and will be the lead member of Centerprise's anticipated national
practice in litigation consulting services. Its principal executive offices are
located at 12 Greenway Plaza, 8th Floor, Houston, Texas 77046.
88
<PAGE>
Regulation
As a service provider in the accounting profession, Mann Frankfort's
operations are subject to state regulation. See "Business of Centerprise After
the Mergers--Regulation."
Employees
As of June 30, 1999, Mann Frankfort had 137 professional employees, of
which 99 were licensed CPAs, and 41 non-professional employees. None of Mann
Frankfort's employees is represented by a labor union. Management of Mann
Frankfort believes its employee relations are good.
Selected Financial Data
The following table sets forth selected financial data for Mann Frankfort
on a historical basis and as a percentage of revenues for the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $13,292 100.0% $17,475 100.0% $21,631 100.0% $11,828 100.0% $16,630 100.0%
Expenses:
Member compensation and
related costs......... 4,423 33.3 6,636 38.0 8,921 41.2 3,942 33.3 4,916 29.5
Employee compensation
and related costs..... 4,896 36.8 6,405 36.7 8,829 40.8 4,532 38.3 5,888 35.4
Other operating
expenses.............. 2,307 17.4 2,996 17.1 3,347 15.5 1,923 16.3 2,572 15.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from operations.. $ 1,666 12.5% $ 1,438 8.2% $ 534 2.5% $ 1,431 12.1% $ 3,254 19.6%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Six Months Ended June 30, 1999 Compared to the Six Months
Ended June 30, 1998--Mann Frankfort
Revenues. Revenues increased $4.8 million, or 40.6%, from $11.8 million for
the six months ended June 30, 1998 to $16.6 million for the six months ended
June 30, 1999, primarily due to increases in billing rates and billable hours,
increased revenues derived from the Company's litigation support practice and
the addition of new clients.
Member compensation and related costs. Member compensation and related
costs increased $974,000, or 24.7%, from $3.9 million for the six months ended
June 30, 1998 to $4.9 million for the six months ended June 30, 1999,
primarily due to an increase in the operating income of the firm over the
comparable periods and a slight increase in the number of shareholders. As a
percentage of revenues, these expenses decreased from 33.3% in the six months
ended June 30, 1998 to 29.5% in the six months ended June 30, 1999.
Employee compensation and related costs. Employee compensation and related
costs increased $1.4 million, or 29.9%, from $4.5 million in the six months
ended June 30, 1998 to $5.9 million in the six months ended June 30, 1999,
primarily due to an increase in professional and administrative staff and
performance-based compensation increases. As a percentage of revenues, these
expenses decreased from 38.3% in the six months ended June 30, 1998 to 35.4%
in the six months ended June 30, 1999.
Other operating expenses. Other operating expenses increased $649,000, or
33.7%, from $1.9 million in the six months ended June 30, 1998 to $2.6 million
in the six months ended June 30, 1999. The increase was primarily due to an
increase in occupancy costs and legal fees related to the merger. As a
percentage of revenues, these expenses decreased from 16.3% in the six months
ended June 30, 1998 to 15.5% in the six months ended June 30, 1999.
89
<PAGE>
Results for the Year Ended December 31, 1998 Compared to the Year Ended
December 31, 1997--Mann Frankfort
Revenues. Revenues increased $4.2 million, or 23.8%, from $17.5 million in
the year ended December 31, 1997 to $21.6 million in the year ended December
31, 1998, primarily due to increases in billing rates and billable hours and
the addition of new clients.
Member Compensation and Related Costs. Member compensation and related costs
increased $2.3 million, or 34.4%, from $6.6 million in the year ended December
31, 1997 to $8.9 million in the year ended December 31, 1998, primarily due to
an increase in the operating income of the firm over the comparable periods
while the number of shareholders increased only slightly from 15 to 16 from
1997 to 1998. As a percentage of revenues, these expenses increased from 38.0%
in the year ended December 31, 1997 to 41.2% in the year ended December 31,
1998.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $2.4 million, or 37.8%, from $6.4 million in the year ended
December 31, 1997 to $8.8 million in the year ended December 31, 1998,
primarily due to the addition of professional and administrative staff and
performance-related compensation increases. As a percentage of revenues, these
expenses increased from 36.7% in the year ended December 31, 1997 to 40.8% in
the year ended December 31, 1998.
Other Operating Expenses. Other operating expenses increased $351,000, or
11.7%, from $3.0 million in the year ended December 31, 1997 to $3.3 million in
the year ended December 31, 1998, primarily due to (a) higher occupancy costs
resulting from an expansion of the firm's office and (b) additional
depreciation expenses resulting from investments in computer hardware and
software and leasehold improvements. As a percentage of revenues, these
expenses decreased from 17.1% in the year ended December 31, 1997 to 15.5% in
the year ended December 31, 1998.
Results for the Year Ended December 31, 1997 Compared to the Year Ended
December 31, 1996--Mann Frankfort
Revenues. Revenues increased $4.2 million, or 31.5%, from $13.3 million in
the year ended December 31, 1996 to $17.5 in the year ended December 31, 1997,
due in part to a January 1997 merger (the "Mann Frankfort Merger") with a
Houston based accounting firm which added incremental 1997 revenues of $3.4
million. Also contributing to the revenue growth were increases in billing
rates and billable hours as well as the addition of new clients during 1997.
Member Compensation and Related Costs. Member compensation and related costs
increased $2.2 million, or 50.0%, from $4.4 million in the year ended December
31, 1996 to $6.6 million in the year ended December 31, 1997, primarily due to
an increase in the number of shareholders resulting from the Mann Frankfort
Merger and their related compensation and a corresponding increase in the
firm's operating income over the period. As a percentage of revenues, these
expenses increased from 33.3% in the year ended December 31, 1996 to 38.0% in
the year ended December 31, 1997.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $1.5 million, or 30.8%, from $4.9 million in the year ended
December 31, 1996 to $6.4 million in the year ended December 31, 1997,
primarily due to an increase in professional and administrative staff because
of the Mann Frankfort Merger and performance-based compensation increases. As a
percentage of revenues, these expenses decreased from 36.8% in the year ended
December 31, 1996 to 36.7% in the year ended December 31, 1997.
Other Operating Expenses. Other operating expenses increased $689,000, or
29.9%, from $2.3 million in the year ended December 31, 1996 to $3.0 million in
the year ended December 31, 1997, primarily due to an increase in operating
costs because of the Mann Frankfort Merger and merger-related transaction
costs. As a percentage of revenues, these expenses decreased from 17.4% in the
year ended December 31, 1996 to 17.1% in the year ended December 31, 1997.
90
<PAGE>
Liquidity and Capital Resources--Mann Frankfort
Mann Frankfort generated net cash flow from operating activities of
approximately $2.0 million and $1.7 million in the six months ended June 30,
1999 and 1998, respectively. Mann Frankfort generated net cash flow from
operating activities of approximately $454,000 in the year ended December 31,
1998. Net cash generated by operating activities was approximately $292,000 and
$1.3 million in the years ended December 31, 1997 and 1996, respectively. Net
cash used in investing activities was approximately $230,000 and $164,000 in
the six months ended June 30, 1999 and 1998, respectively, principally for
property and equipment purchases. Net cash used in investing activities was
approximately $534,000, $625,000 and $123,000 in the years ended December 31,
1998, 1997 and 1996, respectively, principally for purchases of property and
equipment. Cash used in financing activities was approximately $449,000 and
$292,000 in the six months ended June 30, 1999 and 1998, respectively,
consisting principally of payments of long-term debt. Net cash provided by
financing activities for the years ended December 31, 1998 and 1997 was
approximately $398,000 and $520,000, respectively, principally from the
issuance of debt in the year ended December 31, 1998 and from the issuances of
debt and stock in the year ended December 31, 1997. Net cash used in financing
activities was approximately $2.1 million for the year ended December 31, 1996,
principally due to draws on partners' capital, as well as net repayments of
debt. At June 30, 1999, Mann Frankfort had net working capital of $4.9 million.
Interest of Continuing Directors
Upon completion of the IPO, Richard H. Stein will become a director of
Centerprise. See "Centerprise Management."
Principal Stockholders
The following table sets forth, as of September 1, 1999, the number of
shares beneficially owned by all of the stockholders of Mann Frankfort. Unless
otherwise indicated, the persons named below have sole voting and investment
power with respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
Shares Approximate
Name Beneficially Owned Percent Owned
---- ------------------ -------------
<S> <C> <C>
Richard H. Stein......................... 277.4085 17.6212
Steven Albert............................ 23.9720 1.5227
Jeffri Botkin............................ 27.5325 1.7489
Milton Frankfort......................... 321.8190 20.4422
Bill Hickl............................... 18.9537 1.2040
John Landers............................. 20.7066 1.3153
Bruce Layer.............................. 35.7447 2.2705
Arnold Lipp.............................. 267.4085 16.9860
Paul Mueller............................. 61.7414 3.9219
Glea Ramey............................... 27.5325 1.7489
Laura Rice............................... 42.1000 2.6742
Michael Richter.......................... 313.7965 19.9326
Craig Shenkman........................... 22.3300 1.4184
Saul Solomon............................. 70.9898 4.5093
Gregg Steffen............................ 5.5065 0.3498
Suhrid Thakore........................... 35.7447 2.2705
Jerry Guillot............................ 1.0000 0.0635
-------- -------
Total................................ 1,574.29 100.00
</TABLE>
91
<PAGE>
Reppond
General
The Reppond Company, Inc., Reppond Administrators, LLC, and VeraSource
Excess Risk Ltd., founded in 1981, provide group benefits insurance and
consulting services to privately-held companies. Reppond is headquartered in
Bellevue, Washington and maintains offices in Yakima, Washington and Brooklyn
Park, Minnesota. Reppond enhances Centerprise's anticipated national practice
in insurance and benefits brokerage and consulting services. Its principal
executive offices are located at 10900 Northeast 4th Street, Suite 1200,
Bellevue, Washington 98004.
Regulation
As a service provider in the insurance brokerage profession, Reppond's
operations are subject to state regulation. See "Business of Centerprise After
the Mergers--Regulation."
Employees
As of June 30, 1999, Reppond had 82 employees.
Selected Financial Data
The following table sets forth selected financial data for Reppond on a
historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
Year Ended --------------------------
December 31, 1998 1998 1999
----------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues....................... $ 7,892 100.0% $4,093 100.0% $4,353 100.0%
Expenses:
Producer compensation and
related costs............... 2,359 29.9 1,267 30.9 1,364 31.3
Employee compensation and
related costs............... 2,708 34.3 1,217 29.7 1,310 30.1
Other operating expenses..... 2,314 29.3 993 24.3 1,415 32.5
--------- -------- ------ ----- ------ -----
Income from operations......... $ 511 6.5 $ 616 15.1% $ 264 6.1%
========= ======== ====== ===== ====== =====
</TABLE>
Results for the Six Months Ended June 30, 1999 Compared to the Six Months
Ended June 30, 1998--Reppond
Revenues. Revenues increased $260,000, or 6.4%, from $4.1 million for the
six months ended June 30, 1998 to $4.4 million for the six months ended June
30, 1999, primarily due to premium increases and the addition of several new
customers.
Producer compensation. Producer compensation increased $97,000, or 7.7%,
from $1.3 million for the six months ended June 30, 1998 to $1.4 million for
the six months ended June 30, 1999, primarily due to the increase in revenues
as producers are generally compensated based on a percentage of revenues. As a
percentage of revenues, these expenses increased from 30.9% in 1998 to 31.3% in
1999.
Employee compensation and related costs. Employee compensation and related
costs increased $93,000, or 7.6%, from $1.2 million in the six months ended
June 30, 1998 to $1.3 million in the six months ended June 30, 1999, primarily
due to annual performance-based compensation increases and staff additions. As
a percentage of revenues, these expenses increased from 29.7% in the six months
ended June 30, 1998 to 30.1% in the six months ended June 30, 1999.
92
<PAGE>
Other operating expenses. Other operating expenses increased $422,000, or
42.5%, from $993,000 in the six months ended June 30, 1998 to $1.4 million in
the six months ended June 30, 1999. The increase was primarily due to
professional fees related to the merger and technical support for computer
system upgrades. As a percentage of revenues, these expenses increased from
24.3% in the six months ended June 30, 1998 to 32.5% in the six months ended
June 30, 1999.
Liquidity and Capital Resources--Reppond
Reppond used cash in operating activities of approximately $99,000 in the
six months ended June 30, 1999 and generated net cash flow from operating
activities of approximately $528,000 in the six months ended June 30, 1998. For
the six months ended June 30, 1999 and 1998, net cash used in investing
activities was approximately $194,000 and $122,000, respectively, principally
for property and equipment purchases. In the six months ended June 30, 1999,
net cash provided by financing activities was approximately $353,000,
principally from the issuance of short-term debt. In the six months ended June
30, 1998, net cash used in financing activities was approximately $384,000,
principally for the repayment of long-term and short-term debt. At June 30,
1999, Reppond had a working capital deficit of approximately $195,000.
Principal Stockholders
The following table sets forth, as of September 1, 1999, the number of
shares or membership interests, as the case may be, for Reppond. The persons
named below have sole voting and investment power with respect to the shares or
membership interests shown as beneficially owned by them.
The Reppond Company, Inc.
<TABLE>
<CAPTION>
Shares Approximate
Name Beneficially Owned Percent Owned
---- ------------------ -------------
<S> <C> <C>
Ben W. Reppond........................... 375.75 75
Louis R. Baransky........................ 125.25 25
------ ---
500.00 100
</TABLE>
Reppond Administrators, L.L.C.
<TABLE>
<CAPTION>
Shares Approximate
Name Beneficially Owned Percent Owned
---- ------------------ -------------
<S> <C> <C>
Ben W. Reppond........................... 247.5 49.5
Deborah Reppond.......................... 247.5 49.5
Louis R. Baransky........................ 5.0 1.0
----- -----
250.0 100.0
</TABLE>
VeraSource Excess Risk Ltd.
<TABLE>
<CAPTION>
Shares Approximate
Name Beneficially Owned Percent Owned
---- ------------------ -------------
<S> <C> <C>
Ben W. Reppond........................... 125 50
Scott D. Perry........................... 125 50
--- ---
250 100
</TABLE>
93
<PAGE>
Reznick, Fedder & Silverman
General
Reznick Fedder & Silverman, P.C., founded in 1977, provides business,
accounting and tax advisory services that include tax consulting, real estate
consulting, business consulting and due diligence. Reznick is ranked No. 22 in
the Top 100 and is the largest non-Big Five firm headquartered in the Mid-
Atlantic region. Reznick is known nationally for its expertise in the real
estate industry and also has substantial experience serving closely held
commercial businesses and clients in the health care and construction
industries. Reznick maintains offices in Bethesda, Maryland; Baltimore,
Maryland; Boston, Massachusetts; Charlotte, North Carolina; and Atlanta,
Georgia. In addition to providing Centerprise with multiple distribution points
in the Mid-Atlantic region, Reznick will provide the foundation for
Centerprise's anticipated national practice in real estate consulting services
and participate significantly in Centerprise's anticipated national practice in
health care consulting services. Its principal executive offices are located at
4520 East West Highway, Suite 300, Bethesda, Maryland 20814.
Regulation
As a service provider in the accounting profession, Reznick's operations are
subject to state regulation. See "Business of Centerprise After the Mergers--
Regulation."
Employees
As of June 30, 1999, Reznick had 440 professional employees, of which 185
were licensed CPAs, and 121 non-professional employees. None of Reznick's
employees is represented by a labor union. Management of Reznick believes its
employee relations are good.
Selected Financial Data
The following table sets forth selected financial data for Reznick on a
historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended September 30, Nine Months Ended June 30,
------------------------------------------------ -------------------------------
1996 1997 1998 1998 1999
-------------- -------------- -------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $31,483 100.0% $35,103 100.0% $47,877 100.0% $37,809 100.0% $42,835 100.0%
Expenses:
Member compensation and
related costs......... 7,784 24.7 8,170 23.3 13,516 28.2 12,735 33.7 13,700 32.0
Employee compensation
and related costs..... 17,477 55.5 19,617 55.9 25,792 53.9 18,856 49.9 22,394 52.3
Other operating
expenses.............. 6,231 19.8 7,530 21.4 8,502 17.8 6,253 16.5 6,956 16.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating loss.......... $ (9) (0.0)% $ (214) (0.6)% $ (67) (0.1)% $ (35) (0.1)% $ (215) (0.5)%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Nine Months Ended June 30, 1999 Compared to the Nine Months
Ended June 30, 1998--Reznick
Revenues. Revenues increased $5.0 million, or 13.3%, from $37.8 million in
the nine months ended June 30, 1998 to $42.8 million in the nine months ended
June 30, 1999, primarily due to an expansion of the firm's core real estate and
health care practices.
94
<PAGE>
Member Compensation and Related Costs. Member compensation and related
costs increased $965,000, or 7.6%, from $12.7 million in the nine months ended
June 30, 1998 to $13.7 million in the nine months ended June 30, 1999,
primarily due to an increase in operating income available for member
compensation. As a percentage of revenues, these expenses decreased from 33.7%
in the nine months ended June 30, 1998 to 32.0% in the nine months ended June
30, 1999.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $3.5 million, or 18.8%, from $18.9 million in the nine months
ended June 30, 1998 to $22.4 million in the nine months ended June 30, 1999,
primarily due to an increase in the number of professional employees and
annual performance-based compensation increases. As a percentage of revenues,
these expenses increased from 49.9% in the nine months ended June 30, 1998 to
52.3% in the nine months ended June 30, 1999.
Other Operating Expenses. Other operating expenses increased $703,000, or
11.2%, from $6.3 million in the nine months ended June 30, 1998 to $7.0
million in the nine months ended June 30, 1999. The increase was primarily due
to higher occupancy, selling, general and administrative expenses. As a
percentage of revenues, these expenses decreased from 16.5% in the nine months
ended June 30, 1998 to 16.2% in the nine months ended June 30, 1999.
Results for the Year Ended September 30, 1998 Compared to the Year Ended
September 30, 1997--Reznick
Revenues. Revenues increased $12.8 million, or 36.4%, from $35.1 million in
the year ended September 30, 1997 to $47.9 million in the year ended September
30, 1998, primarily due to an expansion of the firm's practice as a result of
a merger with a Baltimore-based accounting firm (the "Reznick Merger") and an
expansion of the firm's core real estate practice and growth in other practice
areas such as due diligence, bankruptcy and litigation consulting services.
Member Compensation and Related Costs. Member compensation and related
costs increased $5.3 million, or 65.4%, from $8.2 million in the year ended
September 30, 1997 to $13.5 million in the year ended September 30, 1998,
primarily due to an increase in operating income available for member
compensation and the admission of three members during 1998. As a percentage
of revenues, these expenses increased from 23.3% in the year ended September
30, 1997 to 28.2% in the year ended September 30, 1998.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $6.2 million, or 31.5%, from $19.6 million in the year ended
September 30, 1997 to $25.8 million in the year ended September 30, 1998,
primarily due to the addition of approximately 50 professional employees and
approximately 25 administrative support personnel as a result of the Reznick
Merger. As a percentage of revenues, these expenses decreased from 55.9% in
the year ended September 30, 1997 to 53.9% in the year ended September 30,
1998.
Other Operating Expenses. Other operating expenses increased $972,000, or
12.9%, from $7.5 million in the year ended September 30, 1997 to $8.5 million
in the year ended September 30, 1998, primarily due to an increase in rent
expense resulting from the leasing of additional office space, an increase in
recruiting fees and an increase in office operating expenses. As a percentage
of revenues, these expenses decreased from 21.4% in the year ended September
30, 1997 to 17.8% in the year ended September 30, 1998.
Results for the Year Ended September 30, 1997 Compared to the Year Ended
September 30, 1996--Reznick
Revenues. Revenues increased $3.6 million, or 11.5%, from $31.5 million in
the year ended September 30, 1996 to $35.1 million in the year ended September
30, 1997, primarily due to expansion of the firm's real estate, construction,
not-for-profit and closely held business support services.
Member Compensation and Related Costs. Member compensation and related
costs increased $386,000, or 5.0%, from $7.8 million in the year ended
September 30, 1996 to $8.2 million in the year ended September 30, 1997,
primarily due to an increase in operating income available for member's
compensation. As a percentage of revenues, these expenses decreased from 24.7%
in the year ended September 30, 1996 to 23.3% in the year ended September 30,
1997.
95
<PAGE>
Employee Compensation and Related Costs. Employee compensation and related
costs increased $2.1 million, or 12.2%, from $17.5 million in the year ended
September 30, 1996 to $19.6 million in the year ended September 30, 1997,
primarily due to an increase in the number of employees required as a result of
the expansion in the firm's practice. As a percentage of revenues, these
expenses increased from 55.5% in the year ended September 30, 1996 to 55.9% in
the year ended September 30, 1997.
Other Operating Expenses. Other operating expenses increased $1.3 million,
or 20.8%, from $6.2 million in the year ended September 30, 1996 to $7.5
million in the year ended September 30, 1997, primarily due to an increase in
occupancy, practice development and office operating expenses. As a percentage
of revenues, these expenses increased from 19.8% in the year ended September
30, 1996 to 21.4% in the year ended September 30, 1997.
Liquidity and Capital Resources--Reznick
Reznick used net cash from operating activities of approximately $2.0
million in the nine months ended June 30, 1999. In the nine months ended June
30, 1998, Reznick generated net cash from operating activities of $251,000. Net
cash generated from operating activities was approximately $3.7 million, $1.7
million and $1.4 million in the years ended September 30, 1998, 1997 and 1996,
respectively. For the nine months ended June 30, 1999 and 1998, net cash used
in investing activities was approximately $525,000 and $1.2 million,
principally for property and equipment purchases. Net cash used in investing
activities was approximately $1.5 million, $1.3 million and $684,000 in the
years ended September 30, 1998, 1997 and 1996, respectively, primarily for the
purchases of property and equipment. In the nine months ended June 30, 1999,
net cash provided by financing activities was approximately $1.7 million,
principally from proceeds of short-term borrowings and long-term debt. For the
nine months ended June 30, 1998, net cash used in financing activities was
approximately $60,000, principally for payments to former shareholders. Reznick
used net cash of approximately $402,000 in financing activities in the year
ended September 30, 1998, primarily representing payments of debt. Net cash
provided by financing activities in the year ended September 30, 1997 totaled
$509,000, generated by net proceeds from the issuance of long-term debt. In the
year ended September 30, 1996, cash used in financing activities totaled
$162,000 and was used primarily for net payments of long-term debt. At June 30,
1999, Reznick had working capital of $2.2 million.
Interest of Continuing Directors
Upon completion of the IPO, David Reznick will become a director of
Centerprise. See "Centerprise Management."
96
<PAGE>
Principal Stockholders
The following table sets forth, as of September 1, 1999, the number of
shares beneficially owned by all of the shareholders of Reznick. Unless
otherwise indicated, the persons named below have sole voting and investment
power with respect to all shares shown as beneficially owned by them:
<TABLE>
<CAPTION>
Shares Approximate
Name Beneficially Owned Percent Owned
---- ------------------ -------------
<S> <C> <C>
David Reznick............................ 100 3.4
Stuart M. Fedder......................... 100 3.4
Ivan B. Silverman........................ 100 3.4
William T. Riley, Jr..................... 100 3.4
Craig Birmingham......................... 100 3.4
Wallace L. Scruggs, Jr................... 100 3.4
Jeffrey D. Barsky........................ 100 3.4
Lester A. Kanis.......................... 100 3.4
Ronald G. Vance.......................... 100 3.4
Renee G. Scruggs......................... 100 3.4
Lee Isaacson............................. 100 3.4
Gary Perlow.............................. 100 3.4
Gary C. Pokrant.......................... 100 3.4
Leslie A. Mostow......................... 100 3.4
Kenneth J. Shapiro....................... 100 3.4
Edward Ryan.............................. 100 3.4
Mark J. Einstein......................... 100 3.4
Harry L. Silverman....................... 100 3.4
Anthony V. Portal........................ 100 3.4
Kenneth E. Baggett....................... 100 3.4
Beth Mullen.............................. 100 3.4
Lenard A. Sacks.......................... 100 3.4
Timothy McGibney......................... 100 3.4
Patrick Trotta........................... 100 3.4
Mark Koppelman........................... 100 3.4
Jerry Herskovitz......................... 100 3.4
Michael Beck............................. 100 3.4
Robert Denmark........................... 100 3.4
Kirk T. Rogers........................... 100 3.4
----- -----
Total................................ 2,900 100.0
</TABLE>
Robert F. Driver Co., Inc.
General
Robert F. Driver Co., Inc., founded in 1925, is a multi-line insurance
brokerage company that provides property and casualty insurance services,
workers compensation coverage, employee benefits products, surety coverage and
various financial services to a broad range of domestic and international
clients. Driver maintains offices in San Diego, Newport Beach, Escondido,
Sacramento, Fresno, San Francisco, San Rafael and Ontario, California. Driver
manages in excess of $500 million in premiums and was ranked by the San Diego
Business Journal as San Diego's largest independent insurance brokerage firm in
1998 based on premium volume. In terms of brokerage revenues, Driver was ranked
No. 33 nationally in 1998 by Business Insurance. Driver will provide
Centerprise with a platform for its anticipated national practice in insurance
and benefits brokerage and consulting services. Its principal executive offices
are located at 1620 5th Avenue, San Diego, California 92101.
Regulation
As a service provider in the insurance brokerage industry, Driver's
operations are subject to state regulation. See "Business of Centerprise After
the Mergers--Regulation."
97
<PAGE>
Employees
As of June 30, 1999, Driver had 325 employees.
Selected Financial Data
The following table sets forth selected financial data for Driver on a
historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended July 31,
-------------------------------------------
1997 1998 1999
------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions and fees.... $28,170 100.0% $32,886 100.0% $41,607 100.0%
Expenses:
Producer compensation.. 12,965 46.0 15,422 46.9 16,250 39.0
Employee compensation
and related costs..... 7,433 26.4 8,475 25.8 13,438 32.3
Other operating
expenses.............. 6,548 23.3 6,631 20.1 8,819 21.2
------- ----- ------- ----- ------- -----
Income (loss) from
operations............. $ 1,224 4.3% $ 2,358 7.2% $ 3,100 7.5%
======= ===== ======= ===== ======= =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Year Ended July 31, 1999 Compared to the Year Ended July 31,
1998-- Driver
Commissions and Fees. Commissions and fees increased $8.7 million, or 26.5%,
from $32.9 million in the year ended July 31, 1998 to $41.6 million in the year
ended July 31, 1999, primarily due to revenues derived from four insurance
brokerage firms acquired in 1998 and 1999.
Producer Compensation. Producer compensation increased $828,000, or 5.4%,
from $15.4 million in the year ended July 31, 1998 to $16.3 million in the year
ended July 31, 1999 due to the addition of ten producers in 1998 and the
related compensation expense. As a percentage of revenues, these expenses
decreased from 46.9% in the year ended July 31, 1998 to 39.0% in the year ended
July 31, 1999.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $5.0 million, or 58.6%, from $8.5 million in the year ended
July 31, 1998 to $13.4 million in the year ended July 31, 1999, primarily due
to an increase in the number of employees, annual performance-based
compensation increases and bonuses. As a percentage of revenues, these expenses
increased from 25.8% in the year ended July 31, 1998 to 32.3% in the year ended
July 31, 1999.
Other Operating Expenses. Other operating expenses increased $2.2 million,
or 33.0%, from $6.6 million in the year ended July 31, 1998 to $8.8 million in
the year ended July 31, 1999, primarily due to an increase in depreciation and
amortization resulting from the restatement of Driver's assets and liabilities
at fair value and recognition of goodwill, which is being amortized over 40
years. The restatement of the assets and liabilities and recognition of
goodwill resulted from a May 1998 management buyout of the predecessor company.
Also contributing to the increase in operating expenses were professional fees
incurred in 1998 when Driver pursued a non-compete agreement infringement suit
against a former employee. As a percentage of revenues, these expenses
increased from 20.1% in the year ended July 31, 1998 to 21.2% in the year ended
July 31, 1999.
98
<PAGE>
Results for the Year Ended July 31, 1998 Compared to the Year Ended July 31,
1997--Driver
Commissions and Fees. Commissions and fees increased $4.7 million, or 16.7%,
from $28.2 million in the year ended July 31, 1997 to $32.9 million in the year
ended July 31, 1998. $2.6 million of the increase was due to the addition of
ten producers and the acquisition of two insurance brokerage firms in 1998
which resulted in an increase in the volume of sales transactions. The balance
of the increase was due to an increase in the number of policies written.
Producer Compensation. Producer compensation increased $2.5 million, or
19.0%, from $13.0 million in the year ended July 31, 1997 to $15.4 million in
the year ended July 31, 1998, primarily due to the addition of ten producers in
1998 and the related compensation expense. As a percentage of revenues, these
expenses increased from 46.0% in the year ended July 31, 1997 to 46.9% in the
year ended July 31, 1998.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $1.0 million, or 14.0%, from $7.4 million in the year ended
July 31, 1997 to $8.5 million in the year ended July 31, 1998. This increase
was due to an increase in the number of employees in response to continued
revenue growth as well as annual performance-based compensation increases. As a
percentage of revenues, these expenses decreased from 26.4% in the year ended
July 31, 1997 to 25.8% in the year ended July 31, 1998.
Other Operating Expenses. Other operating expenses increased $83,000, or
1.3%, from $6.5 million in the year ended July 31, 1997 to $6.6 million in the
year ended July 31, 1998. This increase was primarily due to an increase in
depreciation and amortization resulting from the restatement of Driver's assets
and liabilities at fair value and the recognition of goodwill and the value of
customer lists, which are being amortized over 40 years. The restatement of the
assets and liabilities and the recognition of the goodwill and customer lists
were recorded following a management buyout of the company in May 1998. Also
contributing to the increase in operating expenses were professional fees
incurred in 1998 while pursuing a non-compete agreement infringement suit
against a former employee. As a percentage of revenues, these expenses
decreased from 23.3% in the year ended July 31, 1997 to 20.1% in the year ended
July 31, 1998.
Liquidity and Capital Resources--Driver
Driver generated net cash flow from operating activities of approximately
$2.7 million, $2.5 million and $426,000 in the years ended July 31, 1999, 1998
and 1997, respectively. Net cash used in investing activities was approximately
$5.5 million in the year ended July 31, 1999, primarily for the purchases of
property and equipment and acquisitions. Net cash used in investing activities
was approximately $530,000 in the year ended July 31, 1998, excluding the
purchase of the predecessor company, and $491,000 in the year ended July 31,
1997, primarily for the purchases of property and equipment. Net cash provided
by financing activities was approximately $2.8 million in the year ended July
31, 1999, consisting primarily of proceeds from the repayment of stockholder
notes and proceeds from issuance of debt. In the year ended July 31, 1998, cash
generated by financing activities was approximately $16.5 million consisting
primarily of proceeds from the issuance of debt. Net cash used in financing
activities in the year ended July 31, 1997 was approximately $64,000. At July
31, 1999, Driver had a working capital deficit of $2.1 million.
Interest of Continuing Directors
Upon completion of the IPO, Thomas W. Corbett will become a director and the
president and chief operating officer of Centerprise's business and financial
services group. In addition, upon completion of the IPO, Thomas W. Corbett, P.
Gregory Zimmer and Jerold Hall will enter into employment agreements with
Driver and Centerprise. See "Centerprise Management."
99
<PAGE>
Principal Stockholders
The following table sets forth, as of September 20, 1999, the number of
shares beneficially owned by:
(a) each person known by Driver to own beneficially more than five percent
of the outstanding common stock,
(b) each director, executive officer and other key employees and
(c) all directors and executive officers as a group. Unless otherwise
indicated, the persons named below have sole voting and investment power
with respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
Shares Approximate
Name* Beneficially Owned Percent Owned
----- ------------------ -------------
<S> <C> <C>
Thomas W. Corbett...................... 202,428 18.5115
Jerold D. Hall......................... 75,000 6.8586
Ted E. Davidson........................ 35,640 3.2592
Roger G. Combe......................... 62,596 5.7243
Gordon DesCombes....................... 64,091 5.8610
Michael D. Driver...................... 63,402 5.7980
John T. Warnock........................ 62,011 5.6708
Lawrence A. Weitzen.................... 61,535 5.6272
P. Gregory Zimmer, Jr.................. 60,000 5.4869
R. Joseph DeBriyn...................... 10,000 0.9145
Robert R. Gould**...................... -0- -0-
Richard B. Gulley...................... 64,725 5.9189
Ralph S. Hurst......................... 64,609 5.9083
Ronald J. Stewart...................... 48,672 4.4509
Michael L. Simmons..................... 6,000 0.5487
All directors and executive officers as
a group............................... 826,037 75.5391
</TABLE>
--------
* Scheduled ownership is inclusive of shares held personally, shares held in
living trusts and shares held through self-directed 401(k) investments.
** Robert Gould is an employee of Brown Brothers Harriman, which holds 73,042
warrants.
Simione, Scillia, Larrow & Dowling
General
Simione, Scillia, Larrow & Dowling LLC, the predecessor of which was founded
in 1974, provides accounting and tax services and management consulting
services. Simione has significant expertise in providing
100
<PAGE>
services to construction companies and serves as an advisor to many of New
England's major road builders and contractors. Simione maintains offices in New
Haven and Hartford, Connecticut and will serve as a regional distribution point
in its markets. Its principal executive offices are located at 555 Long Wharf
Drive, New Haven, Connecticut 06511.
Regulation
As a service provider in the accounting profession, Simione's operations are
subject to state regulation. See "Business of Centerprise After the Mergers--
Regulation."
Employees
As of June 30, 1999, Simione had 52 professional employees, of which 33 were
licensed CPAs, and 10 non-professional employees. None of Simione's employees
is represented by a labor union. Management of Simione believes its employee
relations are good.
Selected Financial Data
The following table sets forth selected financial data for Simione on a
historical basis and as a percentage of revenues for the period indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
Year Ended --------------------------
December 31, 1998 1998 1999
------------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 6,217 100.0% $3,283 100.0% $4,180 100.0%
Expenses:
Membership
compensation and
related expenses..... 2,104 37.1 1,037 31.6 1,145 27.4
Employee compensation
and related costs.... 2,292 33.6 1,173 35.7 1,291 30.9
Other operating
expenses............. 1,364 21.9 653 19.9 738 17.6
--------- -------- ------ ----- ------ -----
Income from operations.. $ 457 7.4% $ 420 12.8% $1,006 24.1%
========= ======== ====== ===== ====== =====
</TABLE>
Results for the Six Months Ended June 30, 1999 Compared to the Six Months
Ended June 30, 1998--Simione
Revenues. Revenues increased $897,000, or 27.3%, from $3.3 million for the
six months ended June 30, 1998 to $4.2 million for the six months ended June
30, 1999, primarily due to expansion in the existing audit and tax practices,
the addition of one individual practitioner and the acquisition of an audit and
tax practice.
Member Compensation and Related Costs. Member compensation and related costs
increased $108,000, or 10.4%, from $1.0 million for the six months ended June
30, 1998 to $1.1 million for the six months ended June 30, 1999, primarily due
to the addition of three members. As a percentage of revenues, these expenses
decreased from 31.6% for the six months ended June 30, 1998 to 27.4% for the
six months ended June 30, 1999.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $118,000, or 10.1%, from $1.2 million for the six months ended
June 30, 1998 to $1.3 million for the six months ended June 30, 1999, primarily
due to staff additions. As a percentage of revenues, these expenses decreased
from 35.7% for the six months ended June 30, 1998 to 30.9% for the six months
ended June 30, 1999.
101
<PAGE>
Other Operating Expenses. Other operating expenses increased $85,000, or
13.0%, from $653,000 for the six months ended June 30, 1998 to $738,000 for the
six months ended June 30, 1999, primarily due to increased occupancy and
practice development expenses. As a percentage of revenues, these expenses
decreased from 19.9% for the six months ended June 30, 1998 to 17.6% for the
six months ended June 30, 1999.
Liquidity and Capital Resources--Simione
Simione generated net cash flow from operating activities of approximately
$47,000 and $55,000 for the six months ended June 30, 1999 and 1998,
respectively. Net cash used in financing activities was $22,000 and $16,000 for
the six months ended June 30, 1999 and 1998, respectively, primarily for
payments of debt. At June 30, 1999, Simione had working capital of
approximately $1.2 million.
Interest of Continuing Directors
Upon completion of the IPO, Anthony P. Scillia will become a director of
Centerprise. See "Centerprise Management."
Principal Members
The following table sets forth, as of September 1, 1999, all of the members
of Simione. Unless otherwise indicated, the persons named below have sole
voting and investment power with respect to all membership interests shown as
beneficially owned by them:
<TABLE>
<CAPTION>
Approximate
Name Percentage Owned
---- ----------------
<S> <C>
Richard Simione.......................................... 16.12
Anthony P. Scillia....................................... 16.12
Ronald Larrow............................................ 15.16
Edward Dowling........................................... 9.40
Richard DeVita(1)........................................ 11.515
Peter Laine.............................................. 11.515
Joseph Natarelli......................................... 8.06
John Schuyler............................................ 4.24
Walter Fulton............................................ 2.90
William McCabe........................................... 1.93
George Riggs III......................................... 1.50
Mary Ellen Walkama....................................... 1.50
Other.................................................... 0.04
------
100.00
</TABLE>
- --------
(1) Pursuant to a Letter Agreement between Simione and Richard L. DeVita dated
January 5, 1996, although DeVita is not a CPA, DeVita is treated
economically as a member of Simione and the ownership interests of all
other members are diluted on a pro rata basis.
Urbach Kahn & Werlin PC
General
Urbach Kahn & Werlin PC, the predecessor of which was founded in 1963,
provides a broad range of accounting and business consulting services to a
variety of clients in both the private and public sectors. Urbach has
significant practices in the not-for-profit and state and federal government
arenas. Urbach maintains offices in Albany, New York; New York, New York;
Washington, D.C.; Los Angeles, California; Glens Falls, New York; and
Poughkeepsie, New York. Urbach, ranked No. 48 in the Top 100, will provide
regional
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distribution points in the Northeast and Mid-Atlantic regions and play a
significant role in Centerprise's anticipated national practice in litigation
consulting services. In addition, through Urbach's international affiliate,
Urbach Hacker Young International Limited, Centerprise will be able to help
clients achieve their business and financial objectives in the international
marketplace. Its principal executive offices are located at 66 State Street,
Albany, New York 12207.
Regulation
As a service provider in the accounting profession, Urbach's operations are
subject to state regulation. See "Business of Centerprise After the Mergers--
Regulation."
Employees
As of June 30, 1999, Urbach had 121 professional employees, of which 53 were
licensed CPAs, and 41 non-professional employees. None of Urbach's employees is
represented by a labor union. Management of Urbach believes its employee
relations are good.
Selected Financial Data
The following table sets forth selected financial data for Urbach on a
historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended October 31, Nine Months Ended July 31,
---------------------------- -----------------------------
1997 1998 1998 1999
------------- ------------- ------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $16,012 100.0% $17,085 100.0% $13,192 100.0% $15,997 100.0%
Expenses:
Shareholders
compensation and
related costs......... 4,798 30.0 4,853 28.4 3,774 28.6 6,434 40.2
Employee compensation
and related costs..... 6,590 41.1 7,147 41.8 5,363 40.7 5,997 37.5
Other operating
expenses.............. 4,317 27.0 4,860 28.5 3,673 27.8 3,577 22.4
------- ----- ------- ----- ------- ----- ------- -----
Income (loss) from
operations............. $ 307 1.9% $ 225 1.3% $ 382 2.9% $ (11) (0.1)%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Nine Months Ended July 31, 1999 Compared to the Nine Months
Ended July 31, 1998--Urbach
Revenues. Revenues increased $2.8 million, or 21.3%, from $13.2 million for
the nine months ended July 31, 1998 to $16.0 million for the nine months ended
July 31, 1999, as a result of revenues derived from an increase in net
realizable billing rates and new client engagements.
Shareholder compensation and related costs. Shareholder compensation and
related costs increased $2.7 million, or 70.5%, from $3.8 million for the nine
months ended July 31, 1998 to $6.4 million for the nine months ended July 31,
1999, primarily due to an increase in the net operating income available for
shareholder compensation. As a percentage of revenues, these expenses increased
from 28.6% in 1998 to 40.2% in 1999.
Employee compensation and related costs. Employee compensation and related
costs increased $634,000, or 11.8%, from $5.4 million in the nine months ended
July 31, 1998 to $6.0 million in the nine months ended July 31, 1999, primarily
due to an increase in professional and administrative staff resulting from the
Urbach Acquisition as well as performance-based compensation increases. As a
percentage of revenues, these expenses decreased from 40.7% in the nine months
ended July 31, 1998 to 37.5% in the nine months ended July 31, 1999.
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Other operating expenses. Other operating expenses decreased $96,000, or
2.6%, from $3.7 million in the nine months ended July 31, 1998 to $3.6 million
in the nine months ended July 31, 1999. The decrease was attributable to a
reduction of operating costs as the firm began to realize certain economies of
scale. As a percentage of revenues, these expenses decreased from 27.8% in the
nine months ended July 31, 1998 to 22.4% in the nine months ended July 31,
1999.
Results for the Year Ended October 31, 1998 Compared to the Year Ended October
31, 1997--Urbach
Revenues. Revenues increased $1.1 million, or 6.7%, from $16.0 million for
the year ended October 31, 1997 to $17.1 million for the year ended October 31,
1998, primarily due to the Urbach Acquisition which added incremental 1998
revenues of $850,000. Also contributing to the revenue growth was a 10%
increase in billing rates during 1998.
Shareholder compensation and related costs. Shareholder compensation and
related costs remained relatively constant at $4.8 and $4.9 million in the
years ended October 31, 1997 and 1998, respectively. As a percentage of
revenues, these expenses decreased from 30.0% in the year ended October 31,
1997 to 28.4% in the year ended October 31, 1998.
Employee compensation and related costs. Employee compensation and related
costs increased $557,000, or 8.5%, from $6.6 million in the year ended October
31, 1997 to $7.1 million in the year ended October 31, 1998, primarily due to
an increase in professional and administrative staff resulting from the Urbach
Acquisition as well as performance-based compensation increases. As a
percentage of revenues, these expenses increased slightly from 41.1% in the
year ended October 31, 1997 to 41.8% in the year ended October 31, 1998.
Other operating expenses. Other operating expenses increased $543,000, or
12.6%, from $4.3 million in the year ended October 31, 1997 to $4.9 million in
the year ended October 31, 1998, due in part to increased occupancy costs
resulting from the additional office space acquired as part of the Urbach
Acquisition. As a percentage of revenues, these expenses increased from 27.0%
in the year ended October 31, 1997 to 28.5% in the year ended October 31, 1998.
Liquidity and Capital Resources--Urbach
Urbach used cash in operating activities of approximately $1.6 million and
$109,000 in the nine months ended July 31, 1999 and 1998, respectively. Net
cash from operating activities was approximately $157,000 and $9,000 in the
years ended October 31, 1998 and 1997, respectively. Net cash provided by
investing activities was approximately $1.1 million in the nine months ended
July 31, 1999, primarily generated from the sale of investments. Net cash used
in investing activities was approximately $279,000 in the nine months ended
July 31, 1998, principally from the purchase of equipment and advances to
shareholders. Net cash used in investing activities was approximately $349,000
and $178,000 in the years ended October 31, 1998 and 1997, respectively,
primarily used for purchases of equipment and advances to shareholders in the
year ended October 31, 1998. In the nine months ended July 31, 1999, net cash
used in financing activities was approximately $679,000, principally for the
repayment of debt. In the nine months ended July 31, 1998, cash provided by
financing activities was approximately $287,000, principally from proceeds from
the issuance of debt. Cash provided by financing activities was approximately
$363,000 and $181,000 in the years ended October 31, 1998 and 1997,
respectively. This was generated by borrowings, net of repayments, and the
issuance and payments of subscriptions, net of retirements, of common stock. At
July 31, 1999, Urbach had working capital of approximately $4.2 million.
Interest of Continuing Directors
Upon completion of the IPO, Steven N. Fischer will become a director of
Centerprise. See "Centerprise Management."
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Principal Stockholders
The following table sets forth, as of September 1, 1999, the number of
shares beneficially owned by all of the stockholders of Urbach. Unless
otherwise indicated, the persons named below have sole voting and investment
power with respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
Shares Approximate
Name Beneficially Owned Percent Owned
---- ------------------ -------------
<S> <C> <C>
William Chandler......................... 1415 7.51
David Evans.............................. 745 3.96
Steven N. Fischer........................ 1500 7.97
Robert Fleming........................... 800 4.25
Howard Foote............................. 1020 5.42
John Gijanto............................. 1300 6.90
Arthur Heisman........................... 935 4.97
Jeffrey Hershow.......................... 295 1.57
Lloyd Jones.............................. 430 2.28
William Kahn............................. 1095 5.82
Richard Kotlow........................... 1415 7.51
Richard Lipman........................... 495 2.63
Michael Mahoney.......................... 250 1.33
Harold Mandel............................ 515 2.74
Michael McCarthy......................... 500 2.66
Donald Neubecker......................... 625 3.32
Marilyn Pendergast....................... 1300 6.90
Joseph Peterson.......................... 150 0.80
Jeffrey M. Rosenbaum..................... 775 4.12
Alan A. Schachter........................ 1400 7.43
John E. Wolfgang......................... 1465 7.78
James Daniels............................ 90 0.48
Marianne DeMario......................... 120 0.64
Paul Goetz............................... 80 0.42
Kevin O'Donoughue........................ 115 0.61
------ ------
Total................................ 18,830 100.00
</TABLE>
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DESCRIPTION OF CENTERPRISE CAPITAL STOCK
Upon the completion of the IPO, the authorized capital stock of Centerprise
will consist of 50,000,000 shares of common stock, $.01 par value per share,
and 10,000,000 shares of preferred stock, $.01 par value per share.
Common Stock
Of the 50,000,000 shares of common stock authorized, 26,700,000 shares will
be outstanding upon completion of the IPO. Subject to the rights of the holders
of preferred stock, the holders of common stock are entitled to share ratably
in dividends declared out of assets legally available therefor at such time and
in such amounts as the board of directors may from time to time lawfully
determine. Each holder of common stock is entitled to one vote for each share
held. Subject to the rights of holders of preferred stock, upon liquidation,
dissolution or winding up of Centerprise, any assets legally available for
distribution to stockholders as such are to be distributed ratably among the
holders of the common stock then outstanding. The shares of common stock
currently outstanding are, and the shares of common stock issued in the mergers
will be, fully paid and nonassessable. Holders of common stock have no
preemptive, subscription, redemption, sinking fund or conversion rights.
The board of directors will initially consist of 16 directors, each serving
for a term of one year. At each annual meeting of stockholders, all directors
will be elected by the stockholders. Cumulative voting for the election of
directors is not permitted. Therefore, the holders of a majority of the
outstanding common stock can elect all directors.
Preferred Stock
The certificate of incorporation of Centerprise authorizes the board of
directors to issue preferred stock in classes or series and to establish the
designations, preferences, qualifications, limitations or restrictions of any
class or series. Such designations and preferences include the rate and nature
of dividends, the price, terms and conditions on which shares may be redeemed,
the terms and conditions for conversion or exchange into any other class or
series of the stock and voting rights. Centerprise will have authority, without
approval of the holders of common stock, to issue preferred stock that has
voting, dividend or liquidation rights superior to the common stock and that
may adversely affect the rights of holders of common stock. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of common stock and delay, defer or
prevent a change in control of Centerprise. Centerprise currently has no plans
to issue any shares of preferred stock.
The existence of undesignated preferred stock may enable the board of
directors to discourage or deter any unsolicited takeover attempts, and thereby
protect the continuity of Centerprise's management. The issuance of shares of
the preferred stock pursuant to the board of directors' authority described
above may adversely affect the rights of the holders of common stock. For
example, preferred stock issued by Centerprise may rank prior to the common
stock as to dividend rights, liquidation preference or both, may have full or
limited voting rights and may be convertible into shares of common stock.
Accordingly, the issuance of shares of preferred stock may discourage bids for
the common stock or may otherwise adversely affect the market price of the
common stock.
Stockholders' Agreement
Upon the closing of the mergers, Centerprise's initial investors, management
and the owners and employees of the founding companies who receive common stock
in the mergers will enter into a stockholders' agreement governing the
nomination and election of Centerprise's directors. The stockholders' agreement
sets
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forth the manner and terms by such persons may nominate directors. Each of the
parties to the stockholders' agreement has agreed to take all action necessary
as a stockholder, director or officer of Centerprise, including voting its
common stock, to cause the incumbent directors of Centerprise or their
successors, as described below, to be nominated and elected at the first five
annual meetings following the closing of the IPO. In the event that an
incumbent director designated by BGL Capital or a founding company is unable to
or does not stand for reelection, representatives of BGL Capital or such
founding company may designate his successor for nomination. Nominees for other
vacancies will be selected by a majority of the then-incumbent board of
directors. The parties to the stockholders' agreement have also agreed to
restrictions on the transfer of shares of common stock.
The stockholders' agreement terminates immediately following
Centerprise's annual meeting of stockholders relating to fiscal year 2003, but
expected to occur in 2004. The stockholders' agreement may be amended by the
holders of 66 2/3% of the total number of shares of common stock then held by
the parties to the agreement. In addition, any requested waiver of the stock
transfer restrictions must be approved by a majority of the members of the
board of directors who are not subject to transfer restrictions at the time of
such proposed waiver.
Certain Provisions Affecting Stockholders
Delaware, like many other states, permits a corporation to adopt a number
of measures through amendment of the corporate charter or bylaws or otherwise,
that may have the effect of delaying or deterring any unsolicited takeover
attempts. In addition, Delaware law restricts certain "business combinations"
with "interested stockholders," generally a holder of 15% or more of
Centerprise's voting stock, for three years following the date that person
becomes an interested stockholder. By delaying or deterring unsolicited
takeover attempts, these provisions could adversely affect prevailing market
prices for the common stock.
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COMPARISON OF RIGHTS OF SECURITY HOLDERS
OF CENTERPRISE AND THE CENTERPRISE COMPANIES
Upon completion of the mergers, the holders of equity interests in the ten
Centerprise founding companies will become holders of Centerprise common stock.
Centerprise is a Delaware corporation and is bound by Delaware law, whereas
each of the founding companies is bound by the corporate, partnership or
limited liability company law of the state in which such company was organized.
In addition, the Centerprise certificate of incorporation and bylaws differ
from the governance documents of each Centerprise company. The difference
between the Centerprise certificate of incorporation and bylaws and the
governance documents of each founding company, and between Delaware corporate
law and the corporate law of each state in which each Centerprise company was
organized, will ultimately result in changes to the rights of holders of common
stock, partnership or membership interests of each of the Centerprise
companies.
The following is a summary of the material differences between the rights of
the security holders of Centerprise and the security holders of each of Berry
Dunn, Follmer, Grace, IDA, Mann Frankfort, Reppond Company, Reppond
Administrators, VeraSource, Reznick, Driver, Simione and Urbach. This summary
does not purport to be a complete discussion of, and is qualified in its
entirety by reference to, Delaware corporate law, the Centerprise certificate
of incorporation and bylaws and the applicable state laws and governance
documents of the Centerprise companies.
Although Driver is incorporated in Delaware, as a corporation conducting
substantial business in California with more than half of its record holders
having addresses in California, it is also subject to provisions of the
California Corporations Code. The California law provisions to which Driver is
subject include provisions governing a director's standard of care in
performing the duties of a director, a stockholder's right to vote cumulatively
in any election of directors, a director's or stockholder's right to inspect
corporate records, indemnification requirements concerning directors, officers
and others and the corporate requirements to effectuate corporate
reorganizations, including mergers and acquisitions.
Dividends
As a Founding Company Security Holder:
. Berry Dunn--Maine law provides that the board of directors of a
corporation may declare and the corporation may pay dividends on its
outstanding shares in cash or property, except when the corporation is
insolvent or when the payment of the dividend would render the
corporation insolvent or when such declaration or payment would be
contrary to any restrictions contained in the articles of incorporation.
. Follmer--The bylaws of Follmer provide that the board of directors, in
its discretion, may declare dividends upon the capital stock from the
surplus and net profits of the company.
. Grace--Missouri law provides that the board of directors of a corporation
may declare and the corporation may pay dividends on its outstanding
shares in cash, property, or its own shares except that no dividend can
be declared or paid at a time when the net assets of the corporation are
less than its stated capital or when such payment would reduce the net
assets of the corporation below its stated capital. Neither the bylaws
nor the articles of incorporation of Grace contain provisions relating to
the declaration and payment of dividends that are inconsistent with the
Missouri law.
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. IDA--New Jersey law provides that a corporation may pay dividends unless,
after giving effect to the dividends, the corporation would be unable to
pay its debts in the usual course of business, or the corporation's total
assets would be less than its total liabilities. The bylaws of IDA state
that the board of directors shall have full power to determine whether
any funds are available for the payment of dividends to shareholders.
. Mann Frankfort--Texas law prohibits the board of directors from making
distributions if:
(a) after giving effect to the distribution, the corporation would be
insolvent; and
(b) the distribution exceeds the surplus of the corporation.
Texas law provides that the corporation may make a distribution involving a
purchase or redemption of any of its own shares if the purpose of such purchase
or redemption is to:
(a) eliminate fractional shares;
(b) collect or compromise indebtedness owed by or to the corporation;
(c) pay dissenting shareholders entitled to payment for their shares; or
(d) effect the purchase or redemption of redeemable shares.
The bylaws of Mann Frankfort provide that the board of directors may, within
its discretion and with the prior written approval of the management committee,
declare dividends on its outstanding shares upon the terms and conditions
provided by law and its articles of incorporation. The articles of
incorporation of Mann Frankfort do not address the distribution of dividends.
. Reppond--Under Washington law, a corporation may make a distribution in
cash or in property to its shareholders upon the authorization of its
board of directors unless, after giving effect to the distribution:
(a) the corporation would be unable to pay its debts as they become due
in the usual course of business, or
(b) the corporation's total assets would be less than the sum of its
total liabilities plus the amount that would be needed, if the
corporation were to be dissolved at the time of the distribution, to
satisfy the preferential rights of shareholders whose preferential
rights are superior to those receiving the distribution.
The bylaws of Reppond Company provide that dividends may be declared by
the Reppond Company board and paid out of the annual profits of the
corporation or out of its net assets in excess of its capital, subject to
the laws of the state of Washington. The bylaws of VeraSource provide
that dividends may be declared by the VeraSource board and paid out of
the annual profits of the corporation or out of its net assets in excess
of its capital, subject to the laws of the state of Washington.
Washington limited liability company law provides that a limited liability
company shall not make a distribution to a member to the extent that at the
time of the distribution, after giving effect to the distribution:
(a) the limited liability company would not be able to pay its debts as
they become due in the usual course of business, or
(b) all liabilities of the limited liability company interests and
liabilities to members on account of their interests for which the
recourse of creditors is limited to specified property of the limited
liability company, exceed the fair value of the assets of the limited
liability company.
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The operating agreement of Reppond Administrators does not contain
provisions relating to dividends.
. Reznick-- Maryland law provides that the board of directors may authorize
the corporation to make distributions to its shareholders, subject to any
restriction in its charter. The bylaws of Reznick provide that the
stockholders may from time to time declare, and Reznick may pay,
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law and its charter.
. Driver--Delaware law provides that a corporation may pay dividends out of
surplus, defined as the excess, if any, of net assets over capital, or,
if no such surplus exists, out of its net profits for the fiscal year in
which such dividends are declared and/or for its preceding fiscal year.
However, dividends may not be paid out of net profits if the capital of
such corporation is less than the aggregate amount of capital represented
by the outstanding stock of all classes having a preference upon
distribution of assets.
California law provides that a corporation may not make any
distribution, including dividends, unless either the corporation's
retained earnings immediately prior to the proposed distribution equal or
exceed the amount of the proposed distribution or, immediately after such
distribution, the corporation's assets, not including goodwill,
capitalized research and development expenses and deferred charges, would
be at least equal to 1 1/4 times its liabilities, not including deferred
taxes, deferred income and other deferred credits, and the corporation's
current assets would be at least equal to its current liabilities. The
certificate of incorporation of Driver provides that Driver's board may
authorize and pay dividends at its discretion subject to preferred
shareholders.
. Simione--Neither Connecticut limited liability company law nor the
operating agreement of Simione address dividends.
. Urbach--New York law provides that a corporation may pay dividends,
except when the corporation is insolvent or would thereby be made
insolvent. Furthermore, dividends may be paid out of surplus only, so
that the net assets of the corporation remaining after such distribution
shall at least equal the amount of its stated capital. The bylaws of
Urbach provide that subject to applicable law, dividends may be declared
in the board's discretion.
As a Centerprise Stockholder:
Under Delaware law, a corporation may pay dividends out of surplus, defined
as the excess of net assets over capital. If no such surplus exists, dividends
may be paid out of its net profits for the fiscal year. However, dividends may
not be paid out of net profits if the capital of such corporation is less than
the aggregate amount of capital represented by the outstanding stock of all
classes having a preference upon distribution of assets. The Centerprise
certificate of incorporation and bylaws contain provisions relating to the
declaration and payment of dividends consistent with Delaware law.
Voting Rights
As Both a Founding Company Security Holder and a Centerprise Stockholder:
Each holder of a voting security is entitled to one vote per share or
interest owned. Neither any of the founding companies security holders nor
Centerprise stockholders have cumulative voting rights in the election of
directors or other governing board members.
Directors--Number of Directors
As a Founding Company Security Holder:
. Berry Dunn--Maine law provides that if a corporation has a board of
directors, there shall be at least three directors, except that if all
shares of a corporation are owned beneficially and of record by fewer
than three shareholders, the number of directors may be less than three
but not less than the number of shareholders. The number of directors may
be increased or decreased only by:
(a) amendment of the articles of incorporation; or
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(b) if the articles of incorporation set out a maximum and minimum number
of directors, within the limits set in the articles by (1) a
resolution of the shareholders, or (2) a resolution of the directors,
if the articles authorize such a resolution.
The bylaws of Berry Dunn provide for a board of five directors, unless there
are fewer shareholders.
. Follmer--Michigan law provides that the board shall consist of one or
more members and the number should be fixed in the company's articles or
bylaws. Follmer has 12 directors.
. Grace--Missouri law provides that a corporation shall have three or more
directors, except that a corporation may have one or two directors if
stated in the articles of incorporation. The articles of incorporation of
Grace provide that the number of directors shall be fixed in the manner
set forth in the bylaws, but shall not be less than three. The bylaws of
Grace provide that the number of directors shall be set by a majority of
all of the issued and outstanding stock. Presently the number of
directors is ten.
. IDA--New Jersey law provides that the charter document or bylaws of a
corporation may specify the number of directors. The charter of IDA
provides for two initial directors. The bylaws of IDA state that the IDA
board shall consist of not less than one director, elected for a one-year
term, with the exact number determined by the IDA board. The bylaws of
IDA also provide that the directors have the power to increase or
decrease their own number by amendment to the bylaws.
. Mann Frankfort--Texas law provides that the board of directors shall
consist of one or more directors, and shall be fixed by the corporation's
articles of incorporation or bylaws. However, the number of directors
constituting the initial board of directors shall be fixed by the
articles of incorporation. The number of directors may be increased or
decreased by amendment. The articles of incorporation of Mann Frankfort
provide that the number of the initial board of directors is four and
that four shall be the authorized number of directors until such number
is changed by the bylaws. The bylaws of Mann Frankfort state that the
number of directors may be increased or decreased by amendment to the
bylaws; however, the number of directors shall never be less than four
persons.
. Reppond--Washington law provides that the board of directors of a
Washington corporation shall consist of one or more directors as fixed by
the corporation's articles of incorporation or bylaws. The bylaws of
Reppond Company provide for a board of directors comprised of not less
than two directors. The bylaws of VeraSource provide for a board of
directors comprised of two directors. Members govern the affairs of
Reppond Administrators pursuant to its operating agreement. The members,
including the manager, shall be fiduciaries as to each other and Reppond
Administrators.
. Reznick--Maryland law provides that a close corporation shall have at
least one director until an election by the corporation in its charter to
have no board of directors becomes effective. The amended and restated
articles of incorporation of Reznick provide that the corporation will
have no board of directors.
. Driver--Delaware law provides the charter document or bylaws of a
corporation may specify the number of directors. The Driver bylaws
provide that the number of directors shall be nine.
. Simione--Connecticut law provides that the articles of organization may
vest management of the business, property and affairs of a limited
liability company in a manager or managers. It provides that the
operating agreement may set forth the number and qualification of the
managers and the manner in which the managers are designated or elected,
removed and replaced. The articles of organization of Simione vest
management of the business affairs of the company in managers. The
operating agreement of Simione provides that the managers shall vote to
decide any matter connected with the business or affairs of the company.
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. Urbach--New York law provides that the board of directors shall consist
of one or more members. The number of directors constituting the board
may be fixed by the bylaws, or by action of the shareholders or of the
board under the specific provisions of a bylaw adopted by the
shareholders. The bylaws of Urbach provide that the number of directors
is five and no person owning less than 700 shares of corporate stock may
be elected a director.
As a Centerprise Stockholder:
Under Delaware law, a corporation's board of directors must consist of at
least one member, with the number fixed by the charter document or bylaws of
the corporation. The Centerprise bylaws provide that the number of directors
shall be fixed by resolution of the board. Upon completion of the mergers,
Centerprise expects its board to have 16 directors.
Directors--Vacancies
As a Founding Company Security Holder:
. Berry Dunn--Maine law provides that unless the articles of incorporation
or bylaws reserve to the shareholders the right to fill vacancies,
vacancies may be filled by a majority of the remaining directors, or by a
sole director. However, Article IV of the bylaws of Berry Dunn reserves
to the shareholders the right to fill any vacancy on the board of
directors. Any director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor.
. Follmer--Michigan law provides that unless limited by the articles of
incorporation, the shareholders, the board, or if the directors remaining
in office are less than a quorum, by majority vote, may fill vacancies on
the Board. The bylaws of Follmer provide that vacancies on the board
shall be filled by the remaining members of the board and each person so
elected shall be a director until his successor is elected at the next
annual meeting or at a special meeting called for that purpose.
. Grace--Missouri law provides that unless otherwise provided in the
articles of incorporation or bylaws of the corporation, vacancies on the
board and newly created directorships resulting from any increase in the
number of directors may be filled by a majority of the directors then in
office, or by a sole remaining director, until the next election of
directors by the shareholders of the corporation. The bylaws of Grace
provide that in case of the death, resignation or disqualification of one
or more directors, a majority of the survivors or remaining directors may
fill such vacancy or vacancies, from other shareholders of the
corporation, until the successor or successors are elected at the next
annual meeting of the shareholders. A director elected to fill a vacancy
shall serve as such until the next annual meeting of shareholders.
. IDA--New Jersey law provides that vacancies and newly created
directorships may be filled by a majority of the directors then in office
or by the sole remaining director, unless otherwise provided in the
certificate of incorporation or bylaws of the corporation. An elected
director shall hold office until the next annual shareholders meeting.
Unless otherwise provided in the certificate of incorporation or the
bylaws, when one or more directors resigns effective at a future date, a
majority of the directors then in office including those who have
resigned shall have the power to fill a vacancy, the vote shall take
effect when such resignation becomes effective. In addition, if by reason
of death, resignation or other cause, a corporation has no directors in
office, any shareholder or the executor or administrator of a deceased
shareholder may call a special meeting of shareholders for the election
of directors. The bylaws of IDA provide that if the number of directors
is increased, the additional directors may be chosen by a majority of the
directors in office at the time of the increase, or if not so chosen
prior to the time of the next annual meeting of the shareholders, they
shall be chosen by the shareholders. In case of vacancies created by
death, resignation or otherwise, except those created by removal of
shareholders,
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the remaining directors, although less than a quorum, may, by unanimous
vote, choose a successor for the unexpired term.
. Mann Frankfort--Texas law provides that any vacancy occurring in the
board of directors may be filled by the affirmative vote of a majority of
the remaining directors. A directorship to be filled by reason of an
increase in the number of directors may be filled by the board for a term
continuing only until the next election of directors; provided that the
board may not fill more than two such directorships during the period
between any two successive annual or special meetings of shareholders.
Any director vacancy may be filled by election at an annual or special
meeting of shareholders called for that purpose. Mann Frankfort's bylaws
provide that any director vacancy shall be filled at the next meeting of
the board of directors. Such vacancy shall be filled by the affirmative
vote of a majority of the remaining directors even though less than a
quorum.
. Reppond--Washington law provides that unless the articles of
incorporation provide otherwise, if a vacancy occurs on a board of
directors, including a vacancy resulting from an increase in the number
of directors, the shareholders or the board of directors may fill the
vacancy, or if the directors in office constitute fewer than a quorum of
the board they may fill the vacancy by the affirmative vote of a majority
of all the directors in office. The organizational documents of Reppond
do not address vacancies. The Reppond Administrators operating agreement
provides that a new or replacement manager may be appointed with the
written approval of members holding a majority of the units in Reppond
Administrators.
. Reznick--Reznick does not have a board of directors.
. Driver--Vacancies and newly created directorships may be filled by a
majority of the Driver directors then in office.
. Simione--The operating agreement of Simione provides that the managers
shall vote to decide any matter connected with the business or affairs of
the company.
. Urbach--New York law provides that newly created directorships may be
filled by vote of the board. If the directors then in office constitute
less than a quorum, such directorships may be filled by a vote of a
majority of the directors then in office. Vacancies occurring in the
board by reason of removal of directors without cause may be filled only
by vote of the shareholders.
As a Centerprise Stockholder:
Vacant director positions may be filled by a majority of the Centerprise
directors then in office, even though less than a quorum.
Directors--Removal
As a Founding Company Security Holder:
. Berry Dunn--Maine law provides that the entire board of directors or any
individual directors may be removed, at a special meeting of shareholders
called expressly for that purpose, with or without just cause, by an
affirmative vote of two-thirds of the outstanding shares entitled to
vote.
. Follmer--Michigan law provides that the shareholders may remove one or
more directors with or without cause unless the articles of incorporation
provide that directors may be removed only for cause. The vote for
removal shall be by a majority of shares entitled to vote. Michigan law
provides that a director may be removed by a court in a proceeding
commenced by at least 10% of the outstanding
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shares if the court finds that the director engaged in fraudulent, illegal
or dishonest conduct or gross abuse of authority or discretion with
respect to the corporation and the removal is in the best interests of the
corporation.
. Grace--Missouri law provides that directors may be removed in a manner
provided by the statute at a meeting called expressly for that purpose.
One or more directors or the entire board of directors may be removed,
with or without cause, by a vote of the holders of a majority of the
shares then entitled to vote at an election.
. IDA--New Jersey law provides that a director may be removed for cause or,
without cause, by a majority of the shareholders entitled to vote for the
election of directors. The removal of a director with or without cause is
subject to the following qualifications:
(a) where cumulative voting is authorized, if less than the total
number of the directors then serving on the board is to be removed
by the shareholders, no one of the directors may be removed if the
votes cast against his removal would be sufficient to elect him if
then voted cumulatively at an election of the entire board; or, if
there are classes of directors, at an election of the class of
directors of which he is part,
(b) a director elected by a class vote may be removed only by a class
vote of the holders of shares entitled to vote for his election,
(c) if the certificate of incorporation requires a greater vote than a
plurality of the votes cast for the election of directors, no
director may be removed except by the greater vote required to
elect him, and
(d) shareholders of a corporation whose board is classified may not
remove a director without cause.
The bylaws of IDA provide that directors may be removed either with or without
cause by the affirmative vote of the holders of a majority of all the shares of
common stock outstanding and entitled to vote for the election of directors.
. Mann Frankfort--Texas law provides that a corporation's bylaws or
articles of incorporation may provide that any director or the entire
board of directors may be removed at a shareholder meeting, with or
without cause, by a vote of the holders of a specific portion, but not
less than a majority, of shares then entitled to vote.
. Reppond--Washington law provides that a corporation's shareholders may
remove one or more directors with or without cause unless the articles of
incorporation provide that any director may be removed only for cause.
Neither the articles of incorporation nor the bylaws of Reppond Company
contain provisions relating to removal of directors which are
inconsistent with Washington law. The bylaws of VeraSource provide that a
removal of any member of the board with or without cause must occur at a
meeting of the shareholders called expressly for that purpose. The
Reppond Administrators operating agreement provides that a manager may be
removed with or without cause upon the written approval of members
holding 66 2/3% of the units in Reppond Administrators.
. Reznick--Reznick does not have a board of directors.
. Driver--Delaware law provides that any director or the entire board of
directors may be removed, with or without cause, by the holders of a
majority of the shares entitled to vote at an election of directors,
except:
(1) in the case of a corporation having a classified board,
stockholders may effect such removal only for cause unless the
certificate of incorporation otherwise provides; and
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(2) in the case of a corporation having cumulative voting, if less than
the entire board is to be removed, no director may be removed
without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election
of the entire board of directors.
California law provides that any director or the entire board of
directors may be removed, with or without cause, if the removal is
approved by the affirmative vote of a majority of the outstanding shares
entitled to vote, subject to limitations, if applicable, of cumulative
voting, class or series voting and classified board requirements. The
bylaws of Driver provide that subject to the rights of holders of any
series of preferred stock then outstanding, any director, or the entire
board of directors, may be removed from office at anytime, but only for
cause and only by the affirmative vote of the holders of 67% of the total
voting power of all securities entitled to vote generally in the election
of directors of the corporation, voting together as a single class.
. Simione--Connecticut law provides that any or all managers may be
removed, with or without cause, by the vote of a majority in interest of
the members. The operating agreement of Simione provides that the
managers shall vote to decide any matter connected with the business or
affairs of the company.
. Urbach--New York law provides that any or all of the directors may be
removed for cause by vote of the shareholders. The certificate of
incorporation or the specific provisions of a bylaw may provide for such
removal by action of the board, except:
(1) in the case of any director elected by cumulative voting; or
(2) by the holders of the shares of any class, or holders of bonds,
voting as a class, when so entitled by the provisions of the
certificate of incorporation.
New York law also provides that any or all directors may be removed without
cause by vote of the shareholders. The bylaws of Urbach provide that any and
all of the directors may be removed for cause by vote of the shareholders or by
action of the board. The bylaws of Urbach provide that directors may be removed
without cause only by vote of the shareholders.
As a Centerprise Stockholder:
Delaware law provides that any director or the entire board of directors may
be removed, with or without cause, by the holders of a majority of the shares
entitled to vote in an election of directors, unless the certificate of
incorporation limits such removal only for cause.
Centerprise's charter provides that directors may be removed only for cause
by a vote of a majority of the combined voting power of Centerprise's
outstanding stock.
Directors--Nominations
As a Founding Company Security Holder:
. Berry Dunn--Neither Maine law nor the organizational documents of Berry
Dunn address nominations.
. Follmer--Neither Michigan law nor the organizational documents of Follmer
address nominations.
. Grace--Neither Missouri law nor the organizational documents of Grace
address nominations.
. IDA--Neither New Jersey law nor the organizational documents of IDA
address nominations.
. Mann Frankfort--Neither Texas law nor the organizational documents of
Mann Frankfort address nominations.
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. Reppond--Neither Washington corporation law, Washington limited liability
company law, nor the organizational documents of Reppond Company,
VeraSource or Reppond Administrators address nominations of directors.
. Reznick--In accordance with Maryland law, Reznick does not have a board
of directors.
. Driver--The bylaws of Driver provide that nominations for a directorship
shall be submitted to the corporation not less than 150 days prior to the
date of the general meeting of the shareholders and shall specify, among
other things, the need for the action to be taken, and the age and
business background and qualification of a nominee for a directorship.
. Simione--Neither Connecticut law nor the organizational documents of
Simione address nominations.
. Urbach--Neither New York law nor the organizational documents of Urbach
address nominations.
As a Centerprise Stockholder:
The Centerprise bylaws provide that nominations for directors may be made
only by or at the direction of the Centerprise board or by a stockholder
entitled to vote for the election of directors at a stockholders' meeting.
Written notice of such stockholder's intent to make a director nomination must
be received by the Secretary of Centerprise in a manner and within the time
period specified in the bylaws of Centerprise.
Limitation on Director's Liability; Indemnification of Officers and Directors
As a Founding Company Security Holder:
. Berry Dunn--Maine law provides that a director shall not be held
personally liable for monetary damages for failure to discharge any duty
as a director unless the director is found not to have acted honestly or
in the reasonable belief that the action was in or not opposed to the
best interests of the corporation or its shareholders. Article VI of the
Berry Dunn bylaws provide that to the extent permitted by the laws of the
State of Maine, the corporation shall indemnify any officer or director
who was or is a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he or she is or was an
officer or director, against expenses, incurred by him in connection with
such action, suit or proceeding. However, no indemnification shall be
provided with respect to any matter as to which he or she shall have been
finally adjudicated, in any action, suit or proceeding to have not acted
honestly or in the reasonable belief that his action was in the best
interests of the corporation or its shareholders, or with respect to any
criminal action, to have had reasonable cause to believe that his conduct
was unlawful. This indemnification shall apply only to matters arising
out of an individual's capacity as an officer or director of the
corporation and not with respect to matters undertaken as an employee or
shareholder of the corporation or in any other capacity.
. Follmer--Michigan law provides that a corporation has the power to
indemnify a person who was or is a party to a threatened, pending or
completed action, other than an action by or in the right of the
corporation, by reason of the fact that he or she is or was a director of
the corporation, against expenses incurred in connection with the action,
if the person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation
or its shareholders. Michigan law provides that a corporation has the
power to indemnify a person who was or is a party to a threatened,
pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that
he or she is or was a director, against expenses, incurred by the person
in connection with the action or suit, if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to
the best interests of the corporation or its shareholders.
Indemnification shall not be made for a claim, issue, or matter in which
the person has been found liable to the corporation. Michigan law
provides that to the extent that a director, officer, employee, or agent
of a corporation has been successful on the merits or otherwise in
defense of an action, or in defense of a claim, issue, or matter in the
action, suit, or proceeding, he or she shall be indemnified against
actual and reasonable expenses, including attorneys' fees, incurred by
him or her in connection with the action. The organizational documents of
Follmer do not address indemnification.
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. Grace--Missouri law provides that a corporation may indemnify any person
who was or is a party to any threatened, pending or completed action,
other than an action by or in the right of the corporation, by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another entity, against expenses
incurred by him in connection with such action, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The corporation may indemnify any person who was or is a party
to any action by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
entity against expenses actually and reasonably incurred by him in
connection with the defense or settlement of the action if he acted in
good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation. However, no indemnification
shall be made in respect of any claim as to which such person shall have
been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless and only to the extent
that the court in which the action brought determines that, despite the
adjudication of liability and in view of all the circumstances of the
case, the person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper. Any permissive
indemnification, unless ordered by a court, shall be made by the
corporation only as authorized in the specific case and upon a
determination made by the majority vote of a quorum of directors not
parties to the action. To the extent that a director, officer, employee
or agent of the corporation has been successful on the merits or
otherwise in defense of any action or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses, actually and
reasonably incurred by him in connection with the action.
The bylaws of Grace provide that each director or officer or former
director or officer shall be indemnified against liabilities, expenses,
counsel fees and costs reasonably incurred by him or his estate in
connection with, or arising out of, any action, in which he was made a
party because of his position as a director or officer. However, nothing
in the bylaws shall restrict or limit the authority and duty of any
regulating board for the licensing of individual persons rendering
professional services or the practice of the profession which is within
the jurisdiction of the regulating board.
. IDA--New Jersey law provides that a corporation's certificate of
incorporation may provide that a director or officer shall not be
personally liable, or shall be liable only to the extent provided
therein, to the corporation or its shareholders for damages for breach of
any duty owed to the corporation or its shareholders, except that this
provision shall not relieve a director or officer from liability for any
breach of duty based upon an act or omission
(a)in breach of the person's duty of loyalty;
(b)not in good faith or involving a known violation of the law or
(c)resulting in receipt by the person of an improper personal benefit.
A corporation may indemnify a corporate agent against his expenses and
liabilities in connection with any proceeding by reason of his having been
such corporate agent, other than a proceeding by or in the right of the
corporation, if:
(a) the agent acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and
(b) with respect to criminal proceedings, he had no reasonable cause
to believe his conduct was unlawful.
The corporation may also indemnify a corporate agent against expenses
incurred in connection with any proceeding by or in the right of the
corporation, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation.
A corporation shall indemnify an agent against expenses to the extent the
agent has been successful on the merits or otherwise in any proceeding
referred to above, or in defense of any claim, issue or matter therein.
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Any indemnification, unless ordered by a court, may be made by the
corporation only as authorized in a specific case upon a determination
that indemnification is proper in the circumstances. Unless otherwise
provided in the certificate of incorporation or bylaws, the determination
shall be made:
(a) by the board or a committee thereof, acting by a majority vote of
a quorum consisting of directors who were not parties to or
involved in the proceeding,
(b) if a quorum is not obtainable, or if obtainable but the quorum so
directs, by independent legal counsel, or
(c) by the shareholders if the certificate of incorporation or bylaws
or a resolution of the board or shareholders so directs.
Expenses incurred by a corporate agent in connection with a proceeding may
be paid by the corporation in advance of the final disposition of the
proceeding as authorized by the board upon receipt of an undertaking by
the agent to repay such amount if it is later determined that he was not
entitled to indemnification.
The bylaws of IDA provide that directors and officers of IDA and
directors or officers of any other corporation serving as such at the
request of IDA shall be indemnified by IDA against reasonable costs,
expenses, exclusive of any amount paid to IDA in settlement, and counsel
fees paid or incurred in connection with any action, suit or proceeding
to which the director or officer may be made a party by reason of his
having been a director or officer, provided:
(a) the action, suit or proceeding shall be prosecuted against the
director or officer to final determination, and it shall not be
finally adjudged in the action, suit or proceeding that he had
been derelict in the performance of his duties as a director or
officer, or
(b) the action, suit or proceeding shall be settled or otherwise
terminated as against a director or officer or his legal
representative without final determination on the merits, and it
shall be determined by the board that the director or officer had
not in any substantial way been derelict in the performance of his
duties as charged in the action, suit or proceeding.
. Mann Frankfort--Texas law provides that a corporation may indemnify a
director who was, is or is threatened to be made a defendant or
respondent in a proceeding if he conducted himself in good faith,
reasonably believed, with respect to his official capacity as a director,
that his conduct was in the corporation's best interests and reasonably
believed, with respect to other cases, that his conduct was at least not
opposed to the corporation's best interests. In the case of a criminal
proceeding, a corporation may indemnify a director if he had no
reasonable cause to believe his conduct was unlawful. Except as specified
below, a director may not be indemnified where he is found liable on the
basis that he improperly received personal benefit or where he is found
liable to the corporation. A director may be indemnified against
judgments, penalties, fines, settlements and reasonable expenses incurred
in connection with the proceeding; however, if the director is liable on
the basis that he improperly received personal benefit or he is liable to
the corporation, indemnification is limited to reasonable expenses and is
not available where the director is liable for willful or intentional
misconduct in the performance of his duty to the corporation.
A determination of indemnification must be made by any of the following
ways:
(1) by a majority vote of a quorum of directors who were not
defendants in the proceeding;
(2) if a quorum cannot be obtained, by a majority vote of a committee
of the board who were not defendants in the proceeding;
(3) by special legal counsel; or
(4) by the shareholders in a vote that excludes the shares held by
directors who are defendants in the proceeding.
Authorization of indemnification and determination as to reasonableness of
expenses must be made in the same ways, except that if indemnification is
determined to be permissible by special legal counsel, such authorization
or determination must similarly be made by special legal counsel.
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A corporation must indemnify a director against expenses he reasonably
incurred in connection with a proceeding in which he was named a defendant
or respondent because he was a director if such director was successful in
defense of the proceeding. A court, if it determines that a director is
entitled to indemnification, must order indemnification and award such
director expenses incurred in securing the indemnification.
A corporation may indemnify and advance expenses to an officer, employee,
or agent of the corporation or to anyone who is or was serving at the
request of the corporation as a director, officer, partner or similar
functionary to another corporation to the same extent that it may
indemnify and advance expenses to a director. Texas law, provides that the
articles of incorporation may limit a director's liability in his capacity
as a director except if the director is found liable for:
(1) a breach of the director's duty of loyalty to the corporation or
its shareholders or members;
(2) an act or omission not in good faith that constitutes a breach of
duty of the director to the corporation or an act or omission that
involves intentional misconduct or a knowing violation of the law;
(3) a transaction from which the director received an improper
benefit; or
(4) an act or omission for which the liability of a director is
expressly provided by an applicable statute.
The articles of incorporation of Mann Frankfort provide that a director
shall not be liable to the corporation or its shareholders for an act or
omission in the director's capacity as a director, unless the director is
found liable for the following:
(1) a breach of the director's duty of loyalty to the corporation or
its shareholders;
(2) an act or omission not in good faith that constitutes a breach of
duty of the director to the corporation or an act or omission that
involves intentional misconduct or a knowing violation of the law;
(3) a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action within
the scope of the director's office; or
(4) an act or omission for which the liability of a director is
expressly provided by an applicable statute.
The articles of incorporation and bylaws of Mann Frankfort provide that
each director shall be indemnified by the corporation to the fullest
extent permitted by Texas law.
. Reppond--Washington law provides that a corporation's articles of
incorporation may include a provision that eliminates or limits the
personal liability of a director to the corporation or its shareholders
for monetary damages for conduct as a director. However, the provisions
may not eliminate or limit the liability of a director for acts or
omissions that involve intentional misconduct by the director or a
knowing violation of law by the director, for unlawful distributions, or
for any transaction from which the director will personally receive a
benefit in money, property or services to which the director is not
legally entitled.
In addition, if authorized by the articles of incorporation or bylaws
adopted or ratified by the shareholders or by a resolution adopted or
ratified by the shareholders, a corporation has the power to indemnify a
director or officer made a party to a proceeding, or advance or reimburse
expenses incurred in a proceeding, under any circumstances, except that no
indemnification shall be allowed on account of
(1) acts or omissions of a director or officer finally adjudged to be
intentional misconduct or a knowing violation of the law,
(2) conduct of a director or officer finally adjudged to be an
unlawful distribution, or
(3) any transaction with respect to which it was finally adjudged that
such director or officer personally received a benefit in money,
property or services to which the director or officer was not
legally entitled.
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Unless limited by the corporation's articles of incorporation, Washington
law requires indemnification if the director or officer is wholly
successful on the merits of the action or otherwise. Any indemnification
of a director must be reported to the shareholders in writing. The
articles of incorporation of Reppond Company and VeraSource provide for
the limitation of director liability and indemnification of a director or
officer to the fullest extent permitted by Washington law.
Washington limited liability company law provides that a limited
liability company may contain provisions limiting liability and
indemnifying members or managers. Pursuant to the operating agreement of
Reppond Administrators, Reppond Administrators indemnifies and holds its
members and managers harmless from any loss or damage, by reason of any
act or omission performed or omitted by a member or manager on behalf of
Reppond Administrators or in furtherance of Reppond Administrators'
interests; however, recovery under such indemnification or agreement to
hold harmless is limited to the assets of Reppond Administrators. The
indemnity is limited to acts or omissions performed or omitted in good
faith and in the belief that they were in Reppond Administrators'
interest or not opposed to the best interests of Reppond Administrators.
. Reznick--Maryland law provides that a corporation may indemnify any
director made a party to any proceeding excluding bad faith by the
director. A director cannot be indemnified where the proceeding was in
the right of the corporation. Under the bylaws of Reznick, Reznick shall
indemnify any person who was or is a party to any threatened, pending or
completed action whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director,
officer, employee or agent of Reznick, or is or was serving at the
request of Reznick as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or is
or was serving at the request of the corporation as a trustee or
administrator or in any other fiduciary capacity under any pension,
profit sharing or other deferred compensation plan, or any employee
welfare benefit plan of the corporation, to the full extent permitted by
law. Such provisions apply to the stockholders and key employees of
Reznick when acting in lieu of a board of directors to the fullest extent
permitted by law.
. Driver--Delaware law allows a corporation to include in its certificate
of incorporation a provision that limits or eliminates the personal
liability of directors of the corporation and its stockholders for
monetary damages for breach of fiduciary duty as a director. Delaware law
does not, however, permit a corporation to limit or eliminate the
personal liability of a director for:
(1) any breach of the director's duty of loyalty to the corporation or
its stockholders;
(2) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(3) intentional or negligent payments of unlawful dividends or
unlawful stock purchases or redemption; or
(4) any transaction from which the director derives an improper
personal benefit. The Driver certificate of incorporation provides
for limitations on directors' liability to the fullest extent
permitted by Delaware law.
Delaware law permits a corporation to indemnify any person who was or
is a party to:
(1) any action, suit or proceeding, whether civil, criminal,
administrative or investigative, other than an action by or in the
right of the corporation, against expenses and reasonable
settlement amounts if such person acted in good faith and
reasonably believed that his or her actions were in or not opposed
to the best interests of such corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe that his
or her conduct was unlawful;
(2) any derivative action or suit on behalf of such corporation
against expenses actually and reasonably incurred in connection
with the defense or settlement of such action or suit, if such
person acted in good faith and reasonably believed that his or her
actions were in or not opposed to the best interest of such
corporation.
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With respect to derivative suits and actions, in the event that a person
is adjudged to be liable to the corporation, Delaware law prohibits
indemnification unless, and then only to the extent that, either the
Delaware Court of Chancery or the court in which such derivative action
or suit was brought determines that such person is entitled to
indemnification for those expenses which that court deems proper. To the
extent that a representative of a corporation has been successful on the
merits or otherwise in the defense of a third party or derivative action,
indemnification for actual and reasonable expenses incurred is mandatory.
Under both the Delaware and California law, other than an action
brought by or in the right of the corporation, indemnification is
available if it is determined that the proposed indemnitee acted in good
faith and in a manner he or she reasonably believed to be in, or under
Delaware law not opposed to, the best interests of the corporation, and,
with respect to any criminal action or proceedings, had no reasonable
cause to believe his or her conduct was unlawful. Similarly, in actions
brought by or in the right of the corporation, such indemnification is
limited to expenses actually and reasonably incurred and permitted only
if the indemnitee acted in good faith and in a manner he or she
reasonably believed to be in, or under the Delaware law not opposed to,
the best interests of the company, except that no indemnification may be
made in respect of any claim, issue or matter as to which such person is
adjudged to be liable to the corporation, unless and only to the extent
that the court in which the action was brought determines that, despite
the adjudication of liability but in view of all the circumstances of the
case, the person is fairly and reasonably entitled to indemnity for such
expenses which the court deems proper. To the extent that the proposed
indemnitee, only officers or directors under Delaware law, has been
successful in defense of any action, suit or proceeding, he must be
indemnified against expenses actually and reasonably incurred by him in
connection with the action.
The bylaws of Driver provide that Driver shall indemnify its directors
and officers to the maximum extent permitted by Delaware law. The bylaws
also provide that Driver, by action of its board of directors, may
provide indemnification to employees and agents of the corporation with
the same scope and effect as provided to its officers and directors.
. Simione--Connecticut law provides that an operating agreement may:
(1) eliminate or limit the personal liability of a manager for
monetary damages for breach of duty of care; and
(2) provide for indemnification of a manager for judgments,
settlements, penalties, fines or expenses incurred in a
proceeding to which an individual is a party because such
individual is or was a manager.
The organizational documents of Simione do not address director liability
or indemnification of officers and directors.
. Urbach--New York law provides that a director shall not be liable to
creditors or shareholders for the following if he performed his duty of
care and loyalty to the corporation:
(1) declaration of a dividend contrary to the New York law;
(2) purchase of shares contrary to New York law;
(3) distribution of assets after dissolution of the corporation
without adequately providing for known liabilities of the
corporation; and
(4) the making of any loan contrary to New York law.
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However, no indemnification may be made to or on behalf of any director
or officer if a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith
or were the result of active and deliberate dishonesty and were material
to the cause of action, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled. New York
law permits a corporation to indemnify a director or officer if such
director or officer acted in good faith for a purpose which he reasonably
believed to be in, or, in the case of service for any other corporation
or enterprise, not opposed to, the best interests of the corporation and,
in criminal actions, in addition, had no reasonable cause to believe that
his conduct was unreasonable. New York law prohibits indemnification with
respect to:
(1) a threatened or pending action which is settled; or
(2) any claim, issue or matter as to which such director or officer
shall have been adjudged to be liable to the corporation, unless
and only to the extent that a court determines that the person is
fairly and reasonably entitled to indemnity.
New York law provides that no indemnification shall be made where:
(1) the indemnification would be inconsistent with the law of the
jurisdiction of incorporation of a foreign corporation;
(2) the indemnification would be inconsistent with a provision of the
certificate of incorporation, a bylaw, a resolution of the board
or of the shareholders, or any other corporate action, in effect
at the time of the proceeding; or
(3) if there has been a settlement approved by the court, that the
indemnification would be inconsistent with any condition with
respect to indemnification expressly imposed by the court in
approving the settlement.
As a Centerprise Stockholder:
Delaware law allows a corporation to include in its certificate of
incorporation a provision that limits or eliminates the personal liability of
directors to the corporation and its stockholders for monetary damages for a
breach of fiduciary duty as a director. However, a corporation may not limit or
eliminate the personal liability of a director for:
(a) any breach of the director's duty of loyalty to the corporation or
its stockholders;
(b) acts or omissions in bad faith or which involve intentional
misconduct or a knowing violation of law;
(c) intentional or negligent payments of unlawful dividends or unlawful
stock purchases or redemption; or
(d) any transaction which derives the director an improper personal
benefit.
Delaware law permits a corporation to indemnify any person who was or is a
party or is threatened to be made a party to:
(a) any action, suit or proceeding, whether civil, criminal,
administrative or investigative, other than an action by or in the right of
the corporation, against expenses, and reasonable settlement amounts if
such person acted in good faith and reasonably believed that his or her
actions were in or not opposed to the best interests of such corporation
and, with respect to any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful; or
(b) any derivative action or suit on behalf of such corporation against
expenses, including attorneys' fees, actually and reasonably incurred in
connection with the defense or settlement of such action or suit, if such
person acted in good faith and reasonably believed that his or her actions
were in or not opposed to the best interest of such corporation.
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In the event that a person is adjudged to be liable to the corporation in a
derivative suit, Delaware law prohibits indemnification unless either the
Delaware Court of Chancery or the court in which such derivative suit was
brought determines that such person is entitled to indemnification for those
expenses which such court deems proper. To the extent that a representative of
a corporation has been successful on the merits or otherwise in the defense of
a third party or derivative action, indemnification for actual and reasonable
expenses incurred is mandatory.
The Centerprise charter provides that Centerprise shall indemnify
Centerprise directors to the maximum extent permitted by Delaware law. The
Centerprise charter provides that Centerprise may, at the direction of the
Centerprise board, indemnify officers and employees of Centerprise.
Call of Special Meetings
As a Founding Company Security Holder:
. Berry Dunn--Maine law provides that special meetings of the shareholders
may be called by any of the following:
(a)the president; (b) the chairman of the board of directors;
(c)a majority of the board of directors; or
(d) such other officers or persons as may be provided by the articles
of incorporation or in the bylaws.
The bylaws of Berry Dunn provide that special meetings of the shareholders
shall be held whenever the president, clerk, a majority of the board of
directors, or the holders of not less than 50% of the shares entitled to
vote at the meeting, call such meeting and give written notice.
. Follmer--Michigan law provides that a special meeting may be called as
provided in the bylaws. Upon application of holders of at least 10% of
the voting shares, the circuit court may order a special meeting. The
bylaws of Follmer provide that special meetings of the shareholders may
be called by the president and secretary, in writing, by a majority of
the board or by shareholders in writing owning a majority of the capital
stock.
. Grace--Missouri law provides that special meetings of the shareholders
may be called by the board of directors or by such other persons as are
authorized in the articles of incorporation or bylaws. The bylaws of
Grace provide that special meetings may be called by the president, the
board of directors or the holders of not less than one-fifth of all of
the outstanding shares of the corporation.
. IDA--New Jersey law provides that special meetings of the shareholders
may be called by the president or the board, or by such other officers,
directors or shareholders as may be provided in the bylaws. The holders
of 10% of the shares entitled to vote may apply to the superior court of
New Jersey to order a special meeting for good cause shown. The bylaws of
IDA provide that special meetings of the shareholders, for any purpose,
other than those prescribed by statute or by the certificate of
incorporation, may be called by the president, vice president, secretary
or assistant secretary of IDA at the request of a majority of the board
or at the request of stockholders owning at least 10% of the issued and
outstanding capital stock of IDA entitled to vote.
. Mann Frankfort--Texas law provides that special meetings of the
shareholders may be called:
(a) by the president, the board of directors or such other person(s)
as may be authorized in the articles of incorporation or bylaws;
or
(b) by the holders of at least 10% of all the shares entitled to
vote, unless the articles of incorporation provide for a number
of shares greater than or less than 10%, but in no event shall
the articles of incorporation provide for a number of shares
greater than 50%.
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The bylaws of Mann Frankfort state that special meetings of the
shareholders may be called by the president and/or the chairman of the
board, but not by any other person(s).
. Reppond--Washington law provides that a special meeting of the
shareholders may be called by a corporation's board of directors or other
persons authorized by the corporation's articles of incorporation or
bylaws, or, unless limited by the articles of incorporation, on written
demand of holders of at least 10% of all votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting. The
bylaws of Reppond Company provide that a special meeting of the
shareholders for purposes other than those regulated by statute may be
called at any time by the board upon written request of any director or
shareholder holding in the aggregate one-fifth of the voting power of all
shareholders. The bylaws of VeraSource provide that a special meeting of
the shareholders may be called at any time by the holders of 20% of the
voting shares of the corporation, or by the president, or by a majority
of the board of directors. The operating agreement of Reppond
Administrators provides special meetings of the members for any purposes
described in the meeting notice, may be called by a member or members
whose capital accounts, in the aggregate, are at least 10% of the total
value of all capital accounts of the members.
. Reznick--Maryland law provides that a special meeting of the stockholders
of a corporation may be called by:
(1)the president;
(2)the board of directors; or
(3) any other person specified in the charter or bylaws. The bylaws
of Reznick provide that special meetings of the stockholders may
be called by the chief executive or president, by a majority of
the stockholders or key employees or by the operating committee
by vote at a meeting or by unanimous consent in writing without a
meeting.
. Driver--Delaware law provides that special meetings of stockholders may
be called by the board of directors and by such other persons authorized
to do so by the corporation's certificate of incorporation or bylaws.
California law requirements concerning special meetings of shareholders
do not apply in this context. The bylaws of Driver provide that special
meetings of the stockholders of the corporation may be called for any
purpose at any time by the board of directors, or by a committee of the
board of directors which has been duly designated by the board of
directors and whose powers and authority, as provided in a resolution of
the board of directors or in these bylaws, include the power to call such
meetings. Such special meetings may not be called by any other person or
persons.
. Simione--The operating agreement of Simione provides that any manager may
call a meeting to consider approval of an action under any provision of
the operating agreement by delivering to each other manager notice of the
time and purpose of such meeting at least five days before the day of
such meeting.
. Urbach--New York law provides that if there is a failure to elect a
sufficient number of directors for one month following the date of the
annual meeting or thirteen months following the formation of the
corporation or its last annual meeting, the board shall call a special
meeting for the election of directors. If no such meeting is called or if
there is a failure to elect the requisite number of directors, holders of
10% of the voting shares may, in writing, demand the call of a special
meeting. At any such meeting called on demand of shareholders, the voting
shareholders attending the meeting shall constitute a quorum for the
purpose of electing directors, but not for the transaction of any other
business. The bylaws of Urbach provide that special meetings of the
shareholders may be called by the board or the president and must be
called by the president or secretary at the written request of a majority
of the board or by shareholders owning a majority of the issued and
outstanding shares.
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As a Centerprise Stockholder:
Delaware law provides that special meetings of stockholders may be called by
the board of directors and by such other person or persons authorized to do so
by the corporation's certificate of incorporation or bylaws. Under
Centerprise's bylaws, a special meeting of stockholders may be called only by
the Centerprise board.
Action of Shareholders Without a Meeting
As a Founding Company Security Holder:
. Berry Dunn--Maine law provides that any action required or permitted to
be taken at a meeting of the shareholders may be taken without a meeting
if written consents, setting forth the action so taken, are signed by the
holders of all outstanding shares entitled to vote on such action and are
filed with the clerk of the corporation as part of the corporate records.
Such consents have the same effect as a unanimous vote of the
shareholders.
. Follmer--Michigan law provides that the articles of incorporation may
provide that any action may be taken without a meeting, if consents in
writing, setting forth the action taken, are signed by at least the
minimum number of votes that would be required at a meeting.
. Grace--Missouri law provides that any action which may be taken or
required by statute to be taken at a meeting of the shareholders of a
corporation may be taken without a meeting if consents in writing,
setting forth the action taken, shall be signed by all of the
shareholders entitled to vote on the subject matter thereof. The bylaws
of Grace contain consistent provisions.
. IDA--New Jersey law permits the shareholders of a corporation to consent
in writing to any action without a meeting if all the shareholders
entitled to vote consent in writing, except that any action to be taken
with respect to a merger, consolidation, acquisition of all capital
shares of a corporation and sale of assets may be taken without a meeting
only if all shareholders consent in writing or all shareholders entitled
to vote thereon consent in writing and the corporation provides to all
other shareholders advance notification. Except as otherwise provided in
the certificate of incorporation and New Jersey law, any action required
or permitted to be taken at a meeting of shareholders, other than the
annual election of directors, may be taken without a meeting, without
prior notice and without a vote, upon the written consent of shareholders
who would have been entitled to cast the minimum number of votes which
would be necessary to authorize such action at a meeting at which all
shareholders entitled to vote thereon were present and voting. The
organizational documents of IDA do not address shareholder action without
a meeting.
. Mann Frankfort--The articles of incorporation and bylaws of Mann
Frankfort provide that shareholder action may be taken without a meeting,
without prior notice and/or vote, if a written consent(s) setting forth
the action taken, is signed by the holder(s) of shares not having less
than the minimum number of votes that would be necessary to take such
action.
. Reppond--Washington law provides that shareholders action may be taken
without a meeting only if written consents setting forth such action are
signed by all holders of outstanding shares entitled to vote thereon. The
articles of incorporation and bylaws of Reppond Company and VeraSource do
not contain provisions relating to shareholders action without a meeting.
Under the operating agreement of Reppond Administrators, any action which
may be taken at a meeting of members may be taken without a meeting by
written consent signed by all the members.
. Reznick--Maryland law provides that any action required or permitted to
be taken at a meeting of stockholders may be taken without a meeting if
the following are filed with the records of stockholder meetings:
(1) a unanimous written consent which sets forth the action and is
signed by each stockholder entitled to vote on the matter; and
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(2) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to
vote at it.
The bylaws of Reznick contain consistent provisions relating to action of
shareholders without a meeting.
. Driver--Delaware law permits the stockholders of a corporation to consent
in writing to any action without a meeting, unless the certificate of
incorporation of such corporation provides otherwise if such consent is
signed by the stockholders having at least the minimum number of votes
required to authorize such action at a meeting. The certificate of
incorporation and bylaws of Driver contain a prohibition that prevents
Driver's stockholders from taking any action without a meeting.
. Simione--Neither Connecticut law nor the organizational documents of
Simione address shareholder action without a meeting.
. Urbach--New York law provides that shareholder action may be taken
without a meeting on written consent, stating the action so taken, signed
by the holders of all outstanding shares entitled to vote.
As a Centerprise Stockholder:
Delaware law permits the stockholders of a corporation to consent in writing
to any action without a meeting, unless the certificate of incorporation of
such corporation provides otherwise. The Centerprise charter contains a
prohibition that prevents Centerprise's stockholders from taking any action
without a meeting.
Shareholder Proposals
As a Founding Company Security Holder:
. Berry Dunn--Shareholder proposals are not addressed by Maine law or Berry
Dunn's bylaws.
. Follmer--Shareholder proposals are not addressed by Michigan law or
Follmer's bylaws.
. Grace--Shareholder proposals are not addressed by Missouri law or Grace's
bylaws.
. IDA--Shareholder proposals are not addressed by New Jersey law or IDA's
bylaws.
. Mann Frankfort--Shareholder proposals are not addressed by Texas law or
Mann Frankfort's bylaws.
. Reppond--Shareholder proposals are not addressed by the Washington
corporations law, Washington limited liability company law or the
organizational documents of Reppond Company, VeraSource or Reppond
Administrators.
. Reznick--Shareholder proposals are not addressed by Maryland law or
Reznick's bylaws.
. Driver--The bylaws of Driver provide that all stockholder proposals for
action at an annual or special meeting of stockholders, including any
nomination for a directorship, shall be submitted in writing to the
corporation not less than 150 days prior to the date of the meeting. Such
written proposal shall state the nature of the action sought, including
the form and text of proposed resolutions, reasonable explanations of the
need for the action to be taken, and the age and business background and
qualifications of a nominee for a directorship. Whether or not a proposal
so submitted shall be presented for action at a meeting of the
stockholders shall be at the sole discretion of the board of directors.
Except as pursuant to these terms, no proposal of a stockholder may be
presented for action at any meeting of stockholders.
. Simione--Shareholder proposals are not addressed by Connecticut law or
Simione's bylaws.
. Urbach--Shareholder proposals are not addressed by New York law or
Urbach's bylaws.
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As a Centerprise Stockholder:
The Centerprise bylaws provide that, to be timely, the Secretary of
Centerprise must receive written notice at the principal executive offices of
Centerprise between 120 and 150 days prior to the first anniversary of the date
of Centerprise's consent solicitation or proxy statement distribution to
stockholders in connection with the previous year's election of directors or
meeting of stockholders. If no annual meeting of stockholders or election by
consent was held in the previous year, or if the date of the meeting has been
changed from the previous year's meeting date, a proposal must be received
within 10 days after the meeting date has been "publicly disclosed."
Amendment to Charter
As a Founding Company Security Holder:
. Berry Dunn--Maine law provides that a corporation may amend its articles
of incorporation, from time to time, in any respect as may be desired if
its articles of incorporation, as amended, contain only such provisions
as might lawfully be contained in original articles of incorporation. All
amendments to the articles of incorporation, aside from an enumerated
few, shall be made by action of the directors and shareholders in
accordance with the following procedure:
(a) the board of directors shall adopt a resolution setting forth the
proposed amendment and submit it to the shareholders to vote on; and
(b) the proposed amendment shall be adopted upon receiving the
affirmative vote of the holders of at least a majority of all
outstanding shares entitled to vote thereon.
. Follmer--Michigan law provides that some amendments to the articles of
incorporation may be made without shareholder action, for example, to
delete the name and address of the initial directors or the initial
registered agent. Other amendments to the articles of incorporation must
be set forth in a notice of a meeting to all shareholders and must be
approved by a majority of the shareholders.
. Grace--Missouri law provides that some amendments to the articles of
incorporation may be made by the board adopting a resolution setting
forth the proposed amendment and directing that it be submitted to a vote
at a meeting of shareholders or the proposed amendment may be directly
submitted to the shareholders without adoption by the board. Each
shareholder shall be given notice setting forth the proposed amendment.
Generally, the proposed amendment shall be adopted upon receiving the
affirmative vote of a majority of the outstanding shares entitled to
vote, unless any class of shares is entitled to vote as a class, in which
event the proposed amendment shall be adopted upon receiving the
affirmative vote of a majority of the outstanding shares of each class of
shares entitled to vote as a class and of the total shares entitled to
vote. Neither the bylaws nor the articles of incorporation of Grace
contain provisions relating to amendments to the charter.
. IDA--New Jersey law provides that the charter of a corporation may be
amended by board approval, notice to shareholders of the proposed changes
and summary of the changes to shareholders, and approval by a majority of
the shareholders entitled to vote and, in addition, if any class or
series of shares is entitled to vote as a class, the affirmative vote of
a majority of the votes cast in each class. The voting requirements are
subject to such greater requirements as are provided under New Jersey law
for specific amendments, or as may be provided for in the certificate of
incorporation. Additionally, amending the charter to effect certain
actions, such as mergers, requires additional steps. The organizational
documents of IDA do not address charter amendments.
. Mann Frankfort--Texas law provides that a corporation may amend its
articles of incorporation in any respect as may be desired, so long as
its articles of incorporation contain only such provisions as might be
lawfully contained in the original articles of incorporation. The
articles of incorporation of Mann Frankfort provide that no amendment of
the articles of incorporation shall have the effect of modifying any
provision of the bylaws contractually requiring unanimity, or other
level, of shareholder consent to such amendment.
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. Reppond--Washington corporations law authorizes a corporation's board of
directors to make various changes of an administrative nature to the
corporation's articles of incorporation without shareholder action. Such
changes include a change to the corporate name, changes to the number of
outstanding shares in order to effectuate a stock split or stock dividend
in the corporation's shares and changes to or elimination of provisions
with respect to the par value of the corporation's stock. Washington
corporations law requires that other amendments to a corporation's
articles of incorporation must be recommended to the shareholders by the
board of directors, unless the board determines that, because of a
conflict of interest or other special circumstances, it should make no
recommendation and communicates the basis for its determination to the
shareholders. Such amendments must be approved by each voting group
entitled to vote thereon by a majority of all the votes entitled to be
cast by that voting group, unless another proportion is specified in the
articles of incorporation, by the board of directors as a condition to
its recommendation, or by other provisions of Washington corporations
law. Washington limited liability company law provides that a certificate
of formation may be amended by a member or manager on behalf of the
limited liability company. The organizational documents of Reppond
Company, VeraSource and Reppond Administrators do not address amendments
to the charter.
. Reznick--Maryland law provides the charter of a close corporation may be
amended to remove the statement of election to be a close corporation,
but only by the affirmative vote of every stockholder. Neither the
articles of incorporation nor the bylaws of Reznick address amendment to
charter.
. Driver--Delaware law provides the charter of a corporation may be amended
by resolution of the board of directors and the affirmative vote of the
holders of a majority of the outstanding shares of voting stock entitled
to vote. With respect to any amendment to the charter of a corporation
that would adversely affect a particular class or series of stock,
Delaware law requires the separate approval by the holders of the
affected class or series of stock, voting together as a single class. The
certificate of incorporation of Driver provides that it may be amended in
any manner prescribed by statute. However, Article VIII, dealing with
board authority to amendment of bylaws, Article X, dealing with amendment
of bylaws, Article XI, dealing with authorizing board members to fill
board vacancies, Article XII, dealing with removal of directors, Article
XIII, dealing with transacting business at stockholders' annual and
special meetings, Article XIV, dealing with special meetings and Article
XV, dealing with amending articles, may not be repealed or amended in any
respect unless such repeal or amendment is approved by the affirmative
vote of the holders of not less than 67% of the total voting power of all
outstanding securities entitled to vote generally in the election of
directors of the corporation, together as a single class.
. Simione--Connecticut law provides the articles of organization may be
amended in any and as many respects as may be desired, so long as the
articles of organization as amended contain only provisions that may be
lawfully contained in articles of organization at the time of making the
amendment. Unless the articles of organization provide otherwise, the
articles of organization may be amended by a vote of a majority in
interest of the members. Simione's articles of organization do not
address amendment to charter.
. Urbach--New York law provides a corporation may amend its certificate of
incorporation in any respect as may be desired, if such amendment
contains only such provisions that may be lawfully contained in the
original certificate of incorporation. New York law provides that an
amendment to the certificate of incorporation may be authorized by vote
of the board, followed by a vote of the holders of a majority of all
outstanding shares entitled to vote. The board may authorize the
following changes:
(a) specify or change the location of the corporation's office;
(b) specify or change the post office address to which the secretary
shall mail a copy of any process against the corporation served
upon him; and
(c) to make, revoke or change the designation of a registered agent,
or to specify or change the address of its registered agent.
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As a Centerprise Stockholder:
Delaware provides that, the charter of a corporation may be amended by
resolution of the board of directors and the affirmative vote of the holders of
a majority of the outstanding shares of voting stock then entitled to vote.
Delaware provides that also permits a corporation to make provision in its
certificate of incorporation requiring a greater proportion of the voting power
to approve a specified amendment. Any amendment to the charter of a corporation
that adversely affects a particular class or series of stock requires the
separate approval of the holders of the affected class or series of stock. Any
amendment to the Centerprise charter relating to the creation of a classified
board of directors or affecting the prohibition on stockholder action by
written consent requires the approval of 80% of the outstanding shares of
voting capital stock of Centerprise.
Amendment to Bylaws
As a Founding Company Security Holder:
. Berry Dunn--Maine law provides that unless otherwise provided in the
articles of incorporation, either the board of directors or the holders
of shares entitled to vote to elect directors may amend or repeal the
bylaws or adopt new bylaws. The articles of incorporation may exclusively
vest in the directors or the shareholders, or both, the power to adopt,
amend and repeal the bylaws generally or a particular bylaw or class of
bylaws. The bylaws provide that the board of directors, by affirmative
vote of more than two-thirds of the board members, ratified by
affirmative vote of more than two-thirds of all shareholders may amend,
alter or repeal the bylaws.
. Follmer--The bylaws of Follmer provide that the shareholders or the board
may alter, amend, add to or repeal the bylaws.
. Grace--Missouri law provides that the power to alter, amend, or repeal
the bylaws of the corporation shall be vested in the shareholders, unless
and to the extent that such power may be vested in the board by the
articles of incorporation. The articles of incorporation of Grace state
that the power to make, alter, or amend or repeal the bylaws of the
corporation is vested in the board of directors.
. IDA--New Jersey law provides that the bylaws of a corporation may be
altered by the board, unless such power is reserved to the shareholders
in the certificate of incorporation. Any bylaws made by the board may be
amended by the shareholders, and the shareholders may prescribe in the
bylaws that any bylaw made by them shall not be altered or repealed by
the board. The bylaws of IDA provide that the bylaws may be amended
either by the affirmative vote of a majority of the shareholders at an
annual or special meeting at which a quorum is present, or by a majority
of the whole board, at a regular or special meeting, provided that notice
of the proposal to amend the bylaws be included in the notice of such
meeting of the board of shareholders. Bylaws made or amended by the board
may be altered, amended or repealed by the shareholders.
. Mann Frankfort--The articles of incorporation of Mann Frankfort provide
that the bylaws may be amended or repealed only by the vote of the
requisite number of the shareholders as may be provided for in the bylaws
themselves. However no amendment of the bylaws shall modify any provision
of the bylaws contractually requiring unanimity, or other level, of
shareholder consent to the amendment thereof. The bylaws of Mann
Frankfort state that, except for those provisions requiring unanimous
consent, the bylaws may be amended only by the affirmative vote of those
shareholders owning at least 66 2/3% of the outstanding shares.
. Reppond--Washington corporations law provides that a corporation's board
of directors may amend or repeal the corporation's bylaws, or adopt new
bylaws, unless limited by the corporation's articles of incorporation or
bylaws. A corporation's shareholders may amend or repeal the
corporation's bylaws or adopt new bylaws, even though the bylaws may also
be amended or repealed, or new bylaws may also be adopted, by its board
of directors. The bylaws of Reppond Company provide that the bylaws may
be
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altered, amended or repealed by the affirmative vote of a majority of the
voting stock issued and outstanding at any regular or special meeting of
the shareholders if the notice of such meeting contains a statement of the
proposed alteration, amendment, or repeal; provided, however, that no
change of the time or place for the election of directors shall be made
within 30 days before the day on which the election is to be held, and
that in case of any change of such time or place, notice thereof shall be
given to each shareholder entitled to vote, at least 10 days before the
election is to be held. Under the bylaws of Reppond Company, the board of
directors also have the power to make, alter and repeal bylaws additional
and supplementary and not inconsistent to the current bylaws, but any such
additional or supplementary bylaws may be altered or released by the
holders of a majority of the stock entitled to vote. The VeraSource bylaws
provide that the bylaws may be altered, amended or repealed by the
affirmative vote of a majority of the voting stock issued and outstanding
at any regular or special meeting of the shareholders if the notice of
such meeting contains a statement of the proposed alteration, amendment,
or repeal, provided, however, that no change of the time or place for the
election of directors shall be made within 30 days before the day on which
the election is to be held, and that in case of any change of such time or
place, notice thereof shall be given to each shareholder entitled to vote,
at least 10 days before the election is to be held.
Washington limited liability company law provides that a majority vote by
the members is necessary to amend the limited liability company operating
agreement. The operating agreement of Reppond Administrators provides that
it may be amended by a vote or written consent of at least 66 2/3% of the
units in Reppond Administrators owned by the members.
. Reznick--Maryland law provides that the power to adopt, alter, and repeal
the bylaws of the corporation is vested in the stockholders except to the
extent that the charter or bylaws vest it in the board of directors. The
bylaws of Reznick provide that three-quarters ( 3/4) majority vote of the
key employees, each shareholder and each non-shareholder officer, shall
be required before Reznick may amend the bylaws of the corporation.
. Driver--Delaware law provides that the power to adopt, amend or repeal
bylaws shall be in the stockholders entitled to vote, provided that a
corporation may, in its certificate of incorporation, confer such powers
on the board of directors. The certificate of incorporation of Driver
provides that the board of directors is expressly authorized to adopt,
repeal, alter, amend and rescind the bylaws of the corporation by
majority vote of the entire board of directors.
. Simione--The operating agreement of Simione provides that it may not be
amended except with the approval of all of the managers.
. Urbach--The bylaws of Urbach provide that the bylaws may be amended,
repealed or adopted by vote of the holders of the shares entitled to vote
in the election of directors. The bylaws may also be amended, repealed or
adopted by the board, but any such bylaw change may be amended by the
shareholders then entitled to vote. If any bylaw regulating the impending
election of the directors is adopted, amended or repealed by the board,
this change should be in the notice of the next meeting of shareholders
for the election of directors.
As a Centerprise Stockholder:
Delaware law provides that the power to adopt, amend or repeal bylaws shall
be in the stockholders entitled to vote. A corporation may, in its certificate
of incorporation, confer such powers on the board of directors. Under the
Centerprise charter, the Centerprise board is expressly authorized to make,
alter, amend or repeal the bylaws of Centerprise. If such action is to be taken
by stockholders, the affirmative vote of 66 2/3% of the total votes eligible to
be cast by stockholders is required.
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Conflict of Interest
As a Founding Company Security Holder:
. Berry Dunn--Maine law and the bylaws of Berry Dunn provide that no
transaction in which a director or officer has a personal or adverse
interest shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the
meeting of the board of directors or committee which approves such
transaction, or because his vote is counted if:
(a) the material facts as to his interest and as to the transaction are
disclosed or known by the board of directors or the committee and the
board ratifies the transaction by a vote sufficient for such purpose
without counting the vote of the interested director(s);
(b) although the vote of the interested director(s) is decisive of
approval or disapproval, the material facts are disclosed or known to
the shareholders, and the transaction is specifically approved by the
vote of the shareholders, whether or not the votes of interested
shareholders are necessary for such approval; or
(c) although (a) and (b) have not been satisfied, the transaction is fair
and equitable at the time it is authorized or approved and the party
asserting fairness establishes such.
. Follmer--Michigan law states that a transaction in which a director or
officer is determined to have an interest shall not, because of the
interest, be enjoined, set aside, or give rise to an award of damages or
other sanctions in a proceeding by a shareholder or in the right of the
corporation, if the person interested in the transaction establishes any
of the following:
(1) the transaction was fair to the corporation at the time entered into;
(2) the material facts of the transaction and the director's or officer's
interest were disclosed or known to the board, a committee of the
board, or the independent director or directors, and the board,
committee, or independent director or directors authorized, approved
or ratified the transaction; or
(3) the material facts of the transaction and the director's or officer's
interest were disclosed or known to the shareholders entitled to vote
and they authorized, approved or ratified the transaction.
The organizational documents of Follmer do not address conflict of interest.
. Grace--Missouri law provides that no contract or transaction between a
corporation or one or more of its directors, or between a corporation and
any other organization in which one or more of its directors or officers
are directors or officers, or have a financial interest, shall be void or
voidable solely for this reason, or solely because the directors or
officers are present at or participating in the meeting or solely because
his or their votes are counted for such purpose if:
(1) the material facts as to its relationship or interest as to the
contract or transaction are disclosed or are known to the board of
directors or committee and the board of directors or committee in
good faith authorizes the contract or transaction by the affirmative
vote of the majority of the disinterested directors even though the
disinterested directors may be less than a quorum;
(2) the material facts as to its relationship or interest as to the
contract or transaction are disclosed or known to the shareholders
then entitled to vote, and the contract or transaction is
specifically approved in good faith by the vote of the shareholders;
or
(3) the contract or transaction is fair as to the corporation as of the
time it is authorized or approved by the board of directors, a
committee thereof or the shareholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the board of directors or a committee which
authorizes the contract or transaction. Neither the bylaws nor the
articles of incorporation of Grace contain provisions relating to
conflict of interest.
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. IDA--New Jersey law provides that no contract between a corporation and
one or more of its directors or between the corporation and another
corporation, firm or association in which a director is also a director
or otherwise interested shall be void solely because of the interested
director or because the director was present at the meeting authorizing
the transaction if one of the following is true:
(a) the contract or transaction is fair or reasonable to the corporation
at the time it is approved or ratified;
(b) the fact of common directorship or interest is disclosed or known to
the board or committee who authorizes or ratifies the contract or
transaction by unanimous written consent, provided at least one
director so consenting is disinterested, or by affirmative vote of a
majority of the disinterested directors, though less than a quorum,
or
(c) the fact of common directorship or interest is disclosed or known to
the shareholders, and they authorize the contract or transaction.
Interested directors may be counted in determining the presence of a
quorum at a board or committee meeting authorizing an interested director
transaction. The organizational documents of IDA do not address conflicts
of interest for directors or officers.
. Mann Frankfort--Texas law provides that an otherwise valid contract or
transaction between a corporation and a director or officer, or between a
corporation and any other entity in which a director or officer has a
financial interest, shall be valid regardless of whether such director or
officer participates in the meeting at which the contract or transaction
is authorized, or solely because his votes are counted for such purpose,
if any of the following is satisfied:
(a) the material facts as to the relationship and as to the contract or
transaction are disclosed to the board of directors or committee, and
the board or committee in good faith authorizes the contract or
transaction by the affirmative vote and a majority of disinterested
directors, even though the disinterested directors may be less than a
quorum;
(b) the material facts as to the relationship and as to the contract or
transaction are disclosed to the shareholders entitled to vote
thereon, and such contract or transaction is specifically approved in
good faith by the shareholders; or
(c) the contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the board, a committee
or the shareholders.
Interested directors may be counted in determining a quorum at a meeting of
the board or committee which authorizes the contract or transactions. Mann
Frankfort's Agreement of Shareholders provides that each shareholder shall
devote all of his time, knowledge and skill to the business and affairs of
the corporation.
. Reppond--Washington corporations law provides that a director's
conflicting interest transaction may not be enjoined, set aside or give
rise to an award of damages or other sanctions because the director or
any person with whom the director has a personal, economic, or other
association, has an interest in the transaction, if:
(a) after the required disclosure, the transaction received the
affirmative vote of a majority of those disinterested directors on
the board of directors,
(b) the transaction received the affirmative vote of a majority of the
shares held by disinterested shareholders, or
(c) the transaction, judged according to the circumstances at the time of
commitment, is established to have been fair to the corporation.
Neither Washington limited liability company law nor the organizational
documents of Reppond Company, VeraSource and Reppond Administrators address
conflict of interest.
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. Reznick--Maryland law provides that interested director transactions, in
our case, interested shareholder transactions, are not void per se. The
fact of the common interest must be disclosed or known by the
stockholders entitled to vote, and the contract or transaction needs to
be approved or ratified by a majority of the votes cast by stockholders
entitled to vote other than the votes of shares owned by the interested
director or shareholder. The Reznick shareholders' agreement provides
that each key employee agrees to devote his best efforts and full
business time to rendering professional services in the corporation's
certified public accounting and business consulting practice on behalf of
the corporation.
. Driver--Delaware law provides that certain contracts or transactions in
which one or more of a corporation's directors has an interest are not
void or voidable because of such interest, provided that conditions, such
as obtaining the required approval and fulfilling the requirements of
good faith and full disclosure are met. Delaware law requires that the
shareholders or the disinterested directors must approve any such
contract or transaction after the full disclosure of material facts, and
the contract or transaction must have been fair as to the corporation at
the time it was approved. Also under Delaware law, if board approval is
sought, the contract or transactions must be approved by a majority of
the disinterested directors, even though less than a quorum. The
certificate of incorporation and bylaws of Driver do not address conflict
of interest.
. Simione--The operating agreement of Simione provides that each member
must devote such member's full professional time and best efforts to
serving the company and its clients in a professional manner.
No member may, while a member of the company, directly or indirectly engage
in activities which are competitive with the business and affairs of the
company. Except upon the prior written approval of the company, no member
may, while a member of the company, directly or indirectly engage in any
commercial duties or pursuits, other than as a member of the company;
provided, however, that no member shall be prohibited from trading in and
or passively holding stocks, bonds, securities, real estate, commodities,
or other forms of investment so long as such investment will not require
the rendition of any services by such member.
. Urbach--The Urbach master agreement provides that each shareholder shall
devote his entire professional time to the practice of accountancy for
Urbach.
As a Centerprise Stockholder:
The Centerprise bylaws provide that no contract entered into between
Centerprise and one or more of its directors or officers or between Centerprise
and any other organization in which one or more of its directors or officers
are directors or officers, or have a financial interest, shall be void or
voidable solely because the director or officer is present or participates in a
meeting which authorizes the contractor or transaction, or solely because his
or her votes are counted for such purpose, if:
(a) the director or officer's relationship or interest in the contract
or transaction is disclosed to the disinterested directors, and the
disinterested directors authorize the contract or transaction in good
faith;
(b) the material facts as to the director or officer's relationship or
interest in the contract are disclosed to the stockholders then entitled to
vote, and the contract is approved in good faith by the vote of the
stockholders; or
(c) the contract is fair to the corporation as of the time it is
authorized by the board of directors or by the stockholders.
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Business Combinations Involving Interested Shareholders
As a Founding Company Security Holder:
. Berry Dunn--Maine law provides, except in situations where (a) a domestic
corporation's stock is not registered with the SEC, or (b) the business
combination involves a domestic corporation who has no interested
stockholders other than a stockholder who was interested before April 6,
1988 or who became interested inadvertently, and as soon as practicable
divests a sufficient amount of stock so that such stockholder owns less
than 25% of the corporation and has not been an interested stockholder at
any time within the preceding 5 years, no domestic corporation may engage
in any business combination, generally, any merger, consolidation, sale,
lease or other such transaction involving the interested shareholder or
an affiliate or associate thereof, as the other party, for a period of
five years following an interested stockholder's stock acquisition date
unless that business combination is:
(a) approved by the board of directors of that domestic corporation prior
to that interested stockholder's stock acquisition date; or
(b) approved subsequent to that interested stockholder's stock
acquisition date, by the board of directors of the corporation and
authorized by the affirmative vote, at a stockholders meeting, of at
least a majority of the outstanding voting stock not beneficially
owned by that interested stockholder or any associate of that
interested stockholder or by persons who are either directors or
officers and also employees of that domestic corporation.
. Follmer--Business combinations involving interested shareholders are not
addressed under Michigan law.
. Grace--Business combinations involving interested shareholders are not
addressed under Missouri law.
. IDA--New Jersey law provides that under New Jersey law no resident
domestic corporation shall engage in any business combination with any
interested stockholder of that resident domestic stock corporation for
five years following that interested stockholder's stock acquisition date
unless the business combination is approved by the board prior to that
interested stockholder's stock acquisition date. In addition, no resident
domestic corporation shall engage in any business combination with any
interested stockholder of that corporation other than:
a. a business combination approved by the board prior to the interested
stockholder's stock acquisition date;
b. a business combination approved by the affirmative vote of the holders
of two-thirds of the voting stock not beneficially owned by that
interested stockholder at a meeting called for such purpose; or
c. a business combination that has a minimum consideration value,
provides the same consideration to all security holders as the
interested stockholder used to acquire the largest number of shares
previously acquired and the interested stockholder has not
beneficially acquired additional stock.
Unless the certificate of incorporation provides otherwise, the provisions
of the act shall not apply to any business combination of a resident domestic
corporation with an interested stockholder if the corporation did not have a
class of voting stock registered or traded on a national securities exchange or
registered with the SEC on that interested stockholder's stock acquisition
date. The organizational documents of IDA do not contain antitakeover
provisions.
. Mann Frankfort--Business combinations involving interested shareholders
are not addressed under Texas law.
. Reppond--Washington corporations law imposes restrictions on certain
transactions between a corporation and certain significant shareholders.
Washington corporations law prohibits a "target corporation" from
engaging in certain "significant business transactions" with a person or
group of
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<PAGE>
persons that beneficially owns 10% or more of the voting securities of a
target corporation for a period of five years after the acquisition of
such securities. This prohibition does not apply if transaction or
acquisition of shares is approved by a majority of the members of the
target corporation's board of directors prior to the date of the
acquisition. Significant business transactions with an acquiring person
includes among other things, a merger or consolidation, disposition of
assets or issuance or redemption of stock. Neither Washington limited
liability company law nor the organizational documents of Reppond Company,
VeraSource and Reppond Administrators contain antitakeover provisions.
. Reznick--There are no provisions of Maryland law regarding business
combinations involving interested shareholders which are applicable to
Reznick.
. Driver--Delaware law prohibits, in general, a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years after the date of the transaction
in which the person becomes an interested stockholder, unless either:
(a) prior to the date at which the person becomes an interested
stockholder, the board of directors approves the transaction or
business combination which results in the stockholder becoming an
interested stockholder;
(b) upon consummation of the transaction which results in the stockholder
becoming an interested stockholder, the stockholder acquires more
than eighty five percent (85%) of the outstanding shares of voting
capital stock of the corporation, excluding shares held by directors
who are officers or held in certain employee stock plans; or
(c) the business combination is approved by the board of directors and by
holders of two-thirds of the outstanding voting capital stock of the
corporation, excluding shares held by the interested stockholder, at
a meeting of stockholders.
The articles of incorporation and bylaws of Driver do not contain any
provisions which modify Delaware law.
. Simione--Business combinations involving interested shareholders are not
addressed under Connecticut law.
. Urbach--New York law prohibits a domestic corporation from engaging in
any business combination with any interested shareholder of such
corporation for a period of five years following such interested
shareholder's stock acquisition date unless such business combination or
the purchase of stock made by such interested shareholder on such
interested shareholder's acquisition date is approved by the board of
directors of such corporation prior to such interested shareholder's
stock acquisition date. New York law further prohibits a domestic
corporation from engaging at any time in any business combination with
any interested shareholder other than a business combination specified as
follows:
(1) a business combination approved by the board of directors of such
corporation prior to such interested shareholder's stock acquisition
date, or where the purchase of stock made by such interested
shareholder on such interested shareholder's stock acquisition date
had been approved by the board of directors of such corporation prior
to such interested shareholder's stock acquisition date;
(2) a business combination approved by the affirmative vote of the
holders of a majority of the outstanding voting stock not
beneficially owned by such interested shareholder or any associate of
such interested shareholder at a meeting called for such purpose no
earlier than five years after such interested shareholder's stock
acquisition date; and
(3) a business combination that meets specific market value criteria.
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As a Centerprise Stockholder:
Delaware law generally prohibits a publicly held corporation from engaging
in a business combination with an interested stockholder for three years after
the date the person becomes an interested stockholder, unless either:
(a) prior to the date at which the person becomes an interested
stockholder, the board of directors approves the transaction or business
combination which results in the stockholder becoming an interested
stockholder;
(b) upon consummation of the transaction which results in the
stockholder becoming an interested stockholder, the stockholder acquires
more than 85% of the outstanding shares of voting capital stock of the
corporation, excluding shares held by directors who are officers or held in
certain employee stock plans; or
(c) the business combination is approved by the board of directors and
by holders of two-thirds of the outstanding voting capital stock of the
corporation, excluding shares held by the interested stockholder, at a
meeting of stockholders.
An "interested stockholder" is a person, other than the corporation or a
majority-owned subsidiary of the corporation, who, together with affiliates and
associates, owns, or at any time within the prior three years did own, 15% or
more of the corporation's outstanding voting capital stock, subject to certain
exceptions. Section 203 of the Delaware law defines a "business combination" to
include, without limitation, mergers, consolidations, stock sales and asset-
based transactions and other transactions resulting in a financial benefit to
the interested stockholder.
Neither the Centerprise charter nor bylaws contain any provision that
modifies Delaware law.
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SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS OF CENTERPRISE
The following lists information with respect to the beneficial ownership of
Centerprise's common stock by (1) each person known by Centerprise to own
beneficially more than 5% of the outstanding shares of common stock; (2) each
director and person who will become a director upon completion of the IPO; (3)
Centerprise's executive officers and (4) all executive officers and directors
as a group. The information in the following table assumes the mergers have
been completed.
<TABLE>
<CAPTION>
Percentage owned
--------------------
Name and address of beneficial owners(1) Shares Before IPO After IPO
- ----------------------------------------------- --------- ---------- ---------
<S> <C> <C> <C>
CPA Holdings LLC(2)............................ 2,783,265 17.2 10.4
Reznick, Fedder & Silverman, C.P.A.s,
L.L.C.(3)..................................... 2,391,141 14.8 9.0
FRF Holdings, LLC(4)........................... 1,544,571 9.5 5.8
Robert C. Basten(5)............................ 599,752 3.7 2.2
DeAnn L. Brunts(5)............................. 221,178 1.4 *
Rondol E. Eagle(5)............................. 73,653 * *
Dennis W. Bikun(5)............................. 33,171 * *
David Reznick(6)............................... 108,973 * *
Thomas W. Corbett.............................. 509,388 3.1 1.9
Richard H. Stein(7)............................ 775,340 4.8 2.9
Anthony P. Frabotta(8)......................... 1,544,571 9.5 5.8
Charles H. Roscoe(9)........................... 931,357 5.7 3.5
Steven N. Fischer.............................. 88,684 * *
Robert F. Gallo................................ 477,227 2.9 1.8
Wayne J. Grace(10)............................. 304,286 1.9 1.1
Anthony P. Scillia(11)......................... 460,457 2.8 1.7
Scott H. Lang(2)(12)(13)....................... 2,798,265 17.3 10.5
Louis C. Fornetti(13).......................... 15,000 * *
William J. Lynch(13)........................... 15,000 * *
John M. Cook(13)............................... 15,000 * *
All directors and executive officers as a group
(17 persons)(6)(8)(9)(10)(11)(12)(14)......... 8,528,943 52.5 31.9
</TABLE>
- --------
*Less than 1.0%.
(1) Unless otherwise indicated, the address of the beneficial owners is c/o
Centerprise Advisors, Inc., 225 W. Washington Street, 16th Floor, Chicago,
Illinois 60606.
(2) The address of each of CPA Holdings and Mr. Lang is 225 W. Washington
Street, 16th Floor, Chicago, Illinois 60606.
(3) Reznick LLC was created by the owners of Reznick and will hold the shares
of common stock to be issued to them in connection with the merger and
Reznick's role as a co-sponsor of Centerprise. 442,358 of these shares are
currently held, and are shown above as beneficially owned, by CPA
Holdings. These shares will be distributed to Reznick LLC following the
closing of the IPO. The address of Reznick LLC is 4520 East West Highway,
Bethesda, Maryland 20814.
(4) FRF Holdings was created by the owners of Follmer and will hold the shares
of common stock to be issued to them in connection with the merger. The
address of FRF Holdings is 26200 American Drive, Southfield, Michigan
48086.
(5) These shares are currently held, and are shown above as beneficially
owned, by CPA Holdings. These shares will be distributed to management
following the closing of the IPO.
(6) These shares are held by Reznick LLC and Mr. Reznick has sole voting and
investment power with respect to such shares.
(7) Includes 442,358 shares of common stock held by MFSL Investments. These
442,358 shares are currently held, and are shown above as beneficially
owned, by CPA Holdings. These shares will be
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distributed to MFSL Investments following the closing of the IPO. MFSL
Investments was created by Mann Frankfort's shareholders and employees to
hold its co-sponsor interest. By virtue of his equity interests in
partners of MFSL Investments, Mr. Stein will share voting and investment
power with respect to such shares. Mr. Stein disclaims beneficial
ownership of the shares held by MFSL Investments except to the extent of
his pecuniary interest therein.
(8) Includes 1,544,571 shares owned by FRF Holdings, LLC. As a member of FRF
Holdings, LLC, Mr. Frabotta shares voting and investment power with
respect to such shares. Mr. Frabotta disclaims beneficial ownership of
the shares held by FRF Holdings, LLC except to the extent of his
pecuniary interest therein.
(9) These shares are held by BDM&P Holdings, LLC. As a member of BDM&P
Holdings, LLC, Mr. Roscoe shares voting and investment power with respect
to such shares. Mr. Roscoe disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest.
(10) These shares are held by Grace Capital LLP. As a member of Grace Capital
LLP, Mr. Grace shares voting and investment power with respect to such
shares. Mr. Grace disclaims beneficial ownership of these shares except
to the extent of his pecuniary interest.
(11) Includes 460,457 shares owned by Simione, Scillia, Larrow & Dowling LLC.
As one of the managers of Simione, Scillia, Larrow & Dowling LLC, Mr.
Scillia shares voting and investment power with respect to such shares.
Mr. Scillia disclaims beneficial ownership of these shares held by
Simione except to the extent of his pecuniary interest.
(12) Includes 2,783,265 shares held by CPA Holdings. As a managing member of
BGL Management Company, which is the managing member of BGL Capital,
which is the managing member of CPA Holdings, Mr. Lang shares voting and
investment power with respect to such shares. CPA Holdings intends to
distribute its shares of common stock to its members following the
completion of the offering. Mr. Lang disclaims beneficial ownership of
the shares held by CPA Holdings except to the extent of his pecuniary
interest therein.
(13) Includes 15,000 shares of common stock issuable upon the exercise of
options which will be granted and vest upon completion of the IPO.
(14) Includes 60,000 shares of common stock issuable upon the exercise of
options which will be granted and vest upon completion of the IPO.
EXPERTS
The following financial statements included in this prospectus have been so
included in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting:
. the financial statements of Centerprise Advisors, Inc. as of December 31,
1998 and for the period from November 9, 1998 (inception date) through
December 31, 1998;
. the consolidated financial statements of Reznick Fedder & Silverman, P.C.
as of September 30, 1997 and 1998 and for each of the three years in the
period ended September 30, 1998;
. the consolidated financial statements of Robert F. Driver Co., Inc. as of
July 31, 1998 and 1999 and for each of the two years in the period ended
July 31, 1999;
. the financial statements of Mann Frankfort Stein & Lipp, P.C. as of
December 31, 1997 and 1998 and for each of the three years in the period
ended December 31, 1998;
. the consolidated financial statements of Follmer, Rudzewicz & Company,
P.C. as of May 31, 1998 and 1999 and for each of the three years in the
period ended May 31, 1999;
. the consolidated financial statements of Berry, Dunn, McNeil & Parker,
Chartered as of June 30, 1998 and 1999 and for each of the three years in
the period ended June 30, 1999;
. the financial statements of Urbach Kahn & Werlin PC as of October 31,
1998 and July 31, 1999 and for each of the two years in the period ended
October 31, 1998 and for the nine months ended July 31, 1999;
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<PAGE>
. the financial statements of Self Funded Benefits, Inc. (d/b/a Insurance
Design Administrators) as of December 31, 1997 and 1998 and for each of
the two years in the period ended December 31, 1998;
. the financial statements of Grace & Company, P.C. as of December 31, 1998
and for the year ended December 31, 1998;
. the combined financial statements of the Reppond Companies as of December
31, 1998 and for the year ended December 31, 1998; and
. the financial statements of Simione, Scillia, Larrow & Dowling LLC, as of
December 31, 1998 and for the year ended December 31, 1998.
The consolidated financial statements of Robert F. Driver Co., Inc. for the
year ended July 31, 1997 have been included herein and in the registration
statement in reliance on the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of common stock offered by this prospectus and
certain federal income tax and other matters relating to the mergers will be
passed upon for Centerprise by Katten Muchin & Zavis, Chicago, Illinois.
Partners of Katten Muchin & Zavis are investors in BGL Capital, which is an
initial investor in Centerprise. BGL Capital intends to distribute its shares
of Centerprise stock to its investors after the offering; following the
distribution, the partners of Katten Muchin & Zavis will in the aggregate own
less than one percent of the shares of common stock then outstanding.
WHERE YOU CAN FIND MORE INFORMATION
Centerprise has filed a registration statement on Form S-4 with the SEC
concerning the common stock offered by this joint information
statement/prospectus. This joint information statement/prospectus does not
contain all information set forth in the registration statement and exhibits
thereto. The material terms of each contract or other document are described in
this document. Reference is made to the copies of contracts and documents filed
as an exhibit to the registration statement. For further information concerning
Centerprise, please refer to the registration statement and its exhibits.
You may read and copy all or any portion of the registration statement or
any other information Centerprise files at the SEC's public reference room in
Washington, D.C. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms.
Centerprise SEC filings are also available to you on the SEC Internet site
(http://www.sec.gov).
All information in this joint information statement/prospectus concerning
Centerprise and its affiliates has been furnished by Centerprise. All
information in this joint information statement/prospectus concerning a
Centerprise Company has been furnished by that Centerprise company.
You should rely only on the information contained in this joint information
statement/prospectus. Centerprise has not, and the Centerprise companies have
not, authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. Centerprise is not, and the Centerprise companies are not, making
an offer to sell these securities in any jurisdiction where the offer or sale
is not permitted. You should assume that the information appearing in this
joint information statement/prospectus is accurate as of the date on the front
cover of this joint information statement/prospectus only. The business,
financial condition, results of operations and prospects of Centerprise and the
Centerprise companies may have changed since that date.
139
<PAGE>
CENTERPRISE ADVISORS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Centerprise Advisors, Inc.
Unaudited Pro Forma Combined Financial Statements
Introduction to Unaudited Pro Forma Combined Financial Statements...... F- 3
Unaudited Pro Forma Combined Balance Sheet............................. F- 4
Unaudited Pro Forma Combined Statements of Operations.................. F- 6
Notes to Unaudited Pro Forma Combined Financial Statements............. F- 9
Historical Financial Statements
Report of Independent Accountants...................................... F-17
Balance Sheet.......................................................... F-18
Statement of Operations................................................ F-19
Statement of Cash Flows................................................ F-20
Notes to Financial Statements.......................................... F-21
CENTERPRISE COMPANIES
Reznick Fedder & Silverman, P.C.
Report of Independent Accountants........................................ F-26
Consolidated Balance Sheet............................................... F-27
Consolidated Statement of Income......................................... F-28
Consolidated Statement of Changes in Shareholders' Equity................ F-29
Consolidated Statement of Cash Flows..................................... F-30
Notes to Consolidated Financial Statements............................... F-31
Robert F. Driver Co., Inc.
Report of Independent Accountants........................................ F-40
Independent Auditors' Report............................................. F-41
Consolidated Balance Sheet............................................... F-42
Consolidated Statement of Income......................................... F-43
Consolidated Statement of Stockholders' Equity........................... F-44
Consolidated Statement of Cash Flows..................................... F-45
Notes to Consolidated Financial Statements............................... F-47
Mann Frankfort Stein & Lipp, P.C.
Report of Independent Accountants........................................ F-59
Balance Sheet............................................................ F-60
Statement of Income...................................................... F-61
Statement of Shareholders' Equity and Partners' Capital.................. F-62
Statement of Cash Flows.................................................. F-63
Notes to Financial Statements............................................ F-64
Follmer, Rudzewicz & Company, P.C.
Report of Independent Accountants........................................ F-69
Consolidated Balance Sheet............................................... F-70
Consolidated Statement of Operations..................................... F-71
Consolidated Statement of Shareholders' Equity........................... F-72
Consolidated Statement of Cash Flows..................................... F-73
Notes to Consolidated Financial Statements............................... F-74
Berry, Dunn, McNeil & Parker, Chartered
Report of Independent Accountants........................................ F-82
Consolidated Balance Sheet............................................... F-83
Consolidated Statement of Income......................................... F-84
Consolidated Statement of Shareholders' Equity........................... F-85
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Consolidated Statement of Cash Flows.................................... F- 86
Notes to Consolidated Financial Statements.............................. F- 87
Urbach Kahn & Werlin P.C.
Report of Independent Accountants....................................... F- 94
Balance Sheet........................................................... F- 95
Statement of Income..................................................... F- 96
Statement of Shareholders' Equity....................................... F- 97
Statement of Cash Flows................................................. F- 98
Notes to Financial Statements........................................... F- 99
Self Funded Benefits, Inc. d/b/a Insurance Design Administrators
Report of Independent Accountants....................................... F-108
Balance Sheet........................................................... F-109
Statement of Income..................................................... F-110
Statement of Shareholders' Equity....................................... F-111
Statement of Cash Flows................................................. F-112
Notes to Financial Statements........................................... F-113
Grace & Company, P.C.
Report of Independent Accountants....................................... F-118
Balance Sheet........................................................... F-119
Statement of Income..................................................... F-120
Statement of Shareholders' Equity....................................... F-121
Statement of Cash Flows................................................. F-122
Notes to Financial Statements........................................... F-123
The Reppond Companies
Report of Independent Accountants....................................... F-129
Combined Balance Sheet.................................................. F-130
Combined Statement of Income............................................ F-131
Combined Statement of Shareholders' Equity.............................. F-132
Combined Statement of Cash Flows........................................ F-133
Notes to Combined Financial Statements.................................. F-134
Simione, Scillia, Larrow & Dowling LLC
Report of Independent Accountants....................................... F-140
Balance Sheet........................................................... F-141
Statement of Income..................................................... F-142
Statement of Members' Equity............................................ F-143
Statement of Cash Flows................................................. F-144
Notes to Financial Statements........................................... F-145
</TABLE>
F-2
<PAGE>
CENTERPRISE ADVISORS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the acquisitions by Centerprise Advisors, Inc. ("Centerprise") of the
outstanding capital stock of: Reznick Fedder & Silverman, P.C. ("Reznick");
Robert F. Driver Co., Inc. ("Driver"); Mann Frankfort Stein & Lipp, P.C. ("Mann
Frankfort"); Follmer, Rudzewicz & Company, P.C. ("Follmer"); Berry, Dunn,
McNeil & Parker, Chartered ("Berry Dunn"); Urbach Kahn & Werlin PC ("Urbach");
Self Funded Benefits, Inc. d/b/a Insurance Design Administrators ("IDA"); Grace
& Company, P.C. ("Grace"); the Reppond Companies ("Reppond"); and Simione,
Scillia, Larrow & Dowling LLC ("Simione") (together, the "Centerprise
Companies"). These acquisitions (the "Mergers") will occur simultaneously with
the closing of Centerprise's initial public offering and will be accounted for
using the purchase method of accounting. In accordance with the provisions of
Staff Accounting Bulletin No. 97, Centerprise is deemed to be the accounting
acquiror as its stockholders will receive the largest portion of the voting
rights in the combined corporation.
The unaudited pro forma combined balance sheet gives effect to the Mergers
and the offering as if they had occurred on June 30, 1999. The unaudited pro
forma combined statement of operations gives effect to these transactions as if
they had occurred on January 1, 1998.
Pro forma adjustments have been made to reflect the "separate practice
format" under which Centerprise will only acquire the non-attest services of
the Centerprise Companies and will provide under non-exclusive services
agreements, for a fee, the professional and certain other services necessary
for the operation of the Attest firms. Due to the non-exclusive nature of the
services agreements, the amounts reflected in the unaudited pro forma combined
statements of operations as "services agreements" fees may not be
representative of future ongoing operations of Centerprise.
Centerprise has preliminarily analyzed the savings that it expects to
realize from changes in salaries and certain benefits to the Centerprise
Companies' former owners. To the extent these individuals have contractually
agreed prospectively to changes in salaries, bonuses, and benefits, these
changes have been reflected in the pro forma combined statement of operations.
With respect to other potential cost savings, Centerprise has not and cannot
quantify these savings at this time. It is anticipated that Centerprise will
incur costs related to its new corporate management and costs associated with
being a public company. However, these costs, like the savings, cannot be
accurately quantified at this time. Except for prospective compensation payable
pursuant to employment agreements with management of Centerprise and savings
expected to be realized from changes in salaries and certain benefits to the
Centerprise Companies' former owners, neither the anticipated savings nor the
anticipated costs have been included in the pro forma financial information of
Centerprise.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma combined financial data do not purport to represent
what Centerprise's financial position or results of operations would actually
have been if such transactions in fact had occurred on those dates and are not
necessarily representative of Centerprise's financial position or results of
operations for any future period. Since the Centerprise Companies were not
under common control or management and were operating with different
compensation structures, historical pro forma combined results may not be
comparable to, or indicative of, future performance. The unaudited pro forma
combined financial statements should be read in conjunction with the historical
financial statements and notes thereto included elsewhere in this prospectus.
See "Risk Factors" included elsewhere herein.
F-3
<PAGE>
CENTERPRISE ADVISORS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
June 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Merger Pro
Center- Mann Berry Adjustments Forma
ASSETS prise Reznick Driver Frankfort Follmer Dunn Urbach IDA Grace Reppond Simione (See Note 3) Combined
- ------ ------- ------- ------- --------- ------- ------ ------- ------ ------ ------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents....... $ 21 $ 4,944 $ 2,315 $ 1,881 $ 823 $ 69 $ 2,174 $ 636 $ 19 $ 208 $ 189 $(11,154) $ 2,125
Funds held for
customers......... -- -- 30,380 -- 13 -- -- 568 -- -- -- -- 30,961
Investments....... -- -- -- -- -- -- -- -- -- -- -- -- --
Receivables,
net............... -- 16,293 24,076 6,982 5,749 3,873 8,520 631 2,404 956 2,142 (38,413) 33,213
Unbilled fees at
net realizable
value............. -- 7,308 -- 1,205 2,657 1,556 684 -- 1,151 -- 443 (7,188) 7,816
Notes
receivable........ -- -- -- -- -- -- -- -- -- -- 12 (12) --
Due from related
parties and
stockholders...... -- -- -- 8 -- -- 550 -- -- -- -- (558) --
Prepaid expenses
and other current
assets............ -- 130 243 81 668 117 400 80 258 150 112 (95) 2,144
Deferred offering
costs............. 7,793 -- -- -- -- -- -- -- -- -- -- -- 7,793
Deferred income
taxes............. -- 1,589 -- -- -- -- -- -- -- -- -- (1,201) 388
------ ------- ------- ------- ------- ------ ------- ------ ------ ------ ------ -------- --------
Total current
assets.......... 7,814 30,264 57,014 10,157 9,910 5,615 12,328 1,915 3,832 1,314 2,898 (58,621) 84,440
Property and
equipment, net..... -- 2,626 1,216 1,196 1,411 1,548 980 702 488 833 122 (530) 10,592
Goodwill and other
intangible assets,
net................ -- 391 28,821 -- -- 1,247 -- -- -- -- -- 210,121 240,580
Long-term
investments........ -- -- -- -- -- -- 900 -- -- -- -- (831) 69
Deferred income
taxes.............. -- 1,404 237 -- 1,478 423 2,252 -- 11 7 -- (4,563) 1,249
Other assets....... 25 683 396 6 3,590 -- 331 38 1,039 23 103 (5,537) 697
------ ------- ------- ------- ------- ------ ------- ------ ------ ------ ------ -------- --------
Total assets.... $7,839 $35,368 $87,684 $11,359 $16,389 $8,833 $16,791 $2,655 $5,370 $2,177 $3,123 $140,039 $337,627
====== ======= ======= ======= ======= ====== ======= ====== ====== ====== ====== ======== ========
<CAPTION>
Offering
Adjustments As
ASSETS (See Note 3) Adjusted
- ------ ------------ --------
<S> <C> <C>
Current assets:
Cash and cash
equivalents....... $ 6,162 $ 8,287
Funds held for
customers......... -- 30,961
Investments....... -- --
Receivables,
net............... -- 33,213
Unbilled fees at
net realizable
value............. -- 7,816
Notes
receivable........ -- --
Due from related
parties and
stockholders...... -- --
Prepaid expenses
and other current
assets............ -- 2,144
Deferred offering
costs............. (7,793) --
Deferred income
taxes............. -- 388
------------ --------
Total current
assets.......... (1,631) 82,809
Property and
equipment, net..... -- 10,592
Goodwill and other
intangible assets,
net................ -- 240,580
Long-term
investments........ -- 69
Deferred income
taxes.............. -- 1,249
Other assets....... -- 697
------------ --------
Total assets.... $(1,631) $335,996
============ ========
</TABLE>
F-4
<PAGE>
CENTERPRISE ADVISORS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
June 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND Merger
STOCKHOLDERS' Center- Mann Berry Adjustments
EQUITY prise Reznick Driver Frankfort Follmer Dunn Urbach IDA Grace Reppond Simione (See Note 3)
- --------------- -------- ------- ------- --------- ------- ------ ------- ------ ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current
liabilities:
Short-term debt,
including current
maturities of
long-term debt.... $ -- $ 2,661 $ 6,870 $ 101 $ 1,103 $1,631 $ 446 $ 140 $1,296 $ 587 $1,258 $ (1,258)
Accounts
payable........... -- 1,354 5,604 218 83 106 393 127 92 161 135 --
Insurance
premiums
payable........... -- -- 46,219 -- -- -- -- -- -- -- -- --
Accrued
compensation and
related costs..... -- 23,988 -- 2,179 5,444 860 3,930 35 776 218 -- (26,997)
Deferred
compensation...... -- 91 -- -- -- 529 247 -- -- -- -- (91)
Income taxes
payable........... -- -- 462 (4) -- -- -- -- -- -- -- --
Deferred income
taxes............. -- -- -- 2,760 1,299 653 2,022 -- 1,153 153 -- (7,098)
Current portion
of customer
deposits.......... -- -- -- -- -- -- -- 568 -- -- -- --
Due to related
parties........... 2,790 -- -- -- 3,798 3,973 -- -- 229 -- 175 74,641
Other accrued
liabilities....... 6,749 -- -- -- -- 239 1,060 529 90 -- 164 250
-------- ------- ------- ------- ------- ------ ------- ------ ------ ------ ------ --------
Total current
liabilities..... 9,539 28,094 59,155 5,254 11,727 7,991 8,098 1,399 3,636 1,119 1,732 39,447
Long-term debt, net
of current
maturities......... -- 1,264 15,229 799 -- -- 1,269 95 389 264 -- 3,901
Deferred
compensation....... -- 724 26 -- 4,280 495 5,077 -- -- -- -- (8,854)
Deferred income
taxes.............. -- -- -- 78 -- -- -- -- -- -- -- 138
Other long-term
liabilities........ -- 2,539 -- -- -- -- 149 -- -- -- 117 (2,539)
-------- ------- ------- ------- ------- ------ ------- ------ ------ ------ ------ --------
Total
liabilities..... 9,539 32,621 74,410 6,131 16,007 8,486 14,593 1,494 4,025 1,383 1,849 32,093
Redeemable
preferred stock of
subsidiary......... -- -- 4,000 -- -- -- -- -- -- -- -- --
Stockholders'
equity:
Members' equity... -- -- -- -- -- -- -- -- -- 54 1,274 (1,328)
Common stock...... 37 -- 11 2 8 924 -- -- 17 1 -- (838)
Additional paid-
in capital........ 20,315 1,422 10,184 61 1,234 -- 3,364 208 350 56 -- 115,692
Retained earnings
(deficit)......... (22,052) 1,325 (141) 5,165 (720) (216) (1,166) 1,117 1,067 711 -- (7,142)
Note receivable
from
shareholder....... -- -- (780) -- -- (361) -- -- -- (28) -- 1,169
Accumulated other
comprehensive
income............ -- -- -- -- -- -- -- -- -- -- -- --
Treasury stock.... -- -- -- -- (140) -- -- (164) (89) -- -- 393
-------- ------- ------- ------- ------- ------ ------- ------ ------ ------ ------ --------
Total
stockholders'
equity.......... (1,700) 2,747 9,274 5,228 382 347 2,198 1,161 1,345 794 1,274 107,946
-------- ------- ------- ------- ------- ------ ------- ------ ------ ------ ------ --------
Total liabilities
and stockholders'
equity............. $ 7,839 $35,368 $87,684 $11,359 $16,389 $8,833 $16,791 $2,655 $5,370 $2,177 $3,123 $140,039
======== ======= ======= ======= ======= ====== ======= ====== ====== ====== ====== ========
<CAPTION>
LIABILITIES AND Pro Offering
STOCKHOLDERS' Forma Adjustments As
EQUITY Combined (See Note 3) Adjusted
- --------------- --------- ------------ ---------
<S> <C> <C> <C>
Current
liabilities:
Short-term debt,
including current
maturities of
long-term debt.... $ 14,835 $ (2,605) $ 12,230
Accounts
payable........... 8,273 -- 8,273
Insurance
premiums
payable........... 46,219 -- 46,219
Accrued
compensation and
related costs..... 10,433 -- 10,433
Deferred
compensation...... 776 -- 776
Income taxes
payable........... 458 -- 458
Deferred income
taxes............. 942 -- 942
Current portion
of customer
deposits.......... 568 -- 568
Due to related
parties........... 85,606 (85,606) --
Other accrued
liabilities....... 9,081 (6,999) 2,082
--------- ------------ ---------
Total current
liabilities..... 177,191 (95,210) 81,981
Long-term debt, net
of current
maturities......... 23,210 (15,229) 7,981
Deferred
compensation....... 1,748 -- 1,748
Deferred income
taxes.............. 216 -- 216
Other long-term
liabilities........ 266 -- 266
--------- ------------ ---------
Total
liabilities..... 202,631 (110,439) 92,192
Redeemable
preferred stock of
subsidiary......... 4,000 (4,000) --
Stockholders'
equity:
Members' equity... -- -- --
Common stock...... 162 105 267
Additional paid-
in capital........ 152,886 112,703 265,589
Retained earnings
(deficit)......... (22,052) -- (22,052)
Note receivable
from
shareholder....... -- -- --
Accumulated other
comprehensive
income............ -- -- --
Treasury stock.... -- -- --
--------- ------------ ---------
Total
stockholders'
equity.......... 130,996 112,808 243,804
--------- ------------ ---------
Total liabilities
and stockholders'
equity............. $337,627 $ (1,631) $335,996
========= ============ =========
</TABLE>
F-5
<PAGE>
CENTERPRISE ADVISORS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Mann Berry
Centerprise Reznick Driver Frankfort Follmer Dunn Urbach IDA Grace Reppond Simione
----------- ------- ------- --------- ------- ------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Professional
services........ $ -- $48,387 $ -- $21,631 $20,564 $18,662 $17,753 $ -- $9,691 $ -- $6,217
Services
agreements...... -- -- -- -- -- -- -- -- -- -- --
--------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total
professional
services........ -- 48,387 -- 21,631 20,564 18,662 17,753 -- 9,691 -- 6,217
Business and
financial
services........ -- -- 34,303 -- -- -- -- 10,496 -- 7,892 --
--------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total revenues.. -- 48,387 34,303 21,631 20,564 18,662 17,753 10,496 9,691 7,892 6,217
Expenses:
Professional
services
compensation and
related costs... -- 39,825 -- 17,750 16,629 13,722 12,612 -- 7,784 -- 4,396
Business and
financial
services
compensation and
related costs... -- -- 25,470 -- -- -- -- 6,461 -- 5,067 --
Other operating
expenses........ 1,232 7,575 6,060 3,081 3,711 3,753 4,510 2,509 1,190 1,982 1,333
Non-cash stock
compensation.... 17,503 -- -- -- -- -- -- -- -- -- --
Amortization of
goodwill........ -- 11 590 -- -- 65 -- -- -- -- --
Depreciation.... -- 965 1,074 266 539 935 280 242 190 332 31
--------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Income (loss)
from
operations...... (18,735) 11 1,109 534 (315) 187 351 1,284 527 511 457
Other (income)
expense: --
Interest
expense......... -- 532 1,039 58 109 299 664 32 122 72 130
Interest
income.......... -- (43) (852) (69) (48) (238) (109) (77) (23) (43) --
Other, net...... -- (143) (417) (26) 14 126 (486) 82 (95) 22 50
--------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Income (loss)
before income
taxes............ (18,735) (335) 1,339 571 (390) -- 282 1,247 523 460 277
Provision
(benefit) for
income taxes..... -- (109) 688 213 165 -- 176 25 232 113 --
--------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Net income
(loss)........... $ (18,735) $ (226) $ 651 $ 358 $ (555) $ -- $ 106 $ 1,222 $ 291 $ 347 $ 277
========= ======= ======= ======= ======= ======= ======= ======= ====== ====== ======
Net loss per
share:
Basic........... $ (30.10)
=========
Diluted......... $ (5.55)
=========
Shares used in
computing net
loss per share
(see Note 5):
Basic........... 622,348
=========
Diluted......... 3,375,265
=========
<CAPTION>
Pro Forma
Adjustments
(See Note Pro Forma
4) Combined
-------------- -----------
<S> <C> <C>
Revenues:
Professional
services........ $(64,759)(A) $ 78,146
Services
agreements...... 62,600 (A) 62,600
-------------- -----------
Total
professional
services........ (2,159) 140,746
Business and
financial
services........ -- 52,691
-------------- -----------
Total revenues.. (2,159) 193,437
Expenses:
Professional
services
compensation and
related costs... (25,029)(B) 87,689
Business and
financial
services
compensation and
related costs... (1,540)(B) 35,458
Other operating
expenses........ (1,767)(A) 35,169
Non-cash stock
compensation.... -- 17,503
Amortization of
goodwill........ 15,373 (C) 16,039
Depreciation.... -- 4,854
-------------- -----------
Income (loss)
from
operations...... 10,804 (3,275)
Other (income)
expense:
Interest
expense......... (939)(E) 2,118
Interest
income.......... 156 (F) (1,346)
Other, net...... -- (873)
-------------- -----------
Income (loss)
before income
taxes............ 11,587 (3,174)
Provision
(benefit) for
income taxes..... 3,643 (G) 5,146
-------------- -----------
Net income
(loss)........... $ 7,944 $ (8,320)
============== ===========
Net loss per
share:
Basic........... $ (0.32)
===========
Diluted......... $ (0.32)
===========
Shares used in
computing net
loss per share
(see Note 5):
Basic........... 26,169,905
===========
Diluted......... 26,169,905
===========
</TABLE>
F-6
<PAGE>
CENTERPRISE ADVISORS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
Center- Mann Berry (See Note
prise Reznick Driver Frankfort Follmer Dunn Urbach IDA Grace Reppond Simione 4)
------- ------- ------ --------- ------- ------- ------ ------ ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Professional
services........ $ -- $28,471 $ -- $11,828 $11,627 $10,687 $9,514 $ -- $5,684 $ -- $3,283 $(36,916)(A)
Services
agreements...... -- -- -- -- -- -- -- -- -- -- -- 35,833 (A)
----- ------- ------ ------- ------- ------- ------ ------ ------ ------ ------ --------
Total
professional
services........ -- 28,471 -- 11,828 11,627 10,687 9,514 -- 5,684 -- 3,283 (1,083)
Business and
financial
services........ -- -- 19,412 -- -- -- -- 4,992 -- 4,093 -- --
----- ------- ------ ------- ------- ------- ------ ------ ------ ------ ------ --------
Total revenues.. -- 28,471 19,412 11,828 11,627 10,687 9,514 4,992 5,684 4,093 3,283 (1,083)
Expenses:
Professional
services
compensation and
related costs... -- 24,402 -- 8,474 9,632 8,407 6,711 -- 4,108 -- 2,210 (15,685)
Business and
financial
services
compensation and
related costs... -- -- 13,333 -- -- -- -- 2,930 -- 2,484 -- (786)(B)
Other operating
expenses........ -- 3,566 3,282 1,811 1,629 1,796 2,345 1,468 657 837 637 (900)(A)
Non-cash stock
compensation.... -- -- -- -- -- -- -- -- -- -- -- -- (D)
Amortization of
goodwill........ -- -- 116 -- -- 26 -- -- -- -- -- 7,877 (C)
Depreciation ... -- 515 572 112 303 406 121 120 104 156 16 --
----- ------- ------ ------- ------- ------- ------ ------ ------ ------ ------ --------
Income (loss)
from
operations...... -- (12) 2,109 1,431 63 52 337 474 815 616 420 8,411
Other (income)
expense: --
Interest
expense......... -- 206 238 33 34 132 355 18 62 42 67 (234)(E)
Interest
income.......... -- (19) (393) (15) (40) (94) (26) (33) (6) (2) -- -- (F)
Other, net...... -- (50) (162) 13 (172) 14 (195) -- (62) 9 -- --
----- ------- ------ ------- ------- ------- ------ ------ ------ ------ ------ --------
Income (loss)
before income
taxes............ -- (149) 2,426 1,400 241 -- 203 489 821 567 353 8,645
Provision
(benefit) for
income taxes..... -- (43) 1,064 498 214 -- 108 21 334 156 -- 6,854 (F)
----- ------- ------ ------- ------- ------- ------ ------ ------ ------ ------ --------
Net income
(loss)........... $ -- $ (106) $1,362 $ 902 $ 27 $ -- $ 95 $ 468 $ 487 $ 411 $ 353 $ 1,791
===== ======= ====== ======= ======= ======= ====== ====== ====== ====== ====== ========
Net income per
share
Basic...........
Diluted.........
Shares used in
computing net
income per share
(see Note 5)
Basic...........
Diluted.........
<CAPTION>
Pro Forma
Combined
------------
<S> <C>
Revenues:
Professional
services........ $ 44,178
Services
agreements...... 35,833
------------
Total
professional
services........ 80,011
Business and
financial
services........ 28,497
------------
Total revenues.. 108,508
Expenses:
Professional
services
compensation and
related costs... 48,259
Business and
financial
services
compensation and
related costs... 17,961
Other operating
expenses........ 17,128
Non-cash stock
compensation.... --
Amortization of
goodwill........ 8,019
Depreciation ... 2,425
------------
Income (loss)
from
operations...... 14,716
Other (income)
expense:
Interest
expense......... 953
Interest
income.......... (628)
Other, net...... (605)
------------
Income (loss)
before income
taxes............ 14,996
Provision
(benefit) for
income taxes..... 9,206
------------
Net income
(loss)........... $ 5,790
============
Net income per
share
Basic........... $ 0.22
============
Diluted......... $ 0.22
============
Shares used in
computing net
income per share
(see Note 5)
Basic........... 26,169,905
============
Diluted......... 26,169,905
============
</TABLE>
F-7
<PAGE>
CENTERPRISE ADVISORS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Center- Mann Berry
prise Reznick Driver Frankfort Follmer Dunn Urbach IDA Grace Reppond Simione
--------- ------- ------- --------- ------- ------- ------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Professional
services........ $ -- $32,987 $ -- $16,630 $13,588 $10,629 $11,651 $ -- $6,269 $ -- $4,180
Services
agreements...... -- -- -- -- -- -- -- -- -- -- --
--------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total
professional
services........ -- 32,987 -- 16,630 13,588 10,629 11,651 -- 6,269 -- 4,180
Business and
financial
services........ -- -- 26,716 -- -- -- -- 5,502 -- 4,353 --
--------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total revenues.. -- 32,987 26,716 16,630 13,588 10,629 11,651 5,502 6,269 4,353 4,180
Expenses:
Professional
services
compensation and
related costs... -- 28,388 -- 10,804 11,749 8,772 9,393 -- 4,419 -- 2,436
Business and
financial
services
compensation and
related costs... -- -- 16,444 -- -- -- -- 3,156 -- 2,674 --
Other operating
expenses........ 661 4,207 4,100 2,396 2,121 1,572 2,264 1,604 736 1,262 722
Non-cash stock
compensation.... 2,656 -- 1,107 -- -- -- -- -- -- -- --
Amortization of
goodwill........ -- -- 721 -- -- 22 -- -- -- -- --
Depreciation.... -- 528 244 176 249 342 176 104 102 153 16
--------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Income from
operations...... (3,317) (136) 4,100 3,254 (531) (79) (182) 638 1,012 264 1,006
Other (income)
expense:
Interest
expense......... -- 233 1,194 44 28 180 308 10 95 25 64
Interest
income.......... -- (62) (365) (28) (22) (142) (21) (29) (4) (1) --
Other, net...... -- (132) 16 4 (266) (117) (610) -- (17) 2 108
--------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Income (loss)
before income
taxes............ (3,317) (175) 3,255 3,234 (271) -- 141 657 938 238 834
Provision
(benefit) for
income taxes..... -- (60) 1,703 1,184 (107) -- 79 10 387 120 --
--------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Net income
(loss)........... $ (3,317) $ (115) $ 1,552 $ 2,050 $ (164) $ -- $ 62 $ 647 $ 551 $ 118 $ 834
========= ======= ======= ======= ======= ======= ======= ====== ====== ====== ======
Net income (loss)
per share:
Basic........... $ (1.06)
=========
Diluted......... $ (0.92)
=========
Shares used in
computing net
income (loss) per
share:
Basic........... 3,133,548
=========
Diluted......... 3,618,775
=========
<CAPTION>
Pro Forma
Adjustments
(See Note Pro Forma
4) Combined
-------------- ------------
<S> <C> <C>
Revenues:
Professional
services........ $(42,658) $ 53,276
Services
agreements...... 41,583 (A) 41,583
-------------- ------------
Total
professional
services........ (1,075) 94,859
Business and
financial
services........ -- 36,571
-------------- ------------
Total revenues.. (1,075) 131,430
Expenses:
Professional
services
compensation and
related costs... (14,431)(B) 61,530
Business and
financial
services
compensation and
related costs... (786)(B) 21,488
Other operating
expenses........ (900)(A) 20,745
Non-cash stock
compensation.... -- 3,763
Amortization of
goodwill........ 7,276 (C) 8,019
Depreciation.... -- 2,090
-------------- ------------
Income from
operations...... 7,766 13,795
Other (income)
expense:
Interest
expense......... (884)(E) 1,297
Interest
income.......... -- (F) (674)
Other, net...... -- (1,012)
-------------- ------------
Income (loss)
before income
taxes............ 8,650 14,184
Provision
(benefit) for
income taxes..... 5,565 (G) 8,881
-------------- ------------
Net income
(loss)........... $ 3,085 $ 5,303
============== ============
Net income (loss)
per share:
Basic........... $ 0.20
============
Diluted......... $ 0.20
============
Shares used in
computing net
income (loss) per
share:
Basic........... 26,169,905
============
Diluted......... 26,169,905
============
</TABLE>
F-8
<PAGE>
CENTERPRISE ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
Note 1--General
Centerprise Advisors, Inc. ("Centerprise") was founded in 1998 to acquire
ten professional, business and financial services firms ("Centerprise
Companies") and create a leading provider of professional, business and
financial services and products to middle-market clients.
The historical financial statements reflect the financial position and
results of operations of Centerprise and the Centerprise Companies and were
derived from the respective Centerprise Companies' financial statements. The
periods included in these financial statements for all of the individual
Centerprise Companies, with the exception of Driver, Follmer and Urbach, are as
of and for the year ended December 31, 1998. The financial statements for
Driver and Urbach are as of and for the year ended July 31, 1999 and the six
month periods ended July 31, 1998 and 1999. The financial statements for
Follmer are as of May 31, 1999 and for the year ended November 30, 1998 and the
six month periods ended May 31, 1998 and 1999. The audited historical financial
statements included elsewhere herein have been included in accordance with
Staff Accounting Bulletin No. 80.
Note 2--Acquisition of Centerprise Companies
Concurrently with and as a condition to the closing of this offering,
Centerprise will acquire all of the outstanding common stock or partnership or
membership interests of the Centerprise Companies. The Mergers will be
accounted for using the purchase method of accounting with Centerprise being
treated as the accounting acquiror in accordance with Staff Accounting Bulletin
No. 97 and Accounting Principles Board Opinion No. 16. The carrying value of
intangible assets is periodically reviewed by Centerprise based on the expected
future undiscounted operating cash flows of the related business unit. In the
event Centerprise determines that the balance of such intangible assets is not
recoverable, Centerprise will recognize an impairment loss in an amount
necessary to write down the excess of cost over fair value of net assets
acquired to the fair value equal to the corresponding undiscounted expected
future cash flows.
The following table sets forth the consideration to be paid in cash,
promissory notes and shares of common stock to the stockholders of each of the
Centerprise Companies.
<TABLE>
<CAPTION>
Shares of
Promissory Common Value of Total
Cash Notes (1) Stock Shares (2) Consideration (3)
------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Reznick................. $16,899 $ -- 1,810,554 $ 19,237 $ 36,136
Driver.................. 500 -- 2,944,445 31,285 31,785
Mann Frankfort.......... 19,223 -- 2,059,629 21,884 41,107
Follmer................. 14,416 -- 1,544,571 16,411 30,827
Berry Dunn.............. 6,821 -- 931,357 9,896 16,717
Urbach.................. 10,006 -- 1,149,014 12,208 22,213
IDA..................... 7,814 -- 837,240 8,896 16,710
Grace................... 2,840 -- 304,286 3,233 6,073
Reppond................. -- 4,176 447,428 4,754 8,930
Simione................. 4,297 -- 460,457 4,892 9,190
------- ------ ---------- -------- --------
$82,816 $4,176 12,488,981 $132,696 $219,688
======= ====== ========== ======== ========
</TABLE>
F-9
<PAGE>
CENTERPRISE ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
- --------
(1) In addition to cash and shares of common stock, promissory notes will be
issued for the acquisition of Reppond. The interest rate on the notes is 7%
with maturities from 2000 through 2004.
(2) For the computation of the estimated purchase price for accounting
purposes, the value of shares is based upon an assumed initial public
offering price of $12.50, less a 15% discount from the assumed offering
price due to restrictions on the transferability of the common stock to be
issued to owners and employees of Centerprise and the Centerprise
Companies. Under the terms of stockholders' agreements to be signed prior
to the mergers, the former owners of the Centerprise Companies and the
initial investors and management of Centerprise will agree, subject to
limited exceptions, not to sell, transfer or otherwise dispose of any
shares for a period of 18 months following the offering. Effective 18
months after the offering, 20% of each stockholder's shares will be
released from such restrictions, and an additional 20% of the original
number of restricted shares will be released on the expiration of each six-
month period thereafter. Any requested waiver of the restrictions must be
approved by a majority of the members of the board of directors who are not
subject to transfer restrictions at the time of such proposed waiver. The
owners of the Centerprise shares will not be entitled to registration
rights until two years following the offering; thereafter the former owners
of the Centerprise Companies will have "piggyback" registration rights with
respect to shares that have been released from the contractual transfer
restrictions. Restrictions on transferability of the common stock issued to
the former owners of the Centerprise Companies equate, economically, to the
value of a put option on those shares.
(3) In addition to the consideration set forth in the table, the former
stockholders of Driver will be entitled to receive a contingent cash
payment equal to 6.75 times the amount, if any, by which Driver's adjusted
earnings before interest, taxes, depreciation and amortization ("EBITDA")
for 2000 exceed $11,600. The former stockholders of IDA will be entitled to
a contingent cash payment equal to the lesser of (a) $3,415 and (b) 6.75
times the amount, if any, by which IDA's adjusted EBITDA for 2000 exceeds
$3,155. The former stockholders of Reppond will be entitled to receive a
contingent cash payment which will be calculated with respect to a
specified twelve month period ending in 2003 and based on the amount by
which the adjusted EBITDA of Centerprise's employee benefits business
(excluding IDA) exceeds specified thresholds. One of Reppond's stockholders
will also be entitled to receive contingent cash payments with respect to
each of the first five twelve month periods following the closing of the
Mergers. Such payments will be based on the amount by which Reppond's
adjusted EBITDA for the applicable period exceeds specified thresholds.
The following table sets forth for each Centerprise Company (i) the total
consideration to be paid in the mergers, (ii) the allocation of the
consideration to net assets acquired and (iii) the resulting goodwill for the
companies acquired by Centerprise as the accounting acquirer. The purchase
price has been allocated to the assets and liabilities acquired based on their
respective carrying values, as those are deemed to represent fair market value
of such assets and liabilities. The allocation of the purchase price is
considered preliminary until such time as the closing of the transaction and
consummation of the Mergers. Centerprise does not anticipate that the final
allocation of the purchase price will differ materially from that presented.
<TABLE>
<CAPTION>
Total Net Assets
Consideration Acquired Goodwill
------------- ---------- --------
<S> <C> <C> <C>
Reznick.................................. $ 36,136 $ (618) $ 36,754
Driver................................... 31,785 (21,064) 52,849
Mann Frankfort........................... 41,107 384 40,723
Follmer.................................. 30,827 647 30,180
Berry Dunn............................... 16,717 59 16,658
Urbach................................... 22,213 (510) 22,723
IDA...................................... 16,710 476 16,234
Grace.................................... 6,073 (1,094) 7,167
Reppond.................................. 8,930 794 8,136
Simione.................................. 9,190 34 9,156
-------- -------- --------
$219,688 $(20,892) $240,580
======== ======== ========
</TABLE>
F-10
<PAGE>
CENTERPRISE ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Note 3--Unaudited Pro Forma Combined Balance Sheet Adjustments
The following table summarizes unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
Offering
Merger Adjustments Total Adjustments Total
---------------------------- Merger ------------------- Offering
(A) (B) (C) Adjustments (D) (E) Adjustments
-------- -------- -------- ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $(11,154) $ -- $ -- $(11,154) $120,601 $(114,439) $ 6,162
Receivables, net........ (37,357) (1,056) -- (38,413) -- -- --
Unbilled fees at net
realizable value....... (7,188) -- -- (7,188) -- -- --
Notes receivable........ -- (12) -- (12) -- -- --
Due from related
parties................ -- (558) -- (558) -- -- --
Prepaid expenses and
other current assets... -- (95) -- (95) -- -- --
Deferred offering
costs.................. -- -- -- -- (7,793) -- (7,793)
Deferred income taxes... -- (1,201) -- (1,201) -- -- --
-------- -------- -------- -------- -------- --------- ---------
Total current
assets.............. (55,699) (2,922) -- (58,621) 112,808 (114,439) (1,631)
Property and equipment,
net.................... -- (530) -- (530) -- -- --
Goodwill, net........... -- (30,459) 240,580 210,121 -- -- --
Long-term investments... -- (831) -- (831) -- -- --
Deferred income taxes... -- (4,563) -- (4,563) -- -- --
Other assets............ -- (5,537) -- (5,537) -- -- --
-------- -------- -------- -------- -------- --------- ---------
Total assets......... $(55,699) $(44,842) $240,580 $140,039 $112,808 $(114,439) $ (1,631)
======== ======== ======== ======== ======== ========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Short-term debt,
including current
maturities of long-term
debt................... $ -- $ (1,258) $ -- $ (1,258) $ -- $ (2,605) $ (2,605)
Accrued compensation and
related costs.......... -- (26,997) -- (26,997) -- -- --
Deferred compensation... -- (91) -- (91) -- -- --
Deferred income taxes... -- (7,098) -- (7,098) -- -- --
Due to related parties.. -- (8,175) 82,816 76,641 -- (85,606) (85,606)
Other accrued
liabilities............ -- 250 -- 250 -- (6,999) (6,999)
-------- -------- -------- -------- -------- --------- ---------
Total current
liabilities......... -- (43,369) 82,816 39,447 -- (95,210) (95,210)
Long-term debt, net..... -- 3,901 -- 3,901 -- (15,229) (15,229)
Deferred compensation... -- (8,854) -- (8,854) -- -- --
Deferred income taxes... -- 138 -- 138 -- -- --
Other long-term
liabilities............ -- (2,539) -- (2,539) -- -- --
-------- -------- -------- -------- -------- --------- ---------
Total liabilities.... -- (50,723) 82,816 32,093 -- (110,439) (110,439)
Redeemable preferred
stock.................. -- -- -- -- -- (4,000) (4,000)
Stockholders' equity:
Members' equity........ (2,516) 1,276 (88) (1,328) -- -- --
Common stock........... -- -- (838) (838) 105 -- 105
Additional paid-in
capital................ -- (780) 116,472 115,692 112,703 -- 112,703
Retained earnings
(deficit).............. (53,183) 4,577 41,464 (7,142) -- -- --
Notes receivable from
shareholder............ -- 808 361 1,169 -- -- --
Treasury stock......... -- -- 393 393 -- -- --
-------- -------- -------- -------- -------- --------- ---------
Total stockholders'
equity.............. (55,699) 5,881 157,764 107,945 112,808 -- 112,808
-------- -------- -------- -------- -------- --------- ---------
Total liabilities and
stockholders'
equity.............. $(55,699) $(44,842) $240,580 $140,039 $112,808 $(114,439) $ (1,631)
======== ======== ======== ======== ======== ========= =========
</TABLE>
F-11
<PAGE>
CENTERPRISE ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
- --------
(A) Reflects the contractual distributions to the owners of the Centerprise
Companies of excess working capital, as defined in the merger agreements,
calculated as accounts receivable and work in process in excess of: (i)
accounts payable and accrued expenses; less (ii) prepaid expenses; plus
(iii) 1% of trailing twelve months' revenues.
(B) Reflects the contractual distribution of certain assets and liabilities to
the owners of the Centerprise Companies in connection with the mergers and
the establishment of deferred tax balances to be established upon the
conversion of IDA, and Simione from S Corporation or partnership status to
C Corporation status.
(C) Reflects purchase accounting for the acquisitions of the Centerprise
Companies for consideration consisting of $82,816 in cash, promissory notes
of $4,176 and 12,488,981 shares of common stock valued at $12.50 per share
(or a total of $132,696) for a total estimated purchase price of $219,688,
resulting in an excess purchase price over the fair value of assets
acquired of $240,580. See Note 2 for discussion of valuation of stock. The
adjustment to retained earnings (deficit) reflects the elimination of the
existing retained deficit of the companies being acquired by Centerprise
(as accounting acquiror) after entries (A) and (B) above have been
reflected.
(D) Reflects the cash proceeds from the issuance of 10,500,000 shares of common
stock net of estimated expenses of the offering (based on an estimated
initial public offering price of $12.50 per share). Expenses of the
offering include amounts advanced by BGL Capital and CCP and primarily
consist of the underwriting discount, accounting fees, legal fees, printing
expenses, consulting fees and signing bonuses.
(E) Reflects the use of offering proceeds to: (i) fund the cash portion of the
consideration due to the owners of the Centerprise Companies in connection
with the Mergers (excluding certain contingent payments described in Note
2); (ii) fund the redemption by Driver of its redeemable preferred stock of
$4,000; (iii) repay $17,958 of indebtedness of Driver; and (iv) pay $250
for settlement of a consulting agreement of Driver.
Note 4--Unaudited Pro Forma Combined Statements of Operations Adjustments
(A) See Note 6 below for a discussion of the "separate practice format" and
the non-exclusive services agreements which Centerprise will enter into with
each of the Attest Firms. Following the Mergers, attest services will continue
to be performed by the CPAs who currently own the Centerprise Companies.
Centerprise will enter into 40-year non-exclusive services agreements to
provide professional and other personnel, equipment, office space and business
and administration services necessary for the operation of the Attest Firms.
One or more Attest Firms could choose to contract with entities other than
Centerprise for some or all of these services. However, in connection with the
Mergers, each of the Attest Firms will enter into a binding commitment to use
Centerprise to provide for budgeted levels of these services, including
professional and other personnel, for a period of one year. This binding
commitment will continue throughout the 40-year term of the services agreements
until and unless an Attest Firm provides Centerprise with a twelve month
advance notice of its intention to obtain one or more of the services
previously provided by Centerprise from another source.
Management has concluded that under the billing mechanisms provided for in
the services agreements as well as the compensation agreements entered into,
materially all attest services revenues earned by the Attest Firms would have
been payable to Centerprise under the services agreements. Estimated total
Attest Firm revenues from partners and owners that would not have flowed
through to Centerprise would have been $2,159
F-12
<PAGE>
CENTERPRISE ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
in the year ended December 31, 1998 and $1,083 and $1,075 in the six months
ended June 30, 1998 and 1999, respectively. Additionally, the Company believes
that were the agreements in place for the entire period, the profits recognized
by Centerprise would have materially approximated the profits derived from
attest services. The accompanying unaudited pro forma combined statements of
income include pro forma adjustments to reflect the nature of the services
agreements. The table below summarizes the entries needed to reflect the
elimination of attest revenues, the billing of services agreement fees and the
elimination of certain other operating expenses that would have been borne
directly by the Attest Firms, all as if the Mergers had been consummated on
January 1, 1998. Other operating expenses include expenditures for direct costs
that would have been borne directly by the Attest Firms such as errors and
omissions insurance, peer review, training, dues and subscriptions. (See Note
6.)
<TABLE>
<CAPTION>
Year Ended Six Months Ended Six Months Ended
December 31, 1998 June 30, 1998 June 30, 1999
------------------- ------------------ ------------------
Increase/(Decrease) Increase/(Decrease) Increase/(Decrease)
------------------- ------------------ ------------------
<S> <C> <C> <C>
Professional services
revenues(1)............ $(64,759) $(36,916) $(42,658)
-------- -------- --------
Services agreement
fees................... 62,600 35,833 41,583
-------- -------- --------
Other operating
expenses............... (1,767) (900) (900)
-------- -------- --------
</TABLE>
- --------
(1) Some estimates were used by the Centerprise Companies in developing attest
services revenues. Additionally, because the legal definition of "attest
services" varies from state to state, the Centerprise Companies assumed
that the attest services definition that applies in their home state also
applied in all states in which it provided services.
As a result of the minimum contribution commitment that each of the acquired
professional services firms has made to Centerprise, the relatively immaterial
reduction to Centerprise pro forma results of operations stemming from the
above entries was effectively offset by a reduction of compensation expense.
See Note 4(B) below for additional information.
As discussed above and under the risk factor "Regulation of the accounting
profession will constrain Centerprise's operations and impact its structure and
could impair its ability to provide services to some clients, including the
Attest Firms," the services agreements are non-exclusive and, with twelve
months notice, staffing and other services requirements may be significantly
changed by the Attest Firms. Accordingly, the amounts reflected in the
unaudited pro forma combined statements of income as "Services agreements" fees
are based on estimates and are not necessarily representative of Centerprise's
results of operations for any future period. Failure by one or more Attest
Firms to use Centerprise's services could have a material adverse effect on
Centerprise's revenue production capabilities.
F-13
<PAGE>
CENTERPRISE ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
(B) Reflects the reduction in compensation and benefits to the owners of the
Centerprise Companies to which they have agreed prospectively in incentive
compensation and employment agreements to be effective upon completion of the
offering, net of compensation to management of Centerprise as follows:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended June 30,
December 31, ----------------
1998 1998 1999
------------ ------- -------
<S> <C> <C> <C>
Professional Services:
Reznick.................................. $ 6,110 $ 5,394 $ 5,509
Mann Frankfort........................... 6,566 2,911 1,017
Follmer.................................. 5,116 3,112 3,759
Berry Dunn............................... 2,079 1,637 1,825
Urbach................................... 3,462 2,230 2,704
Grace.................................... 576 (45) (244)
Simione.................................. 1,120 446 (139)
------- ------- -------
$25,029 $15,685 $14,431
======= ======= =======
Business and Financial Services:
Driver................................... $ (100) $ (50) $ (50)
IDA...................................... 1,092 546 546
Reppond.................................. 548 290 290
------- ------- -------
$ 1,540 $ 786 $ 786
======= ======= =======
</TABLE>
The senior professionals of each professional services firm will enter firm-
specific incentive compensation agreements with Centerprise.
On an annual basis, Centerprise will retain a specified fixed dollar amount
of earnings before any compensation is paid to a firm's participants. The
amount retained by Centerprise is referred to as "Centerprise Base Earnings."
The amount of Centerprise Base Earnings has been negotiated with each
professional services firm and varies from firm to firm. The amount allocated
to each professional services firm for compensation of participants is referred
to as "Subsidiary Base Compensation." Subsidiary Base Compensation equals
Initial Operating Earnings for the period less Centerprise Base Earnings.
In addition to Subsidiary Base Compensation, each professional services firm
has agreed to a 40%/60% split of any amount by which future Subsidiary
Operating Earnings exceed Initial Operating Earnings, with 40% to be retained
by Centerprise and 60% to be allocated to participants (the "Bonus").
The compensation adjustment has been calculated as the difference between
(x) operating income adjusted to add back depreciation and amortization and
member compensation less the "Centerprise Base Earnings" and (y) the
compensation and related costs of any senior professional recorded in the
historical accounts. See "Business of Centerprise after the Mergers--
Professional Services" for further explanation of the incentive compensation
agreements.
As described above, participants will only be paid a bonus to the extent
Initial Operating Earnings exceed Centerprise Base Earnings.
(C) Reflects the non-cash amortization charge over 15 years related to
$240,580 of goodwill to be recorded as a result of the Mergers net of
amortization expense already recorded in the accounts of the
F-14
<PAGE>
CENTERPRISE ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Centerprise Companies of $666 in the year ended December 31, 1998, resulting in
a net adjustment of $15,373. Elimination of amortization expense already
recorded in the accounts of the Centerprise Companies of $142 and $744 for the
six months ended June 30, 1998 and 1999 resulted in net adjustments of $7,787
and $7,276, respectively.
(D) Reflects the net reduction in interest expense associated with debt at
Driver to be paid in conjunction with the closing of this transaction of $939,
$234 and $884 for the year ended December 31, 1998 and the six months ended
June 30, 1998 and 1999, respectively.
(E) Reflects the net reduction in interest income of $119 at Grace for the
year ended December 31, 1998 associated with the elimination of certain assets
retained in conjunction with the closing of the Mergers.
(F) Reflects the incremental provision for federal and state income taxes at
a rate of 40% assuming all entities were subject to federal and state income
tax. The adjustment relates primarily to other statements of operations'
adjustments and income taxes on partnership and S Corporation income.
Note 5--Net Income Per Share
The shares used in computing net income per share includes: (i) 3,711,019
shares issued to the initial investors in and management of Centerprise; (ii)
12,488,981 shares to be issued to the owners of the Centerprise Companies in
connection with the Mergers; and (iii) 9,969,905 shares representing the number
of shares sold in this offering, net of the underwriting discount necessary to
pay the $82,816 cash portion of the consideration for the Mergers (excluding
certain contingent payments described in Note 2), to repay certain indebtedness
of $17,834 of Driver, to repay other obligations of $4,250 and to pay estimated
expenses of the offering.
Note 6--Attest Services
Centerprise is adopting the "separate practice format" under which it will
only acquire those aspects of the practices of the professional services firms
which do not fall within the monopoly granted to CPAs under the accountancy
laws of the various states, i.e., the non-attest services. Attest services will
continue to be provided by the CPAs who currently own the professional services
firms via the licensed Attest Firms in which Centerprise will have no ownership
interest. Pursuant to non-exclusive services agreements, Centerprise will
provide, for a fee, the professional and other personnel, equipment, office
space and business and administration services necessary for the operation of
the Attest Firms. Therefore, Centerprise will be earning revenues from non-
attest clients and from the separate Attest Firms. Centerprise does not believe
that these separate revenue streams possess significantly different risks.
Following the Mergers, Centerprise's consolidated financial statements will not
include the Attest Firms because the services agreements will not provide
Centerprise with a controlling financial interest in the Attest Firms. Based on
the form of the services agreements expected to be executed at the time of the
Mergers, the Company believes that the profit which would have been recognized
by Centerprise under the services agreements would have materially approximated
the profits derived from attest services in the periods presented.
Centerprise and each of the Attest Firms have agreed to a billing process
that identifies the following key components of the fees to be paid to
Centerprise under the services agreements:
. Charges for professional staff performing work on attest
engagements. Time spent by Centerprise's employees on attest
engagements will be recorded in the time and billing system and
billed at hourly rates negotiated by Centerprise and the Attest
Firm.
F-15
<PAGE>
CENTERPRISE ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
. Charges for administrative and other support staff, premises
occupancy, equipment, utilities and similar items provided by
Centerprise and used by the owners of the Attest Firms in
performing attest services. These charges will be billed at a rate
per hour negotiated annually during the budget and planning
process.
. Reimbursement of costs incurred by Centerprise on behalf of the
Attest Firm that are directly attributable to the Attest Firm or
its owners. Such charges will be submitted for reimbursement at
incurred cost.
. A charge through which Centerprise recovers the costs of
administering its relationship with the Attest Firm. Time incurred
by Centerprise management to administer the client relationship
will be recorded in the time and billing system and billed at
hourly rates negotiated by Centerprise and the Attest Firm.
Centerprise will bill the Attest Firm for these charges on a monthly basis.
Bills will be due upon presentation and will be subject to a carrying cost
interest charge. Centerprise will reserve the right to suspend its services if
payments are delinquent, and each Attest Firm will have the right to challenge
the quality and timeliness of the services provided.
The Attest Firms will be responsible for the billing preparation and
collection process for the attest services provided to their clients and will
retain ownership of the accounts receivable from the client related to the
attest services. Bills will be generated based on the time and expenses charged
to the engagement by the partners who own the Attest Firms and Centerprise's
staff. Centerprise's billing and accounts receivable personnel will be
responsible for performing the administrative tasks of preparing the invoices
on the Attest Firm's stationery, recording the accounts receivable on the
Attest Firm's ledgers, processing and recording the cash receipts and
depositing checks received for the payment of attest services into an operating
account established in the name of and legally owned by the Attest Firm. Funds
owned by the Attest Firms will not be commingled with Centerprise's funds.
Centerprise will record as accounts receivable amounts owed by the separate
attest firms.
Expenditures incurred by the Attest Firms for direct costs such as errors
and omissions insurance, peer review, training, dues and subscriptions will be
paid by the Attest Firm using checks drawn on its operating account.
Centerprise's accounts payable personnel will be responsible for recording the
liability on the Attest Firm's ledgers, processing the Attest Firm's invoices
for payment, issuing the Attest Firm's check and mailing it to the appropriate
vendor.
Excess cash will be invested on behalf of the Attest Firm by Centerprise's
treasury personnel in investment vehicles approved by the governing body of the
Attest Firm. Investment earnings will be deposited directly into the Attest
Firm's operating accounts.
The contractual distribution of excess working capital pursuant to the
merger agreements as reflected in the merger adjustments to the unaudited pro
forma combined balance sheet, effectively eliminates Attest Firm accounts
receivable from the pro forma combined balances. Subsequent to the mergers,
Centerprise will reflect in its balance sheet the accounts receivable from the
Attest Firms for amounts billed under the services agreements.
F-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Centerprise Advisors, Inc.
In our opinion, the accompanying balance sheet and the related statement of
operations present fairly, in all material respects, the financial position of
Centerprise Advisors, Inc. at December 31, 1998, and the results of its
operations for the period from November 9, 1998 (inception date) through
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
September 24, 1999
F-17
<PAGE>
CENTERPRISE ADVISORS, INC.
BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ -- $ 21
Deferred offering costs............................. 800 7,793
-------- --------
Total current assets.............................. 800 7,814
Other asset........................................... -- 25
-------- --------
Total assets...................................... $ 800 $ 7,839
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued liabilities................................. $ 1,107 $ 6,749
Payable to related parties.......................... 892 2,790
-------- --------
Total liabilities................................. 1,999 9,539
-------- --------
Stockholders' equity:
Common stock, $.01 par value, 50,000,000 shares
authorized, 3,456,669 and 3,711,019 (unaudited)
shares issued and outstanding at December 31, 1998
and June 30, 1999, respectively.................... 35 37
Additional paid-in capital.......................... 17,615 20,315
Retained deficit.................................... (18,735) (22,052)
Stock subscriptions receivable...................... (114) --
-------- --------
Total stockholders' equity........................ (1,199) (1,700)
-------- --------
Total liabilities and stockholders' equity........ $ 800 $ 7,839
======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-18
<PAGE>
CENTERPRISE ADVISORS, INC.
STATEMENT OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Period from
November 9, 1998 Six Months
(inception date) Ended
through December June 30,
31, 1998 1999
---------------- ----------
(Unaudited)
<S> <C> <C> <C>
Total revenues.............................. $ -- $ --
---------- ----------
Operating expenses.......................... 18,735 3,317
---------- ----------
Loss before income taxes.................... (18,735) (3,317)
Provision for income taxes.................. -- --
---------- ----------
Net loss.................................... $ (18,735) $ (3,317)
========== ==========
Net loss per share:
Basic..................................... $ (30.10) $ (1.06)
========== ==========
Diluted................................... $ (5.55) $ (0.92)
========== ==========
Shares used in computing net loss per share
(see Note 2):
Basic..................................... 622,348 3,133,548
========== ==========
Diluted................................... 3,375,265 3,618,775
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-19
<PAGE>
CENTERPRISE ADVISORS, INC.
STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Period from
November 9, 1998
(inception date) Six Months
through Ended
December 31, June 30,
1998 1999
---------------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(18,735) $(3,317)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash compensation charge on stock
issuance..................................... 17,503 2,656
Increase in deferred offering costs........... (800) (6,993)
Accrued expenses.............................. 1,107 5,642
-------- -------
Net cash used in operating activities......... (925) (2,012)
Cash flows from financing activities:
Proceeds from issuance of common stock.......... -- 114
Payment of deferred financing fees.............. -- (25)
Proceeds from notes payable..................... 925 1,944
-------- -------
Net cash provided by financing activities..... 925 2,033
-------- -------
Net change in cash............................ -- 21
Cash, beginning of period..................... -- --
-------- -------
Cash, end of period........................... $ -- $ 21
======== =======
</TABLE>
See accompanying Notes to Financial Statements.
F-20
<PAGE>
CENTERPRISE ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
Note 1--Business and Organization
Centerprise Advisors, Inc. ("Centerprise" or the "Company") was founded in
1998 to create a leading provider of professional, business and financial
services and products to middle-market clients. Centerprise intends to acquire
ten companies (the "Mergers") upon consummation of an initial public offering
of its common stock (the "Offering").
Centerprise has not conducted any operations, and all activities to date
have related to the Offering and the Mergers. Centerprise is dependent upon the
Offering to execute the pending Mergers. There is no assurance that the pending
Mergers discussed will be completed or that Centerprise will be able to
generate future operating revenues.
In connection with the organization and initial capitalization of
Centerprise, 3,383,016 shares of the Company's common stock were subscribed by
sponsoring parties for total consideration of $143. Of this amount, $29 had
been received as of December 31, 1998. In addition, at the time of organization
the Company agreed to issue warrants to the CCP Group to purchase a total of
100,000 shares of the Company's common stock at the initial public offering
price.
On September 24, 1999, the Board of Directors approved a 212.05817 stock
split which will occur prior to the closing of the Mergers and the Offering.
All common stock related information included in the financial statements has
been adjusted to reflect this split.
Note 2--Significant Accounting Policies
Stock-Based Compensation:
Centerprise will measure compensation expense for its stock-based employee
compensation plans using the intrinsic value method. Following the issuance of
any options the Company will be required to make pro forma disclosures of net
income and earnings per share as if the fair value method of accounting had
been applied.
Earnings Per Share:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). For the Company, SFAS No. 128 is effective as of November 9, 1998
(inception date). SFAS No. 128 requires a presentation of basic earnings per
share ("basic EPS") and diluted earnings per share ("diluted EPS"). Basic EPS
excludes dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted EPS reflects the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or
converted into common stock. The following table
F-21
<PAGE>
CENTERPRISE ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
reconciles the numerators and denominators of the basic and diluted loss per
share computations for the respective periods:
<TABLE>
<CAPTION>
Period from
November 9, 1998
(inception date) Six Months
to Ended
December 31, 1998 June 30, 1999
----------------- -------------
<S> <C> <C>
Net loss................ $ (18,735) $ (3,317)
========= =========
Basic weighted average
shares of common
stock.................. 622,348 3,133,548
Effect of dilutive
securities:
Stock subscriptions
receivable............. 2,752,917 485,227
--------- ---------
Diluted weighted average
shares................. 3,375,265 3,618,775
========= =========
Basic EPS............... $ (30.10) $ (1.06)
========= =========
Diluted EPS............. $ (5.55) $ (0.92)
========= =========
</TABLE>
Income Taxes:
Income taxes have been computed using the asset and liability approach.
Under this approach deferred income tax assets and liabilities are determined
based on the differences between the financial statement and tax basis of
assets and liabilities using currently enacted tax rates in effect for the
years in which the differences are expected to reverse. For the period from
November 9, 1998 (inception date) to December 31, 1998, no income tax benefit
was recorded associated with the pre-tax loss because such realization could
not be construed to be more likely than not.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements. While management believes that the
estimates and related assumptions used in the preparation of the financial
statements are appropriate, actual results could differ from those estimates.
Estimates are made when accounting for the income taxes.
Unaudited Interim Financial Statements:
In the opinion of management, the Company has made all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the financial position of the Company at June 30, 1999 and the results of
its operations and its cash flows for the six months ended June 30, 1999 as
presented in the accompanying unaudited interim financial statements.
Note 3--Stockholders' Equity
Issuance of Common Stock to Persons Who Are or Will Become Employees of
Centerprise:
During the period from November 9, 1998 (inception date) to December 31,
1998, 1,580,520 shares were issued to initial investors who are or will become
employees of Centerprise for $69 of consideration. In addition, 73,653 shares
were issued to Rondol E. Eagle, Chief Integration Officer, for $3 of
consideration. During the six months ended June 30, 1999, 33,171 shares
(unaudited) were issued to Dennis Bikun, chief
F-22
<PAGE>
CENTERPRISE ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
accounting officer for $6 (unaudited) consideration, and 221,178 shares
(unaudited) were issued to DeAnn Brunts, chief financial officer for $40
(unaudited) consideration. For accounting purposes, compensation expense of
$17,503 and $2,656 (unaudited) has been reflected in the accompanying Statement
of Operations during the period from November 9, 1998 (inception date) to
December 31, 1998 and the six months ended June 30, 1999, respectively.
Employee Incentive Compensation Plan:
The Company's Board of Directors and stockholders have adopted the Company's
Employee Incentive Compensation Plan (the "Incentive Plan"). Awards under this
plan may take the form of: (1) incentive stock options or non-qualified stock
options; (2) stock appreciation rights; (3) restricted or deferred stock; (4)
dividend equivalents; and (5) cash awards or other awards not otherwise
provided for, the value of which is based in whole or in part upon the value of
the common stock. Centerprise's compensation committee will administer the plan
and generally select the individuals who will receive awards as well as
determine the terms and conditions of those awards.
Upon adopting the Incentive Plan, Centerprise will reserve shares of common
stock for use in connection with the plan. The number of shares available for
use under the plan at any given time will not exceed fifteen percent of the
total number of shares of common stock outstanding at that time. Shares
attributable to awards which have expired, terminated, canceled or forfeited
are available for issuance for future awards.
Upon completion of the Offering, non-qualified stock options to purchase up
to 1,997,442 shares will be granted. Of such options, 1,922,000 will be
allocated among management of Centerprise and the employees of the Centerprise
Companies. The grants will be effective as of the date of the offering and each
option will have an exercise price equal to the initial public offering price.
These options will vest over periods ranging from three to five years and will
expire ten years from the date of grant or earlier if there is a termination of
employment.
The plan also provides for: (a) the automatic grant to each non-employee
director serving at the closing of the offering of an option to purchase 15,000
shares of common stock; and (b) after the offering, the automatic grant to each
non-employee director of an option to purchase 15,000 shares when the director
is initially elected. In addition, the plan provides for an automatic annual
grant to each non-employee director of an option to purchase 7,500 shares at
each annual meeting of stockholders following the offering. However, if the
first annual meeting of stockholders following a non-employee director's
initial election is within three months of the date of the election or
appointment, the non-employee director will not be granted an option at the
annual meeting. These options will have an exercise price per share equal to
the fair market value of a share at the date of grant, will expire at the
earlier of ten years from the date of grant or one year after termination of
service as a director, and will be immediately exercisable upon grant.
The Company intends to file a registration statement on Form S-8 under the
Securities Act registering the issuance of shares upon exercise of options
granted under the Incentive Plan.
Employee Stock Purchase Plan:
Centerprise has also adopted an employee stock purchase plan. For purposes
of such plan, generally the first day of each quarter will be the grant date
and the last day of each quarter will be the exercise date. On each exercise
date, payroll deductions credited to participants' accounts will be
automatically applied to the purchase price of Common Stock at a price per
share equal to 85 percent of the fair market value of the Common Stock on the
grant or exercise date, whichever is less. This will be accounted for as a
noncompensatory plan in accordance with Accounting Principles Board Opinion No.
25.
F-23
<PAGE>
CENTERPRISE ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Note 4--Related Party Transactions
As of December 31, 1998 and June 30, 1999, Centerprise has outstanding
payables to related parties of $892 and $2,790 (unaudited), respectively, due
to BGL Capital and CCP Group, initial investors in the Company. These payables
represent consulting expenses, out-of-pocket expenses and legal and accounting
fees, of which $1,447 has been capitalized to date as deferred offering costs
and all remaining amounts have been expensed in the Statement of Operations in
the periods from November 9 (inception date) through December 31, 1998 and the
six months ended June 30, 1999. Of these payables, $547 and $2,445 (unaudited)
were funded by BGL Capital as of December 31, 1998 and June 30, 1999,
respectively.
Note 5--Subsequent Events
Centerprise has signed definitive agreements to acquire all of the
outstanding common stock of ten companies ("Centerprise Companies") to be
consummated contemporaneously with this Offering. The Centerprise Companies are
Reznick Fedder & Silverman, P.C. ("Reznick"); Robert F. Driver Co., Inc.
("Driver"); Mann Frankfort Stein & Lipp, P.C. ("Mann Frankfort"); Follmer
Rudzewicz & Company, P.C. ("Follmer"); Berry, Dunn, McNeil & Parker, Chartered
("Berry Dunn"); Urbach Kahn & Werlin, P.C. ("Urbach"); Self Funded Benefits,
Inc. D/B/A Insurance Design Administrators ("IDA"); Grace & Company, P.C.
("Grace"); the Reppond Companies ("Reppond"); and Simione, Scillia, Larrow &
Dowling LLC ("Simione").
Concurrently with and as a condition to closing of the Offering, Centerprise
will acquire all of the outstanding common stock of the Centerprise Companies.
The Mergers will be accounted for using the purchase method of accounting with
Centerprise being treated as the accounting acquiror in accordance with Staff
Accounting Bulletin No. 97 and Accounting Principles Board Opinion No. 16.
The following table reflects the consideration to be paid in cash,
promissory notes and shares of Common Stock:
<TABLE>
<CAPTION>
Promissory Shares of
Cash(1) Notes Common Stock
------- ---------- ------------
<S> <C> <C> <C>
Reznick.................................... $16,899 $ -- 1,810,554
Driver..................................... 500 -- 2,944,445
Mann Frankfort............................. 19,223 -- 2,059,629
Follmer.................................... 14,416 -- 1,544,571
Berry Dunn................................. 6,821 -- 931,357
Urbach..................................... 10,006 -- 1,149,014
IDA........................................ 7,814 -- 837,240
Grace...................................... 2,840 -- 304,286
Reppond.................................... -- 4,176 447,428
Simione.................................... 4,297 -- 460,457
------- ------ ----------
Total.................................. $82,816 $4,176 12,488,981
======= ====== ==========
</TABLE>
- --------
(1) In addition to the consideration set forth in the table, the former
stockholders of Driver will be entitled to receive a contingent cash
payment equal to 6.75 times the amount, if any, by which Driver's adjusted
F-24
<PAGE>
CENTERPRISE ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
earnings before interest, taxes, depreciation and amortization ("EBITDA")
for 2000 exceed $11,600. The former stockholders of IDA will be entitled to
a contingent cash payment equal to the lesser of (a) $3,415 and (b) 6.75
times the amount, if any, by which IDA's adjusted EBITDA for 2000 exceeds
$3,155. The former stockholders of Reppond will be entitled to receive a
contingent cash payment which will be calculated with respect to a
specified twelve month period ending in 2003 and based on the amount by
which the adjusted EBITDA of Centerprise's employee benefits business
(excluding IDA) exceeds specified thresholds. One of Reppond's stockholders
will also be entitled to receive contingent cash payments with respect to
each of the first five twelve month periods following the closing of the
Mergers. Such payments will be based on the amount by which Reppond's
adjusted EBITDA for the applicable period exceeds specified thresholds.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, Centerprise is
requiring that the Centerprise Companies cease providing attest services prior
to the closing of the acquisition, if applicable. Following the closing, all
attest services formerly provided by the Centerprise Companies will be
provided by newly created separate legal entities (the Attest Firms) which
will be owned by former owners of the Centerprise Companies who are certified
public accountants. Pursuant to services agreements, Centerprise will provide
professional and other personnel, equipment, office space and business and
administrative services necessary to operate the Attest Firms.
On April 7, 1999, Centerprise filed a registration statement on Form S-1
for the Offering.
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Reznick Fedder & Silverman, P.C.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Reznick
Fedder & Silverman, P.C. (the Company) and its subsidiaries at September 30,
1997 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended September 30, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
January 29, 1999
F-26
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 30,
--------------- June 30,
1997 1998 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 3,962 $ 5,774 $ 4,944
Fees receivable, net of allowance for doubtful
accounts of $3,036, $3,526 and $3,128 (unau-
dited), respectively............................ 11,934 14,528 16,293
Unbilled fees, at net realizable value........... 1,932 2,542 7,308
Deferred income taxes............................ 2,035 1,752 1,589
Prepaid expenses and other current assets........ 242 244 130
------- ------- -------
Total current assets........................... 20,105 24,840 30,264
Property and equipment, net........................ 2,389 2,863 2,626
Cash surrender value of life insurance............. 580 558 683
Intangible assets, net............................. 414 403 391
Deferred income taxes.............................. 1,147 1,327 1,404
------- ------- -------
Total assets................................... $24,635 $29,991 $35,368
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt.................................. $ -- $ -- $ 1,400
Current portion of long-term debt................ 1,201 1,063 1,261
Accounts payable and accrued expenses............ 1,347 1,217 1,354
Accrued compensation and related costs to
employees....................................... 1,384 2,274 978
Accrued compensation and related costs to
shareholders.................................... 13,252 18,214 23,010
Deferred compensation due to former shareholders
and shareholder................................. 106 91 91
------- ------- -------
Total current liabilities...................... 17,290 22,859 28,094
Long-term debt..................................... 1,150 999 1,264
Deferred compensation due to former shareholders... 963 865 724
Accrued bonus...................................... 2,090 2,347 2,539
------- ------- -------
Total liabilities.............................. 21,493 27,070 32,621
------- ------- -------
Shareholders' equity:
Common stock, no par value; 10,000 shares
authorized;
2,900 shares issued and outstanding............. -- -- --
Additional paid-in capital....................... 1,422 1,422 1,422
Retained earnings................................ 1,720 1,499 1,325
------- ------- -------
Total shareholders' equity..................... 3,142 2,921 2,747
------- ------- -------
Total liabilities and shareholders' equity..... $24,635 $29,991 $35,368
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-27
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
CONSOLIDATED STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Nine Months
Ended September 30, Ended June 30,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Professional services........... $31,483 $35,103 $47,877 $37,809 $42,835
------- ------- ------- ------- -------
Expenses:
Shareholder and officer
compensation and related
costs.......................... 7,784 8,170 13,516 12,735 13,700
Employee compensation and
related costs.................. 17,477 19,617 25,792 18,856 22,394
Occupancy costs................. 1,977 2,363 2,746 2,038 2,121
Office operating expenses....... 669 958 1,020 796 931
Depreciation and amortization... 732 869 984 769 774
Other selling, general and
administrative expenses........ 2,853 3,340 3,752 2,650 3,130
------- ------- ------- ------- -------
31,492 35,317 47,810 37,844 43,050
------- ------- ------- ------- -------
Operating income (loss)....... (9) (214) 67 (35) (215)
------- ------- ------- ------- -------
Other (income) expense:
Interest expense................ 399 430 543 275 291
Interest income................. (53) (242) (40) (32) (78)
Other........................... (125) (122) (112) (55) (168)
------- ------- ------- ------- -------
221 66 391 188 45
------- ------- ------- ------- -------
Loss before benefit for income
taxes............................ (230) (280) (324) (223) (260)
Benefit for income taxes.......... (74) (81) (103) (63) (86)
------- ------- ------- ------- -------
Net loss.......................... $ (156) $ (199) $ (221) $ (160) $ (174)
======= ======= ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-28
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------- Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1995..... 2,000 $ -- $ 2 $2,946 $2,948
Issuance of common stock..... 100 -- -- -- --
Net loss..................... -- -- -- (156) (156)
----- ----- ------ ------ ------
Balance at September 30, 1996.. 2,100 -- 2 2,790 2,792
Issuance of common stock..... 100 -- -- -- --
Issuance of common stock
for acquisition............. 500 -- 1,420 -- 1,420
Declaration of deferred com-
pensation to
shareholder................. -- -- (449) (449)
Redemption of common stock... (100) -- -- (422) (422)
Net loss..................... -- -- -- (199) (199)
----- ----- ------ ------ ------
Balance at September 30, 1997.. 2,600 -- 1,422 1,720 3,142
Issuance of common stock..... 300 -- -- -- --
Net loss..................... -- -- -- (221) (221)
----- ----- ------ ------ ------
Balance at September 30, 1998.. 2,900 -- 1,422 1,499 2,921
Net loss (unaudited)......... -- -- -- (174) (174)
----- ----- ------ ------ ------
Balance at June 30, 1999
(unaudited)................... 2,900 $ -- $1,422 $1,325 $2,747
===== ===== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-29
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Nine Months
Ended September 30, Ended June 30,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activi-
ties:
Net loss........................ $ (156) $ (199) $ (221) $ (160) $ (174)
Adjustments to reconcile net in-
come to net cash
provided by (used in) operating
activities:
Depreciation and amortiza-
tion......................... 732 869 984 769 774
Changes in deferred income
taxes........................ 74 81 103 63 86
Changes in operating assets
and liabilities:
Fees receivable............. (1,273) (163) (2,594) (1,273) (1,765)
Unbilled fees............... (234) 64 (610) (4,788) (4,766)
Prepaid expenses and other
assets..................... 81 (215) 20 280 (11)
Accounts payable and accrued
expenses................... (119) 219 (130) (76) 137
Accrued compensation and re-
lated costs to employees... 552 (138) 890 (614) (1,296)
Accrued compensation and re-
lated costs to
shareholders............... 1,572 929 4,962 5,945 4,796
Accrued bonus............... 183 203 257 105 192
------- ------- ------- ------- -------
Net cash provided by (used
in) operating
activities............... 1,412 1,650 3,661 251 (2,027)
------- ------- ------- ------- -------
Cash flows from investing activi-
ties:
Purchase of property and equip-
ment........................... (684) (1,317) (1,447) (1,210) (525)
Business acquisition (net of
cash acquired)................. -- 9 -- -- --
------- ------- ------- ------- -------
Net cash used in investing
activities............... (684) (1,308) (1,447) (1,210) (525)
------- ------- ------- ------- -------
Cash flows from financing activi-
ties:
Proceeds from the issuance of
long-term debt................. 1,343 3,336 3,425 1,084 1,430
Payments of long-term debt...... (1,421) (2,716) (3,714) (1,079) (967)
Borrowings under short-term
debt........................... -- -- -- 1,000 1,400
Payments of short-term debt..... -- -- -- (1,000) --
Payments to former sharehold-
ers............................ (84) (111) (113) (65) (141)
Loan from shareholders.......... 643 641 647 647 897
Payments to shareholders........ (643) (641) (647) (647) (897)
------- ------- ------- ------- -------
Net cash (used in) pro-
vided by financing
activities............... (162) 509 (402) (60) 1,722
------- ------- ------- ------- -------
Net increase (decrease) in cash
and cash equivalents............. 566 851 1,812 (1,019) (830)
Cash and cash equivalents at be-
ginning of period................ 2,545 3,111 3,962 3,962 5,774
------- ------- ------- ------- -------
Cash and cash equivalents at end
of period........................ $ 3,111 $ 3,962 $ 5,774 $ 2,943 $ 4,944
======= ======= ======= ======= =======
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest...................... $ 268 $ 264 $ 209 $ 275 $ 291
Income taxes.................. $ -- $ -- $ -- $ -- $ --
Noncash transactions:
Value of common stock issued for
acquisition.................... $ -- $ 1,420 $ -- $ -- $ --
Reclassification of amounts due
to former shareholders and
shareholder from equity to lia-
bility......................... $ -- $ 871 $ -- $ -- $ --
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-30
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 1--BACKGROUND AND BUSINESS DESCRIPTION
Reznick Fedder & Silverman, P.C. (the Company) is a Maryland professional
service corporation, with approximately 500 professional staff members, which
provide professional accounting services. The firm has offices in Bethesda,
Maryland; Baltimore, Maryland; Charlotte, North Carolina; Boston,
Massachusetts; and Atlanta, Georgia.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
and balances are eliminated in consolidation.
Revenue Recognition:
The Company recognizes revenue as the related services are provided. The
Company bills clients based upon actual hours incurred on client projects at
expected net realizable rates per hour, plus any out-of-pocket expenses. The
cumulative impact of any subsequent revision in the estimated realizable value
of unbilled fees for a particular client project is reflected in the period in
which the change becomes known. Outstanding fees receivable are evaluated each
period to assess the adequacy of the allowance for doubtful accounts.
Unbilled Fees:
Unbilled fees represent the anticipated net realizable value for hours
incurred by the Company's professional and administrative staff, plus out-of-
pocket expenses, on projects which had not yet been billed to clients as of
period end.
Cash and Cash Equivalents:
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
Property and Equipment:
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization of property and equipment are
computed on the straight-line method over estimated useful asset lives (shorter
of asset life or lease term for leasehold improvements), generally ranging from
5 to 27.5 years. Expenditures for maintenance and repairs and minor renewals
and betterments which do not improve or extend the life of the respective
assets are expensed. All other expenditures for renewals and betterments are
capitalized. The assets and related depreciation accounts are adjusted for
property retirements and disposals with the resulting gain or loss included in
operations.
Asset Impairment Assessments:
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying value of such assets may not be fully
recoverable. An impairment is recognized to the extent that the
F-31
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
sum of undiscounted estimated future cash flows expected to result from use of
the assets is less than the carrying value. If an impairment is recognized the
carrying value of the impaired asset is reduced to its fair value. No
impairment has been recognized through September 30, 1998.
Intangible Assets:
Intangible assets consist of goodwill, which represents the excess of cost
over the fair value of assets acquired in business combinations accounted for
under the purchase method. Substantially all goodwill is amortized on a
straight-line basis over an estimated useful life of 40 years.
Fair Value of Financial Instruments:
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, fees receivable, accounts payable and accrued liabilities
and debt approximate fair value.
Income Taxes:
Income taxes have been computed using the asset and liability approach.
Under this approach, deferred income tax assets and liabilities are determined
based on the differences between the financial statement and tax basis of asset
and liabilities using currently enacted tax rates in effect for the years in
which the differences are expected to reverse.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of fees receivable. Receivables
arising from services provided to clients are not collateralized and, as a
result, management continually monitors the financial condition of its clients
to reduce the risk of loss.
Use of Estimates:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amount of revenues
and expenses during the reporting period. While management believes that the
estimates and related assumptions used in the preparation of the consolidated
financial statements are appropriate, actual amounts could differ from those
estimates. Estimates are made when accounting for allowances for doubtful
accounts, depreciation and amortization, and income taxes.
Unaudited Interim Financial Statements:
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company at June 30, 1999, and the
results of its operations and its cash flows for the nine months ended June 30,
1998 and 1999, as presented in the accompanying unaudited interim financial
statements.
F-32
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 3--BUSINESS COMBINATION
Effective August 1, 1997, the Company issued 500 shares of its common stock
in exchange for all the outstanding common stock of Sacks, McGibney, Trotta &
Koppelman, P.A. (SMTK), a Maryland professional corporation engaged in
providing accounting, attestation, tax and consulting services principally to
clients in the healthcare industry. The merger has been accounted for using the
purchase method of accounting whereby the total acquisition cost has been
allocated to the consolidated assets and liabilities based upon their estimated
respective fair values. The total acquisition cost is allocated to the acquired
net assets as follows:
<TABLE>
<S> <C>
Cash.............................................................. $ 9
Accounts receivable............................................... 1,804
Property and equipment............................................ 133
Goodwill.......................................................... 414
Accrued expenses.................................................. (151)
Notes payable..................................................... (375)
Accrued bonus..................................................... (414)
------
Value of stock issued............................................. $1,420
======
</TABLE>
Unaudited pro forma results of operations of the Company for the years ended
September 30, 1996 and 1997 are included below. Such pro forma presentation has
been prepared assuming that the SMTK acquisition had occurred as of October 1,
1995 and 1996, respectively.
<TABLE>
<CAPTION>
September 30,
---------------
1996 1997
------- -------
<S> <C> <C>
Revenues.................................................. $38,849 $39,426
Net income................................................ 864 (536)
</TABLE>
F-33
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 4--SELECTED FINANCIAL STATEMENT INFORMATION
Additional information concerning consolidated financial accounts includes
the following:
<TABLE>
<CAPTION>
September 30,
---------------- June 30,
1997 1998 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Property and equipment, net:
Leasehold improvements................... $ 506 $ 589 $ 553
Furniture and fixtures................... 1,941 2,307 2,481
Land..................................... 67 67 67
Buildings................................ 460 445 445
Equipment................................ 2,712 3,322 2,820
------- ------- -------
5,686 6,730 6,366
Less accumulated depreciation and
amortization.............................. (3,297) (3,867) (3,740)
------- ------- -------
$ 2,389 $ 2,863 $ 2,626
======= ======= =======
Intangible assets, net:
Goodwill................................. $ 414 $ 414 $ 414
Less accumulated amortization............ -- (11) (23)
------- ------- -------
$ 414 $ 403 $ 391
======= ======= =======
Accounts payable and accrued liabilities:
Accrued insurance........................ $ 253 $ 353 $ 709
Accrued rent............................. 389 296 222
Accrued legal............................ 250 250 --
Other.................................... 455 318 423
------- ------- -------
$ 1,347 $ 1,217 $ 1,354
======= ======= =======
</TABLE>
NOTE 5--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a rollforward of activity within the allowance for doubtful
accounts:
<TABLE>
<CAPTION>
Year Ended September Nine Months
30, Ended
------------------------- June 30,
1996 1997 1998 1999
------- ------- ------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of period........... $ 1,923 $ 2,116 $ 3,036 $ 3,526
Additions to costs and expenses.......... 4,916 6,805 8,617 4,225
Write-offs............................... (4,723) (5,885) (8,127) (4,623)
------- ------- ------- -------
Balance at end of period................. $ 2,116 $ 3,036 $ 3,526 $ 3,128
======= ======= ======= =======
</TABLE>
F-34
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 6--COMPENSATION--RELATED ACCRUALS
Accrued Bonus:
Upon termination or as otherwise determined by the Shareholders or the
Executive Committee, each shareholder or non-shareholder officer receives a
bonus (the "accrued bonus") which is calculated as follows: (1) if the
shareholder or non-shareholder officer held that position since October 1, 1985
or earlier, $250, except for one individual for whom the amount of accrued
bonus is $500 or (2) if the shareholder or non -shareholder officer has held
that position after October 1, 1985, 10 percent of the total cash compensation
paid him during the time he has been a shareholder or non-shareholder officer,
provided that the individual has held the position of shareholder or non-
shareholder officer for at least two years as of the date that the amount
becomes payable, and in no event will the bonus exceed $100.
Net accrued bonus cost for the Company includes the following components:
<TABLE>
<CAPTION>
Fiscal Year Ended
September 30,
-----------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Service cost............................................ $ 17 $ 30 $ 49
Interest cost........................................... 114 121 156
Amortization of prior service cost...................... 53 53 53
----- ----- -----
Net deferred compensation cost.......................... $ 184 $ 204 $ 258
===== ===== =====
</TABLE>
Assumptions used in the development of pension data follow:
<TABLE>
<CAPTION>
Fiscal Year Ended
September 30,
---------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Discount rate........................................ 7.0% 7.0% 7.0%
</TABLE>
The Company's accrued bonus plan is currently not funded. The following
table presents the status of the Company's accrued bonus benefits:
<TABLE>
<CAPTION>
September 30,
----------------
1997 1998
------- -------
<S> <C> <C>
Projected benefit obligation............................ $ 2,595 $ 2,267
------- -------
Funded status........................................... (2,595) (2,267)
Unrecognized prior service cost......................... 210 158
Unrecognized (gain) loss................................ 295 (238)
------- -------
Accrued deferred compensation cost...................... $(2,090) $(2,347)
======= =======
</TABLE>
Amounts Due to Former Shareholders and Shareholder:
Annually, each shareholder is allocated accrued compensation (as defined in
the Shareholders' Agreement). Accrued compensation bears interest at 7 percent
per annum. To the extent that each shareholder's balance exceeds $200, interest
is expensed and paid to the shareholder. Unpaid interest is included in the
accrued compensation to shareholders account balance.
F-35
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Upon termination or as otherwise determined by the shareholders or the
Executive Committee, the unpaid balance of accrued compensation and interest is
transferred to amounts due to former shareholders and shareholder and bears
interest at the rate of 10 percent, except in the case of voluntary
termination, in which case the interest rate is 7 percent. The unpaid portion
of the accrued compensation is paid in equal monthly installments of principal
and interest in an amount equal to one-quarter of the individual's average
monthly compensation for the last five years of employment. The period of
payment for the accrued compensation shall be the shorter of the period
resulting from the computation of payments or fifteen years (and the
amortization of payments shall be determined accordingly).
NOTE 7--CREDIT FACILITIES
Short-Term Debt:
The Company has a Short-Term Credit Agreement which allows for cash
borrowings at prime rate of up to $3,500. The Short-Term Credit Agreement
expires on November 27, 1999. Upon expiration, the Short-Term Credit Agreement
may be renewed, with the consent of the bank. No cash borrowings were
outstanding under this agreement at September 30, 1997 or 1998. At June 30,
1999, $1,400 (unaudited) was outstanding under this agreement. This agreement
is fully collateralized through the Company's current accounts receivable.
Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
---------------- June 30,
1997 1998 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Loans from bank.............................. $ 1,687 $ 1,719 $2,250
Mortgage loans............................... 289 281 275
Note payable................................. 125 62 --
Note payable to bank......................... 250 -- --
------- ------- ------
2,351 2,062 2,525
Less current portion......................... (1,201) (1,063) (1,261)
------- ------- ------
Total...................................... $ 1,150 $ 999 $1,264
======= ======= ======
</TABLE>
The loans from bank bear interest at variable and fixed rates ranging from
8.18 percent to 8.9 percent. The loans allow for borrowing to a specified limit
until a point in time. At that point in time, the loans are repaid in monthly
installments of principal and interest rates ranging from prime to prime plus 1
percent. The loan agreements include customary representations and restrictive
covenants.
Mortgage loans bear interest at fixed rates ranging from 7.75 percent to
9.25 percent. Principal and interest payments are paid monthly over a 30-year
period. Real property is pledged as collateral for these loans.
In connection with the SMTK acquisition (Note 3), the Company assumed a note
payable maturing on March 1, 1999. The total amount owed at the date of
acquisition was $125.
F-36
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Assumed in the SMTK acquisition (Note 3), the note payable to the bank is a
$450 revolving credit facility that bears interest at the bank's prime rate
plus 1 percent. The balance is due upon demand. Interest is payable monthly.
The entire balance is collateralized by accounts receivable and equipment of
SMTK.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal Year:
------------
<S> <C>
1999................................................................ $1,063
2000................................................................ 664
2001................................................................ 206
2002................................................................ 32
2003................................................................ 32
Thereafter.......................................................... 65
------
Total............................................................. $2,062
======
</TABLE>
Interest expense was $209, $264, $268, $275 (unaudited) and $291 (unaudited)
for the fiscal years ended September 30, 1996, 1997 and 1998 and the nine
months ended June 30, 1998 and 1999, respectively.
NOTE 8--INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
Fiscal Year Nine Months
Ended September Ended
30, June 30,
----------------- ------------
1996 1997 1998 1998 1999
---- ---- ----- ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Deferred tax benefit:
Federal................................ $(64) $(71) $ (90) $ (55) $ (76)
State.................................. (10) (10) (13) (8) (10)
---- ---- ----- ----- -----
Total benefit for income taxes....... $(74) $(81) $(103) $ (63) $ (86)
==== ==== ===== ===== =====
</TABLE>
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
September 30,
------------- June 30,
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Accrual to cash adjustment..................... $2,035 $1,752 $1,589
Accrued bonuses................................ 836 939 1,016
Depreciation................................... 280 367 367
Net operating loss carryforwards............... 31 21 21
------ ------ ------
Net deferred tax assets.......................... $3,182 $3,079 $2,993
====== ====== ======
Net current deferred tax asset................... $2,035 $1,752 $1,589
Net long-term deferred tax asset................. 1,147 1,327 1,404
------ ------ ------
Net deferred tax asset........................... $3,182 $3,079 $2,993
====== ====== ======
</TABLE>
F-37
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
The Company's effective rate varied from the U.S. statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
Nine
Fiscal Year Months
Ended Ended
September 30, June 30,
------------------ --------------
1996 1997 1998 1998 1999
---- ---- ---- ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Statutory rate.......................... (35)% (35)% (35)% (35)% (35)%
Non-temporary differences:
State tax............................. (5) (5) (5) (5) (5)
Non-deductible items.................. 8 11 8 12 7
--- --- --- ----- -----
Total provision..................... (32)% (29)% (32)% (28)% (33)%
=== === === ===== =====
</TABLE>
NOTE 9--LEASE COMMITMENTS
The Company leases office space at five locations. The Company's main office
in Bethesda, Maryland is an eleven-year lease expiring on October 31, 2001 with
two five-year options to renew and a four-year sublease agreement expiring July
30, 2000. The Company's Baltimore, Maryland office is leased under a ten-year
lease expiring on October 31, 2007 with two five-year options to renew. The
Company's Charlotte, North Carolina office has exercised their second one-year
option to renew their original ten-year lease, extending the expiration to
September 30, 2000. The Company's Boston, Massachusetts office is a five-year
lease with one five-year option to renew. The Company's Atlanta, Georgia office
is leased under a seven-year lease expiring on November 30, 2004 with one five-
year option to renew. All leases are subject to future periodic adjustments to
reflect the increases in operating expenses incurred by the lessor. The Company
has entered into other lease agreements with unrelated parties with various
base rents and terms in connection with photocopiers utilized at the Company's
five offices.
Future minimum lease payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
Fiscal Year:
------------
<S> <C>
1999............................................................... $ 2,935
2000............................................................... 3,111
2001............................................................... 2,641
2002............................................................... 1,223
2003............................................................... 1,114
Thereafter......................................................... 3,020
-------
Total............................................................ $14,044
=======
</TABLE>
Rent expense for all operating leases for the fiscal years ended September
30, 1996, 1997 and 1998 and the nine months ended June 30, 1998 and 1999 was
approximately $1,977, $2,363, $2,745, $2,038 (unaudited) and $2,120
(unaudited), respectively.
F-38
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 10--EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit sharing plan (Plan) for substantially all
employees. The amended and restated provisions of the Plan became effective in
July, 1997. The Company makes annual matching contributions to the savings plan
equaling 50 percent of the amount of salary reduction elected by the employee
which does not exceed 5 percent of the employee's annual compensation subject
to 20 percent vesting per year over a 5 year period based upon years of
service. The Company may amend or terminate the Plan at any time; however, no
such indication to terminate the Plan has been made.
Contributions by the Company for eligible employees to the Plan for the
years ended September 30, 1996, 1997 and 1998 and the nine months ended June
30, 1998 and 1999 totaled $179, $254, $317, $212 (unaudited) and $395
(unaudited), respectively.
NOTE 11--COMMON STOCK
The Company has authorized capital stock consisting of 10,000 shares of
common stock with no par value. Each shareholder or non-shareholder officer
earns one vote per year at the beginning of each of his first six years as a
shareholder or non-shareholder officer. In no event shall a shareholder or non-
shareholder officer have more than six votes.
NOTE 12--COMMITMENTS AND CONTINGENCIES
Litigation:
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
NOTE 13--SUBSEQUENT EVENTS (UNAUDITED)
In March 1999, the Company and its shareholders entered into a definitive
agreement with Centerprise Advisors, Inc. (Centerprise) pursuant to which,
following the conversion of the Company from a professional corporation to a
business corporation, a wholly-owned subsidiary of Centerprise will merge with
and into the Company. All of the Company's outstanding shares will be exchanged
for cash and common stock of Centerprise concurrently with the consummation of
the initial public offering of the common stock of Centerprise.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, Centerprise is requiring
that the Company cease providing attest services prior to the closing of the
acquisition. Following the closing, all attest services formerly provided by
the Company will be provided by a newly created separate legal entity (the
Attest Firm) which will be owned by former owners of the Company who are
certified public accountants. Pursuant to a services agreement, Centerprise
will provide professional and other personnel, equipment, office space and
business and administrative services necessary to operate the Attest Firm.
F-39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Robert F. Driver Co., Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Robert F.
Driver Co., Inc. and its subsidiaries at July 31, 1998 and 1999, and the
results of their operations and their cash flows for the periods from August 1,
1997 through May 31, 1998 (date of acquisition of the predecessor company) and
June 1, 1998 through July 31, 1998 and the fiscal year ended July 31, 1999, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
September 17, 1999
F-40
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Robert F. Driver Co., Inc.:
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Robert F. Driver Co., Inc. and
subsidiaries (the Company) for the year ended July 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Robert F. Driver Co., Inc. and subsidiaries for the year ended July 31, 1997,
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
KPMG LLP
San Diego, California
September 10, 1997
F-41
<PAGE>
ROBERT F. DRIVER CO., INC.
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
July 31,
----------------
1998 1999
------- -------
(Successor
Company)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 2,356 $ 2,315
Premium trust cash......................................... 22,855 30,380
Insurance premiums receivable.............................. 11,665 24,076
Other current assets....................................... 1,935 243
------- -------
Total current assets..................................... 38,811 57,014
Property and equipment, net.................................. 1,151 1,216
Goodwill, net................................................ 17,895 28,107
Customer lists acquired, net................................. 826 714
Deferred income taxes........................................ 889 237
Other assets................................................. 800 396
------- -------
Total assets............................................. $60,372 $87,684
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt............................................ $ 253 $ 4,265
Current portion of long-term debt.......................... 1,267 2,605
Accounts payable and accrued expenses...................... 6,005 5,604
Insurance premiums payable................................. 26,250 46,219
Income taxes payable....................................... 616 462
------- -------
Total current liabilities................................ 34,391 59,155
Long-term debt, net of current portion....................... 14,263 15,229
Deferred compensation........................................ 1,331 26
------- -------
Total liabilities........................................ 49,985 74,410
------- -------
Class A redeemable preferred stock, $.01 par value: 5,000,000
shares authorized; 4,000 shares issued and outstanding at
July 31, 1998 and 1999; redeemable at $1,000 per share...... 4,000 4,000
------- -------
Commitments and contingencies
Common stockholders' equity:
Class A common stock, $.01 par value: authorized 10,000,000
shares; outstanding 738,540 shares at July 31, 1998 and
1,096,180 shares at July 31, 1999, respectively........... 7 11
Additional paid-in capital................................. 6,711 10,184
Retained earnings.......................................... 509 1,010
Unearned compensation...................................... -- (1,151)
------- -------
7,227 10,054
Stockholder notes receivable............................... (840) (780)
------- -------
Total stockholders' equity............................... 6,387 9,274
------- -------
Total liabilities and stockholders' equity............... $60,372 $87,684
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-42
<PAGE>
ROBERT F. DRIVER CO., INC.
CONSOLIDATED STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Period From
----------------------------
Fiscal Year August 1, 1997 June 1, 1998 Fiscal Year
Ended July Through Through Ended July
31, 1997 May 31, 1998 July 31, 1998 31, 1999
----------- -------------- ------------- -----------
(Predecessor Company) (Successor Company)
<S> <C> <C> <C> <C>
Revenues:
Commissions and fees.... $28,170 $24,446 $8,440 $41,607
------- ------- ------ -------
Expenses:
Producer compensation... 12,965 11,630 3,792 16,250
Employee compensation
and related costs...... 7,433 6,760 1,715 13,438
Occupancy costs......... 1,378 1,144 230 1,891
Office operating
expenses............... 759 650 230 1,063
Depreciation and
amortization........... 463 656 337 1,941
Other selling, general
and administrative
expenses............... 3,948 2,162 1,222 3,924
------- ------- ------ -------
26,946 23,002 7,526 38,507
------- ------- ------ -------
Operating income...... 1,224 1,444 914 3,100
------- ------- ------ -------
Other (income) expense:
Interest expense........ 42 36 220 1,995
Interest income......... (654) (599) (193) (824)
Other................... (213) (161) (6) (239)
------- ------- ------ -------
(825) (724) 21 932
------- ------- ------ -------
Income before provision
for income taxes......... 2,049 2,168 893 2,168
Provision for income
taxes.................... 933 970 384 1,327
------- ------- ------ -------
Net income................ $ 1,116 $ 1,198 $ 509 $ 841
======= ======= ====== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-43
<PAGE>
ROBERT F. DRIVER CO., INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Class A
Common Stock Common Stock Additional Stockholder Unearned Total
---------------- ------------------- Paid-In Retained Unearned Notes ESOP Stockholders'
Shares Amount Shares Amount Capital Earnings Compensation Receivable Contributions Equity
--------- ------ ---------- ------- ---------- -------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July
31, 1996........ -- $ -- 1,018,672 $ 1,019 $ 9 $ 2,405 $ -- $ -- $ (765) $ 2,668
Net income...... -- -- -- -- -- 1,116 -- -- -- 1,116
Stock issued.... -- -- 21,081 21 418 -- -- -- -- 439
Stock
repurchased and
retired........ -- -- (8,185) (8) (9) (153) -- -- -- (170)
Advances and
unearned
contributions
to ESOP........ -- -- -- -- -- -- -- -- (400) (400)
Allocation of
contributions
to ESOP........ -- -- -- -- -- -- -- -- 800 800
--------- ----- ---------- ------- ------- ------- ------- ------- ------ -------
Balance at July
31, 1997........ -- -- 1,031,568 1,032 418 3,368 -- -- (365) 4,453
Net income...... -- -- -- -- -- 1,198 -- -- -- 1,198
Stock issued.... -- -- 500 1 10 -- -- -- -- 11
Stock
repurchased and
retired........ -- -- (4,699) (6) (128) -- -- -- -- (134)
Advances to
ESOP........... -- -- -- -- -- -- -- -- (542) (542)
Repayment of
advances to
ESOP........... -- -- -- -- -- -- -- -- 907 907
Adjustment of
Predecessor
Company balance
due to
leveraged
buyout......... -- -- (1,027,369) (1,027) (300) (4,566) -- -- -- (5,893)
Capitalization
of
Successor
Company........ 444,301 4 -- -- 3,772 -- -- -- -- 3,776
Issuance of
Class A
Common Stock... 294,239 3 -- -- 2,939 -- -- (1,183) -- 1,759
--------- ----- ---------- ------- ------- ------- ------- ------- ------ -------
Balance at May
31, 1998........ 738,540 7 -- -- 6,711 -- -- (1,183) -- 5,535
Net income...... -- -- -- -- -- 509 -- -- -- 509
Payments on
stockholder
notes
receivable..... -- -- -- -- -- -- -- 343 -- 343
--------- ----- ---------- ------- ------- ------- ------- ------- ------ -------
Balance at July
31, 1998........ 738,540 7 -- -- 6,711 509 -- (840) -- 6,387
Net income...... -- -- -- -- -- 841 -- -- -- 841
Issuance of
Class A
Common Stock... 357,640 4 -- -- 3,198 -- (1,151) -- -- 2,051
Issuance of
warrants....... -- -- -- -- 275 -- -- -- -- 275
Dividends....... -- -- -- -- -- (340) -- -- -- (340)
Forgiveness of
stockholder
notes
receivable..... -- -- -- -- -- -- -- 60 -- 60
--------- ----- ---------- ------- ------- ------- ------- ------- ------ -------
Balance at July
31, 1999........ 1,096,180 $ 11 -- $ -- $10,184 $ 1,010 $(1,151) $ (780) $ -- $ 9,274
========= ===== ========== ======= ======= ======= ======= ======= ====== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-44
<PAGE>
ROBERT F. DRIVER CO., INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Period From
----------------------------
Fiscal Year August 1, 1997 June 1, 1998 Fiscal Year
Ended Through Through Ended
July 31, 1997 May 31, 1998 July 31, 1998 July 31, 1999
------------- -------------- ------------- -------------
(Predecessor Company) (Successor Company)
<S> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income............. $1,116 $ 1,198 $ 509 $ 841
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Stock based
compensation........ -- -- -- 1,167
Depreciation and
amortization........ 463 656 337 1,941
Change in deferred
income taxes........ (342) (217) (239) 652
Accretion of discount
on debt............. -- -- -- 195
Changes in operating
assets and
liabilities:
Premium trust
cash.............. (4,788) 7,348 (8,150) (6,799)
Insurance premiums
receivable........ 801 (3,636) 659 (11,347)
Other assets....... 301 (579) (157) 88
Accounts payable
and accrued
expenses.......... 17 (870) 1,972 (1,126)
Insurance premiums
payable........... 2,129 (2,797) 5,377 18,579
Income taxes
payable........... 139 249 111 (181)
Deferred
compensation...... 590 500 241 (1,305)
------ -------- ------- -------
Net cash provided
by operating
activities....... 426 1,852 660 2,705
------ -------- ------- -------
Cash flows from
investing activities:
Purchase of predecessor
company............... -- (17,064) -- --
Purchase business
combinations.......... -- -- -- (4,674)
Purchases of equipment
and leasehold
improvements.......... (351) (479) (51) (692)
Collections on notes
receivable............ 49 -- -- --
Purchase of customer
lists................. (193) -- -- --
Other.................. 4 -- -- (145)
------ -------- ------- -------
Net cash used in
investing
activities....... (491) (17,543) (51) (5,511)
------ -------- ------- -------
Cash flows from
financing activities:
Proceeds from debt
issuance.............. -- 16,178 -- --
Proceeds from revolving
line of credit........ -- 253 -- 1,725
Principal payments on
debt.................. (294) (1,027) (202) (1,326)
Repurchase of common
stock................. (170) -- -- --
Proceeds from issuance
of common stock
warrants.............. -- 730 -- --
Proceeds from issuance
of common stock....... -- -- -- 942
Payments received on
stockholder notes..... -- -- 343 1,764
Dividends paid......... -- -- -- (340)
Contributions
(advances) to ESOP.... 400 (542) -- --
Repayment received from
ESOP.................. -- 907 -- --
------ -------- ------- -------
Net cash (used in)
provided by
financing
activities....... (64) 16,499 141 2,765
------ -------- ------- -------
Net (decrease) increase
in cash and cash
equivalents............ (129) 808 750 (41)
Cash and cash
equivalents at
beginning of period.... 927 798 1,606 2,356
------ -------- ------- -------
Cash and cash
equivalents at end of
period................. $ 798 $ 1,606 $ 2,356 $ 2,315
====== ======== ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-45
<PAGE>
ROBERT F. DRIVER CO., INC.
CONSOLIDATED STATEMENT OF CASH FLOWS--(Continued)
(In Thousands)
<TABLE>
<CAPTION>
Period From
Fiscal Year ---------------------------- Fiscal Year
Ended August 1, 1997 June 1, 1998 Ended
July 31, 1997 Through Through July 31, 1999
------------- May 31, 1998 July 31, 1998 --------------
-------------- -------------
(Predecessor Company) (Successor Company)
<S> <C> <C> <C> <C>
Supplementary
disclosures of cash
flow information:
Cash payments for:
Interest........... $ 42 $ 36 $ 220 $ 1,557
Income taxes....... $ 1,135 $ 512 $ 938 $ 954
Supplementary
disclosure of noncash
investing activities:
The Company's
business
acquisitions
involved the
following:
Fair value of
assets acquired
other than cash
and cash
equivalents....... $ 1,166 $ 30,230 $ -- $12,814
Liabilities
assumed........... (1,184) (26,957) -- (7,865)
Issuance of common
stock warrants for
advisory fees
relating to
acquisitions...... -- -- -- (275)
------- -------- ----- -------
Net assets
(liabilities)
assumed, other
than cash and
cash
equivalents..... $ (18) $ 3,273 $ -- $ 4,674
======= ======== ===== =======
Supplementary
disclosure of noncash
financing activities:
Issuance of common
stock for
acquisitions........ $ 439 $ 3,776 $ -- $ 1
Debt issued to
selling shareholders
in acquisitions..... $ 219 $ 455 $ -- $ 5,510
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-46
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Share and Per Share)
NOTE 1--BACKGROUND AND BUSINESS DESCRIPTION
Robert F. Driver Co., Inc. and subsidiaries (the Company) operates general
insurance agencies in California and Texas with minimal activity in Nevada. The
Company has five wholly-owned subsidiaries, FHI Benefit Plans, Inc., Robert F.
Driver of Nevada, Inc. and Cal-Central Insurance and Management Services, Inc.
(Cal-Central), Averbeck Company Insurance Brokers, and Sher Company Insurance
Services. The Company purchased four entities during fiscal 1999 (see Note 4).
NOTE 2--BASIS OF PRESENTATION
Effective May 31, 1998, Robert F. Driver Co., Inc. (Driver or the
Predecessor Company) was acquired by RFDC Acquisition Corporation (RFDC) (the
Transaction), a holding company formed by certain members of management for the
purpose of completing the Transaction. RFDC purchased all of the outstanding
shares of Driver, merged with Driver and then canceled all of Driver's shares.
RFDC then changed its name to Robert F. Driver Co., Inc. This merged entity is
hereinafter referred to as the Company. The Transaction was accounted for under
the purchase method of accounting for financial reporting purposes, and the
purchase price of approximately $25.2 million has been allocated to the
underlying net assets acquired. The Transaction has resulted in the Company
having substantial goodwill and debt.
As a result of the Transaction, the financial position and results of
operations of the Company subsequent to the Transaction are not necessarily
comparable to the financial position and results of operations of the Company
prior to the Transaction. In the accompanying consolidated financial
statements, the Company's results of operations prior to the Transaction are
indicated as relating to the "Predecessor Company" while the financial position
and results of operations subsequent to the Transaction are indicated as
relating to the "Successor Company." Amounts reported for financial reporting
purposes in fiscal 1998 represent the activity of the Successor Company
beginning June 1, 1998.
In connection with accounting for the Transaction, the Company applied the
provisions of Emerging Issues Task Force Issue 88-16, "Basis in Leveraged
Buyout Transactions" (EITF 88-16), whereby the carryover equity interests of
certain stockholders from the Predecessor Company to the Successor Company were
recorded at their predecessor basis. The remaining interests were recorded at
the fair value of the Predecessor Company.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Revenue Recognition:
The Company recognizes commission income principally on the later of the
effective date of the policy or the billing date. Commissions on premiums
billed and collected directly by the insurance company are principally
recognized as income when received by the Company. Contingent commissions are
recorded when received. Service fee income is recognized as earned, which is
ordinarily over the period in which the services are provided.
F-47
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Share and Per Share)
Cash and Cash Equivalents:
The Company considers all highly liquid investments purchased, such as money
market accounts, with an original maturity of three months or less to be cash
equivalents.
Premium Trust Cash:
Premiums collected but not yet remitted to insurance companies are
restricted as to use by law. The Company maintains segregated fiduciary funds
in accordance with the requirements of the California Insurance Commissioner.
Property and Equipment:
Property and equipment are carried at cost, less accumulated depreciation.
Depreciation of property and equipment is computed on the straight-line method
over estimated useful asset lives generally ranging from 3 to 7 years.
Expenditures for maintenance and repairs and minor renewals and betterments
which do not improve or extend the life of the respective assets are expensed.
All other expenditures for renewals and betterments are capitalized. The assets
and related depreciation accounts are adjusted for retirements and disposals
using the specific identification method, with the resulting gain or loss
included in operations.
Intangible Assets:
Goodwill is being amortized over forty years on a straight-line basis.
Customer lists are amortized on a straight-line basis over the ten-year
estimated useful life of the asset. Deferred organization costs were amortized
over fourteen months on a straight-line basis, and deferred finance costs are
being amortized over the life of each loan. The realizability of intangibles is
evaluated periodically for recoverability.
Asset Impairment Assessments:
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying value of such assets may not be fully
recoverable. An impairment is recognized to the extent that the sum of
undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. If an impairment is recognized, the
carrying value of the impaired asset is reduced to its fair value. No
impairment has been recognized through July 31, 1999.
Income Taxes:
The Company files its federal income tax return and a California franchise
tax return on a consolidated basis.
Income taxes have been computed using the asset and liability approach.
Under this approach, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and the tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that are currently in effect.
Concentrations of Credit Risk:
During 1999, a substantial portion of the Company's commissions and fees
were received from insureds in the state of California. Accordingly, the
occurrence of adverse economic conditions or an adverse
F-48
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Share and Per Share)
regulatory climate in California could have a material adverse effect on the
Company. However, the Company believes, based on its diversified customer base
and product lines, that there is minimal risk of a material adverse occurrence
due to the concentration of operations in California.
Financial instruments, which potentially subject the Company to significant
concentrations of credit risk, consist principally of cash investments.
The Company maintains cash and cash equivalents with various major financial
institutions. The Company performs periodic evaluations of the relative credit
standings of these financial institutions. The Company limits the amount of
risk by selecting financial institutions with a strong relative credit
standing.
Fair Value of Financial Instruments:
The carrying amount of the Company's financial instruments including cash
and cash equivalents, premium trust cash, insurance premiums receivable,
accounts payable, insurance premiums payable, accrued expenses, debt and
deferred compensation approximate their fair value as these items are either
liquid, short-term in nature or their current rates approximate market rates.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. While management believes that the estimates and related
assumptions used in the preparation of the financial statements are
appropriate, actual results could differ from those estimates. Estimates are
made when accounting for the allowances for doubtful accounts and depreciation.
Reclassifications:
Certain reclassifications have been made to fiscal 1997 and 1998 financial
statements to conform to current year presentation. The reclassifications have
no impact on previously reported net income or stockholders' equity.
NOTE 4--BUSINESS COMBINATIONS
The Company completed one business combination during the year ended July
31, 1997 and four business combinations during the year ended July 31, 1999,
which have been accounted for under the purchase method of accounting. The
consolidated financial statements and related notes to the consolidated
financial statements include the results of these acquired entities from their
respective dates of acquisition.
F-49
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Share and Per Share)
The Company issued common stock, warrants and cash in connection with these
business combinations. The purchase consideration has been allocated to
tangible and intangible assets acquired and liabilities assumed based on the
fair market values on the date of the respective acquisitions. The fair values
of the assets acquired and liabilities assumed at the dates of acquisition were
as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31,
------------------
1997 1999
-------- --------
<S> <C> <C>
Cash........................................................ $ 4 $ --
Premium trust cash.......................................... 903 726
Insurance premiums receivable............................... 215 1,064
Other current assets........................................ -- 34
Equipment................................................... 48 177
Goodwill.................................................... -- 10,665
Customer list............................................... 453 --
Deferred income taxes....................................... -- 52
Other assets................................................ -- 97
Short-term debt............................................. -- (2,305)
Current portion of long-term debt........................... -- (884)
Accounts payable and accrued expenses....................... (52) (725)
Insurance premiums payable.................................. (1,084) (1,390)
Long-term debt.............................................. (48) (2,535)
Income taxes payable........................................ -- (27)
-------- --------
Net assets acquired....................................... $ 439 $ 4,949
======== ========
These acquisitions were funded as follows:
Common stock, 21,081 shares (fiscal 1997)................. $ 439 $ --
Cash, net of cash acquired................................ -- 4,674
Common stock warrants..................................... -- 275
-------- --------
$ 439 $ 4,949
======== ========
</TABLE>
F-50
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Share and Per Share)
NOTE 5--SELECTED FINANCIAL STATEMENT INFORMATION
<TABLE>
<CAPTION>
July 31,
----------------
1998 1999
------- -------
(Successor
Company)
<S> <C> <C>
Other current assets:
Current portion of employee receivable................. $ 18 $ --
Stockholder notes receivable........................... 1,759 10
Prepaid expenses and other............................. 158 233
------- -------
$ 1,935 $ 243
======= =======
Property and equipment, net:
Furniture and fixtures................................. $ 184 $ 442
Computer equipment..................................... 1,062 1,657
Leasehold improvements................................. 50 82
------- -------
1,296 2,181
Less accumulated depreciation and amortization......... (145) (965)
------- -------
$ 1,151 $ 1,216
======= =======
Intangible assets, net:
Goodwill............................................... $17,969 $28,778
Customer lists......................................... 1,121 1,121
------- -------
19,090 29,899
Less accumulated amortization.......................... (369) (1,078)
------- -------
$18,721 $28,821
======= =======
Other assets:
Cash surrender value of life insurance................. $ 13 $ 13
Employee receivable, net of current portion............ 6 53
Deferred financing costs............................... 329 270
Other.................................................. 452 60
------- -------
$ 800 $ 396
======= =======
Accounts payable and accrued expenses:
Producers' commissions................................. $ 4,080 $ 3,021
Accrued personnel costs, vacation and bonuses.......... 953 1,091
Other.................................................. 972 1,492
------- -------
$ 6,005 $ 5,604
======= =======
</TABLE>
NOTE 6--CREDIT FACILITIES
Short-Term Debt:
The Company currently has a revolving credit agreement with a bank that
provides a line of credit up to $2,000 at the prime rate plus .25 percent (8.25
percent at July 31, 1999). Under this agreement, $253 and $1,978 was
outstanding at July 31, 1998 and 1999, respectively.
The Company issued several notes in relation to the Averbeck acquisition
(see Note 4) with an outstanding balance of $2,257 at July 31, 1999 at a 7%
interest rate. These notes are payable in monthly installments with all
remaining principal and interest due and payable between December 1999 and
February 2000.
The Company issued a short term note payable in relation to the Ochinero
acquisition (see Note 4) with an outstanding balance of $30 at July 31, 1999 at
an 8% interest rate. The final payment of this note is due and payable on
December 31, 1999.
F-51
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Share and Per Share)
Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
July 31,
----------------
1998 1999
------- -------
(Successor
Company)
<S> <C> <C>
$12,000 note payable, secured by the Company's assets.
Payable in varying monthly amounts at prime plus .25%
(effective rate of 8.25% at July 31, 1999), with a balloon
payment of $4,470 due on May 15, 2003...................... $11,840 $10,820
$4,000 unsecured senior subordinated debt. Interest payable
quarterly at rate of 12%. Principal due May 28, 2005....... 3,295 3,396
$510 note payable, secured by various assets. Principal and
interest of $11 payable monthly at prime plus .25%
(effective rate of 8.25% at July 31, 1999), maturing
July 26, 1999.............................................. 120 3
$219 unsecured note payable, principal and interest of $16
payable quarterly at a rate of 8% through April 30, 2001... 158 118
$191 unsecured note payable, principal and interest payable
monthly at a rate of 9% through August 15, 1999............ 41 --
$260 unsecured note payable, principal of $10 and interest
payable quarterly at an imputed rate of 6% through July 1,
1999....................................................... 39 --
$59 unsecured note payable to related party, principal and
interest of $1 payable monthly at a rate of 12% through
April 13, 2001............................................. 37 25
$1,394 note payable, secured by the Company's assets to
related party, principal and interest payable annually at a
rate of 7% through March 31, 2004.......................... -- 1,394
$142 unsecured note payable to related party, principal and
interest of 7% due 1/1/2000................................ -- 142
$2,046 unsecured, non-interest bearing note payable, payable
annually with an imputed interest rate of 8% or $317
through December 31, 2001.................................. -- 1,851
$128 unsecured, non-interest bearing note payable, payable
annually through December 24, 2000......................... -- 85
------- -------
15,530 17,834
Less current portion of long-term debt...................... (1,267) (2,605)
------- -------
Long-term debt, net of current portion...................... $14,263 $15,229
======= =======
</TABLE>
Maturities of long-term debt as of July 31, 1999, are as follows:
<TABLE>
<CAPTION>
Fiscal Year:
------------
<S> <C>
2000.............................................................. $ 2,605
2001.............................................................. 3,380
2002.............................................................. 2,079
2003.............................................................. 6,099
2004.............................................................. 279
Thereafter........................................................ 3,392
-------
Total maturities of long-term debt.............................. $17,834
=======
</TABLE>
The $12,000 note payable and the $4,000 unsecured senior subordinated debt
requires the Company to maintain certain minimum net worth and debt service
coverage ratios. The Company was not in compliance with these requirements at
July 31, 1999, however, the Company did obtain waivers on the debt covenant
violations through September 25, 2000.
F-52
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Share and Per Share)
NOTE 7--INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
Period From
----------------------------
Fiscal Year August 1, 1997 June 1, 1998 Fiscal Year
Ended Through Through Ended
July 31, 1997 May 31, 1998 July 31, 1998 July 31, 1999
------------- -------------- ------------- -------------
(Predecessor Company) (Successor Company)
<S> <C> <C> <C> <C>
Current:
Federal............. $ 991 $ 923 $ 495 $ 499
State............... 283 264 128 176
------ ------ ----- ------
1,274 1,187 623 675
------ ------ ----- ------
Deferred:
Federal............. (282) (172) (199) 559
State............... (59) (45) (40) 93
------ ------ ----- ------
(341) (217) (239) 652
------ ------ ----- ------
$ 933 $ 970 $ 384 $1,327
====== ====== ===== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
July 31,
--------------------
1998 1999
--------- ---------
(Successor Company)
<S> <C> <C>
Deferred tax assets:
Deferred compensation.................................. $ 530 $ --
State taxes............................................ 134 91
Errors and omissions liability......................... 120 139
Compensated absences and bonuses, principally due to
accrual for financial reporting purposes.............. 130 118
Amortization of agency acquisitions.................... 41 5
Allowance for bad debt................................. 10 7
Deferred financing and organization costs.............. -- 166
--------- ---------
Total deferred tax assets............................ 965 526
--------- ---------
Deferred tax liabilities:
Equipment and leasehold improvements, principally due
to differences in depreciation........................ (76) (1)
Stock grants........................................... -- (288)
--------- ---------
Total deferred tax liabilities....................... (76) (289)
--------- ---------
Net deferred tax assets.................................. $ 889 $ 237
========= =========
</TABLE>
Based upon the level of taxable income in previous years and projections,
for future taxable income over the period in which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences.
F-53
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Share and Per Share)
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
Period From
----------------------------
Fiscal Year August 1, 1997 June 1, 1998 Fiscal Year
Ended July 31, Through Through Ended July 31,
1997 May 31, 1998 July 31, 1998 1999
-------------- -------------- ------------- --------------
(Predecessor Company) (Successor Company)
<S> <C> <C> <C> <C>
Computed expected income
taxes.................. 34% 34% 34% 34%
State income taxes, net
of federal income tax
benefit................ 7 7 6 8
Other, net.............. 4 3 5 5
Nondeductible
amortization of
goodwill............... -- -- -- 11
Meals and
entertainment.......... -- -- -- 2
Officers Life........... -- -- -- 1
--- --- --- ---
45% 44% 45% 61%
=== === === ===
</TABLE>
NOTE 8--LEASE COMMITMENTS
The Company leases office space under various operating leases. The
Company's downtown office in the Driver Office Building is leased from a
limited partnership, which is a related party. The lease agreement expires
December 31, 2007, with current monthly rent of approximately $61. Management
expects that, in the normal course of business, leases that expire will be
renewed or replaced by other leases. The Company's rent expense under these
leases was $781 in fiscal 1997, $968 for the period from August 1, 1997 to May
31, 1998, $199 for the period from June 1, 1998 to July 31, 1998, and $1,466
for fiscal 1999.
Future minimum rental payments at July 31, 1999, under agreements classified
as operating leases with noncancelable terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
Fiscal Year:
------------
<S> <C>
2000............................................................... $ 1,960
2001............................................................... 1,868
2002............................................................... 1,692
2003............................................................... 1,629
2004............................................................... 1,154
Thereafter......................................................... 2,890
-------
$11,193
=======
</TABLE>
NOTE 9--EMPLOYEE BENEFIT PLANS
Savings Plan:
The Company has established a defined contribution plan, the Savings and
Retirement Program of Robert F. Driver Company, Inc. 401(k), which covers all
full-time employees of the Company who have at least one year of service and
are age 21 or over. There are matching employer contributions as defined in the
plan agreement.
F-54
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Share and Per Share)
Deferred Compensation Plan:
Effective August 1, 1996, the Company adopted a deferred compensation plan
for certain key employees of the Company. Under the Plan, the Company makes a
mandatory contribution in an amount equal to a specific percentage of the gross
monthly commission of the participant, as defined in the Plan document. In
addition, the participant may elect to defer a minimum of 1 percent up to a
maximum of 5 percent of their plan commission. The deferred compensation earns
a rate of return based on a crediting rate set by the deferred compensation
plan committee immediately following the end of each fiscal year. A participant
shall be fully vested in contributions upon termination of employment other
than a termination for cause, as defined in the Plan document. Under the
original terms of the Plan, benefits are paid upon the earlier of a
participant's termination of employment or the complete termination of the Plan
by the Company. A participant with vested amounts valued at $50 or less shall
receive a lump-sum payment. A participant with vested amounts valued at more
than $50 shall receive installment payments over a maximum period of three
years.
As of July 31, 1998, the Company had accrued $1,331 for its obligations
under the Plan. The Company's expense was $590 for the year ended July 31,
1997, $500 for the period August 1, 1998 through May 31, 1998, and $241 for the
period from June 1, 1998 through July 31, 1998. Effective December 31, 1998,
the Board of Directors amended the Plan to terminate the mandatory Company
contributions and resolved that funds currently remaining be distributed as
soon as administratively possible. At July 31, 1999, the Company had liquidated
all but $26 of the deferred compensation obligation. There was no deferred
compensation expense for the year ended July 31, 1999.
Employee Stock Option Plan (ESOP):
In 1997, the Company maintained a defined contribution employee stock
ownership plan (ESOP) covering substantially all employees. The ESOP had assets
principally comprised of shares of the Company's common stock at July 31,1997.
The Company made annual contributions to the ESOP in cash or shares of the
Company's common stock in amounts determined by the Company's Board of
Directors. For the year ended July 31, 1997, the Company contributed $800 to
the ESOP in cash.
In conjunction with the Transaction, the ESOP's participants' accounts were
converted to cash and the ESOP was merged into the Company's 401(k) plan.
Producer Stock Equity Plan and Stock Ownership Plan:
In February 1999, the Company entered into a Producer Stock Equity Plan and
Stock Ownership Plan (the Plan). The Plan provides for three forms of incentive
compensation: stock grants, stock purchase rights and incentive stock options.
All of the shares granted under the Plan are subject to the stock repurchase
option described in Note 10.
Under the stock grants, participants received a one-time grant of Class A
Common Stock determined by the aggregate net commissions earned during the 1998
calendar year. Under this option the Company granted 108,000 shares of its
Class A Common Stock during February 1999.
The stock purchase right provides that certain participants are eligible to
purchase a number of shares determined by the aggregate net commissions earned
during the 1998 calendar year. Under this provision, the Company granted stock
purchase rights at $10.00 per share for 30,000 shares of its Class A Common
Stock during February 1999. These rights were all exercised during February
1999.
F-55
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Share and Per Share)
The Company has reserved 111,000 shares of the Company's Class A Common
Stock to be issued from 1999 to 2004 under the incentive stock option
provisions of the Plan. No options will be issued under the Plan until
subsequent to December 31, 1999.
NOTE 10--STOCKHOLDERS' EQUITY
Redeemable Preferred Stock:
In 1998, the Company issued 4,000 shares of Class A Preferred Stock to the
Robert F. Driver Family Trust, a related party, as part of the financing of the
Transaction. Dividends are cumulative at 7.5 percent annually through May 1999,
and at 10 percent annually thereafter. Payment of dividends on preferred shares
ranks senior to all other classes of stock. These shares are nonvoting unless
dividends are more than five quarters in arrears. The shares are redeemable at
the option of either the board of directors or the holders upon the death of
Robert F. Driver at $1,000 per share.
Stockholder Notes Receivable:
Stockholder notes receivable represent obligations by certain members of
management in connection with their purchase of Class A Common Stock. At July
31, 1999, stockholder notes receivable includes an amount related to a key
employee for which the Company has agreed to forgive a portion of the note over
a five year period based on continued employment.
Common Stock Warrants:
Senior subordinated debt (see Note 6) issued in connection with the
Transaction has 73,042 detachable warrants. Each warrant is convertible into
one share of Class A Common Stock at an exercise price of $0.01 per share up
through the earlier of May 28, 2008 or the sale of initial public offering of
the Company. The value assigned to these warrants ($730) is included in
additional paid-in capital.
The Company issued 13,333 common stock warrants to an outside advisor as
part of the Transaction. The warrants have an exercise price of $2.50 each. The
fair value of the warrants is included in additional paid-in capital. The
warrants were exercised during fiscal 1999.
The Company issued 36,667 common stock warrants to an outside advisor as
part of the acquisitions during the current fiscal year (see Note 4). The
warrants have been exercised and the transaction has been recorded in
additional paid in capital and common stock.
Class B Common:
On November 12, 1997, the Company authorized 10,000,000 shares of Class B
Common Stock, par value of $.01 per share. No shares of Class B Common Stock
were outstanding as of July 31, 1998 or 1999.
Stock Repurchase Option:
Stock granted subsequent to the May 31, 1998 transaction (see Note 2), is
subject to a repurchase option by the Company. The repurchase clause stipulates
that upon termination from employment the Company may
F-56
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Share and Per Share)
repurchase a specified number of shares at the original fair market grant
price. The specified shares that are not subject to repurchase are the total
number of shares held less than five years multiplied by a fraction of the
number of calendar years completed following May 31, 1998, divided by five
years.
Stock Options:
In January 1999, the Company granted and issued to certain key executives
and outside advisors 40,000 stock options of its Class A Common Stock with an
exercise price of $10.00 a share. These options were exercised in January 1999,
and the shares issued in connection therewith are subject to the aforementioned
stock repurchase option.
Stock Grants:
In January 1999, the Company issued 95,000 shares of its Class A Common
Stock to certain key executives. These shares were unrestricted, but are
subject to the aforementioned stock repurchase option. Unearned compensation
for the non-vested portion was recorded at the date of these awards based on
the market value of the shares. Unearned compensation shown as a separate
component of stockholders' equity is being amortized to expense over the four
year vesting period. In connection with this grant, the Company loaned certain
key executives an amount to pay their Federal and State income taxes. The note
is payable in five equal annual installments commencing November 1, 1999 and
bears interest at the lesser of the maximum rate permitted by the State of
California or the prime rate. As of July 31, 1999, these amounts totalling $10
and $48 are included in other current assets and other assets, respectively.
In February 1999, the Company issued 107,335 shares of its Class A Common
Stock in connection with its Producer Stock Equity Program (PSEP). These shares
are unrestricted, but are subject to the stock repurchase option as described
above and vest over five years. Unearned compensation for the non-vested
portion was recorded at the date of these awards based on the market value of
the shares. Unearned compensation shown as a separate component of
stockholders' equity is being amortized to expense over a five year vesting
period.
Subsequent to the acquisition of Sedgwick, the Company issued 12,000 shares
of Class A Common Stock to certain key executives. The shares are unrestricted,
but are subject to the stock repurchase option described above.
During the year ended July 31, 1999, the Company issued 11,300 shares of its
Class A Common Stock as a bonus to certain key employees. These shares are
unrestricted, but are subject to the stock repurchase option as described
above.
Stock Sales:
In February 1998, the Company issued 11,601 shares of its Class A Common
Stock to certain of its key executives for cash consideration. The shares were
unrestricted, but are subject to the stock purchase option as described in Note
10.
In February 1999, the Company issued 30,195 shares of its Class A Common
Stock in connection with its Producer Stock Equity Program (PSEP) for cash
consideration. These shares are unrestricted, but are subject to the stock
repurchase option as described in Note 10.
F-57
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Share and Per Share)
NOTE 11--CONTINGENCIES
The Company is occasionally involved in routine insurance policy-related and
employment practices litigation which has arisen in the ordinary course of its
business. The litigation is covered in whole or in part by insurance. The
conclusions of such matters are not expected to have a material adverse effect
on the Company's consolidated financial statements.
NOTE 12--CENTERPRISE TRANSACTION
In March 1999, the Company and its stockholders entered into a definitive
agreement with Centerprise Advisors, Inc. (Centerprise) pursuant to which the
Company will merge with a wholly-owned subsidiary of Centerprise. All of the
Company's outstanding shares of common stock will be exchanged for cash and
common stock of Centerprise concurrently with the consummation of the initial
public offering of the common stock of Centerprise.
F-58
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Mann Frankfort Stein & Lipp, P.C.
In our opinion, the accompanying balance sheet and the related statements of
income, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Mann Frankfort Stein & Lipp, P.C.
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
June 17, 1999
F-59
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 288 $ 606 $ 1,881
Fees receivable, less allowance for doubtful
accounts of $1,124, $1,356 and $1,878 (unaudited),
respectively...................................... 3,475 4,077 6,982
Unbilled fees, at net realizable value............. 628 431 1,205
Due from principals................................ 119 14 8
Prepaid expenses and other current assets.......... 75 81 81
------ ------ -------
Total current assets............................. 4,585 5,209 10,157
Property and equipment, net.......................... 874 1,142 1,196
Other assets......................................... 6 6 6
------ ------ -------
Total assets..................................... $5,465 $6,357 $11,359
====== ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................. $ 160 $ 879 $ 101
Accounts payable................................... 68 23 218
Accrued compensation and related costs............. 133 126 2,179
Income taxes payable............................... 2 27 (4)
Deferred income taxes.............................. 1,420 1,569 2,760
------ ------ -------
Total current liabilities........................ 1,783 2,624 5,254
Long-term debt....................................... 794 473 799
Deferred income taxes................................ 71 85 78
------ ------ -------
Total liabilities................................ 2,648 3,182 6,131
------ ------ -------
Commitments and contingencies
Shareholders' equity:
Common stock, $1 par value; 1,000,000 shares
authorized, 1,573, 1,573 and 1,574 (unaudited)
common shares issued and outstanding,
respectively...................................... 2 2 2
Additional paid-in-capital......................... 58 58 61
Retained earnings.................................. 2,757 3,115 5,165
------ ------ -------
Total shareholders' equity....................... 2,817 3,175 5,228
------ ------ -------
Total liabilities and shareholders' equity....... $5,465 $6,357 $11,359
====== ====== =======
</TABLE>
See accompanying Notes to Financial Statements.
F-60
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
------------------------- ---------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Professional services..... $13,292 $17,475 $21,631 $11,828 $16,630
------- ------- ------- ------- -------
Expenses:
Shareholder compensation
and related costs........ 4,423 6,636 8,921 3,942 4,916
Employee compensation and
related costs............ 4,896 6,405 8,829 4,532 5,888
Occupancy costs........... 410 527 659 320 418
Office operating
expenses................. 961 1,398 1,670 857 1,240
Other selling, general and
administrative expenses.. 936 1,071 1,018 746 914
------- ------- ------- ------- -------
11,626 16,037 21,097 10,397 13,376
------- ------- ------- ------- -------
Operating income........ 1,666 1,438 534 1,431 3,254
------- ------- ------- ------- -------
Other (income) expense:
Interest expense.......... 35 32 58 33 44
Interest income........... (48) (31) (69) (15) (28)
Other..................... (26) (2) (26) 13 4
------- ------- ------- ------- -------
(39) (1) (37) 31 20
------- ------- ------- ------- -------
Income before provision for
income taxes............... 1,705 1,439 571 1,400 3,234
Provision for income taxes.. 58 557 213 498 1,184
------- ------- ------- ------- -------
Net income.................. $ 1,647 $ 882 $ 358 $ 902 $ 2,050
======= ======= ======= ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-61
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
STATEMENT OF SHAREHOLDERS' EQUITY AND PARTNERS' CAPITAL
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------- Paid-in- Partners' Treasury Retained Shareholders'
Shares Amount Capital Capital Stock Earnings Equity
------ ------ ---------- --------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 1,180 $ 1 $108 $ 972 $(85) $1,221 $2,217
Issuances of common
stock................ -- -- 35 -- -- -- 35
Net income............ -- -- -- 1,573 -- 74 1,647
Draws on Partners'
Capital.............. -- -- -- (1,964) -- -- (1,964)
----- --- ---- ------ ---- ------ ------
Balance at December 31,
1996................... 1,180 1 143 581 (85) 1,295 1,935
Cancellation of
treasury stock....... -- -- (85) -- 85 -- --
Issuances of common
stock for pooling of
interests business
combination.......... 393 1 -- (581) -- 580 --
Net income............ -- -- -- -- -- 882 882
----- --- ---- ------ ---- ------ ------
Balance at December 31,
1997................... 1,573 2 58 -- -- 2,757 2,817
Net income............ -- -- -- -- -- 358 358
----- --- ---- ------ ---- ------ ------
Balance at December 31,
1998................... 1,573 2 58 -- -- 3,115 3,175
----- --- ---- ------ ---- ------ ------
Unaudited data:
Issuances of common
stock................ 1 -- 3 -- -- -- 3
Net income............ -- -- -- -- -- 2,050 2,050
----- --- ---- ------ ---- ------ ------
Balance at June 30, 1999
(unaudited)............ 1,574 $ 2 $ 61 $ -- $-- $5,165 $5,228
===== === ==== ====== ==== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-62
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30,
----------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ----- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income........................ $ 1,647 $ 882 $ 358 $ 902 $ 2,050
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization... 202 132 266 112 176
Change in deferred income
taxes.......................... (4) 466 163 498 1,184
Changes in operating assets and
liabilities:
Fees receivable............... (121) (1,197) (602) (1,095) (2,905)
Unbilled fees................. (104) (139) 197 (699) (774)
Prepaid expenses and other
current assets............... (30) 64 99 (204) (6)
Accounts payable.............. 27 (76) (45) 167 195
Accrued compensation and
related costs................ (254) 70 (7) 2,005 2,053
Other......................... (29) 90 25 (11) (19)
------- ------- ----- ------- -------
Net cash provided by
operating activities....... 1,334 292 454 1,675 1,954
------- ------- ----- ------- -------
Cash flows from investing
activities:
Purchase of property and
equipment........................ (123) (625) (534) (164) (230)
------- ------- ----- ------- -------
Net cash used in investing
activities................. (123) (625) (534) (164) (230)
------- ------- ----- ------- -------
Cash flows from financing
activities:
Proceeds from issuance of long-
term debt........................ 300 1,200 750 -- 319
Payments of long-term debt........ (466) (680) (352) (292) (771)
Draws on Partners' Capital........ (1,964) -- -- -- --
Proceeds from issuance of common
stock............................ 35 -- -- -- 3
------- ------- ----- ------- -------
Net cash provided by (used
in) financing activities... (2,095) 520 398 (292) (449)
------- ------- ----- ------- -------
Net increase (decrease) in cash and
cash equivalents................... (884) 187 318 1,219 1,275
Cash and cash equivalents at
beginning of period................ 985 101 288 721 606
------- ------- ----- ------- -------
Cash and cash equivalents at end of
period............................. $ 101 $ 288 $ 606 $ 1,940 $ 1,881
======= ======= ===== ======= =======
Supplemental disclosures of cash
flow information:
Interest paid..................... $ 35 $ 32 $ 58 $ 33 $ 44
Income taxes paid................. $ 33 $ 13 $ 19 $ 12 $ 30
</TABLE>
See accompanying Notes to Financial Statements.
F-63
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
NOTES TO FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 1--BACKGROUND AND BUSINESS DESCRIPTION
Mann Frankfort Stein & Lipp, P.C. (the Company) is a full service firm of
professional accountants and business advisors which offers accounting, tax and
consulting services to a variety of clients in the Houston, Texas market.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
The Company recognizes revenue as the related services are provided. The
Company bills clients based upon actual hours incurred on client projects at
expected net realizable rates per hour, plus any out-of-pocket expenses. The
cumulative impact of any subsequent revision in the estimated realizable value
of unbilled fees for a particular client project is reflected in the period in
which the change becomes known. Outstanding fees receivable are evaluated each
period to assess the adequacy of the allowance for doubtful accounts.
Unbilled Fees:
Unbilled fees represent the anticipated net realizable value for hours
incurred by the Company's professional and administrative staff, plus out-of-
pocket expenses, on projects which had not yet been billed to clients as of
period end.
Cash and Cash Equivalents:
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
Property and Equipment:
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization of property and equipment are
computed on the straight-line method over estimated useful asset lives (shorter
of asset life or lease term for leasehold improvements), generally ranging from
5 to 12 years. Expenditures for maintenance and repairs and minor renewals and
betterments which do not improve or extend the life of the respective assets
are expensed. All other expenditures for renewals and betterments are
capitalized. The assets and related depreciation accounts are adjusted for
property retirements and disposals with the resulting gain or loss included in
operations.
Asset Impairment Assessments:
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying value of such assets may not be fully
recoverable. An impairment is recognized to the extent that the sum of
undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. If an impairment is recognized the
carrying value of the impaired asset is reduced to its fair value. No
impairment has been recognized through December 31, 1998.
Fair Value of Financial Instruments:
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, fees receivable, accounts payable, accrued liabilities
and debt approximate fair value.
F-64
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Income Taxes:
Income taxes have been computed using the asset and liability approach.
Under this approach, deferred income tax assets and liabilities are determined
based on the differences between the financial statement and tax basis of
assets and liabilities using currently enacted tax rates in effect for the
years in which the differences are expected to reverse.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of fees receivable. Receivables
arising from services provided to clients are not collateralized and, as a
result, management continually monitors the financial condition of its clients
to reduce the risk of loss.
Use of Estimates:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. While management believes that the
estimates and related assumptions used in the preparation of the consolidated
financial statements are appropriate, actual results could differ from those
estimates. Estimates are made when accounting for the allowances for doubtful
accounts, depreciation and amortization and income taxes.
Unaudited Interim Financial Statements:
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company at June 30, 1999, and the
results of its operations and its cash flows for the six months ended June 30,
1998 and 1999, as presented in the accompanying unaudited interim financial
statements.
NOTE 3--BUSINESS COMBINATIONS
On January 1, 1997, the Company merged with Schulse Hartwig Richter &
Company, L.L.P. (SHRCO), in a business combination accounted for as a pooling
of interests. Former partners in SHRCO exchanged their partnership interests
for common stock in the Company, and received stock totaling 25 percent of the
outstanding stock immediately following the merger. The results of SHRCO's
operations during the year ended December 31, 1996 have been combined with the
Company's as if the two entities had been combined prior to 1996. The
conversion of partnership interests to common stock has been accounted for in
1997.
The following presents the separate results of the Company (excluding the
results of SHRCO prior to the date on which it was acquired), and the SHRCO
results up to the date on which it was acquired:
<TABLE>
<CAPTION>
Company SHRCO Combined
------- ------ --------
<S> <C> <C> <C>
For the year ended December 31, 1996:
Revenues........................................... $991 $3,371 $13,292
Net income......................................... $ 74 $1,573 $ 1,647
</TABLE>
SHRCO's partner draws have not been reflected as an expense in the Company's
1996 statement of income. Additionally, as a partnership, SHRCO was not subject
to federal level taxation.
F-65
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment, net reflected on the accompanying balance sheet is
comprised as follows:
<TABLE>
<CAPTION>
December 31,
---------------- June 30,
1997 1998 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Property and equipment, net:
Furniture and fixtures................... $ 877 $ 1,036 $ 1,049
Computer equipment....................... 1,132 1,459 1,579
Leasehold improvements................... 27 75 171
------- ------- -------
2,036 2,570 2,799
Less accumulated depreciation and
amortization............................ (1,162) (1,428) (1,603)
------- ------- -------
$ 874 $ 1,142 $ 1,196
======= ======= =======
</TABLE>
NOTE 5--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a rollforward of activity within the allowance for doubtful
accounts:
<TABLE>
<CAPTION>
Year Ended December Six Months
31, Ended
--------------------- June 30,
1996 1997 1998 1999
----- ------ ------ -----------
(Unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of period.......... $ 581 $ 552 $1,124 $1,356
Additions to costs and expenses......... 489 755 687 712
Write-offs.............................. (518) (183) (455) (190)
----- ------ ------ ------
Balance at end of period................ $ 552 $1,124 $1,356 $1,878
===== ====== ====== ======
</TABLE>
NOTE 6--CREDIT FACILITIES
Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1997 1998 1999
----- ------ -----------
(Unaudited)
<S> <C> <C> <C>
Notes payable, secured by certain assets of
the Company, interest rate 7.25%, maturities
from 1999 through 2004...................... $ 954 $1,352 $ 900
Less current maturities of long-term debt.... (160) (879) (101)
----- ------ -----
Total long-term debt....................... $ 794 $ 473 $ 799
===== ====== =====
</TABLE>
Maturities on long-term debt are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 879
2000.............................................................. 136
2001.............................................................. 148
2002.............................................................. 159
2003.............................................................. 30
------
Total maturities of long-term debt.............................. $1,352
======
</TABLE>
F-66
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 7--INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
-------------- -----------
1996 1997 1998 1998 1999
---- ---- ---- ---- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income taxes currently payable:
Federal...................................... $21 $ 25 $ 50 $ -- $ --
--- ---- ---- ---- ------
Deferred income tax expense:
Federal...................................... 37 532 163 498 1,184
--- ---- ---- ---- ------
Total provision for income taxes........... $58 $557 $213 $498 $1,184
=== ==== ==== ==== ======
</TABLE>
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts............... $ 467 $ 512 $ 762
Accrued liabilities........................... 40 34 225
------ ------ ------
Total current deferred tax assets........... 507 546 987
Current deferred tax liabilities:
Accounts receivable and unbilled fees......... 1,903 2,090 3,628
Other......................................... 24 25 119
------ ------ ------
Total current deferred tax liabilities...... 1,927 2,115 3,747
------ ------ ------
Net current deferred tax liabilities........ 1,420 1,569 2,760
Non-current deferred tax liabilities:
Property and equipment........................ 71 85 78
------ ------ ------
Net deferred tax liability...................... $1,491 $1,654 $2,838
====== ====== ======
</TABLE>
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
---------------- -------------
1996 1997 1998 1998 1999
---- ---- ---- ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
U.S. federal statutory rate.............. 35% 35% 35% 35% 35%
Partnership income not subject to
corporate-level taxation................ (34) -- -- -- --
Other.................................... 2 2 2 1 2
--- --- --- ----- -----
Effective income tax rate................ 3% 37% 37% 36% 37%
=== === === ===== =====
</TABLE>
In 1996, $1,573 of the Company's pretax income was attributable to a
partnership acquired in a pooling-of-interests transaction. No provision was
made for taxes on this income as it was taxable directly to the partners.
F-67
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 8--LEASE COMMITMENTS
The Company leases office facilities under a noncancelable lease
agreement, which expires in 2002. This lease allows the Company, at its option,
to extend the lease term at the end of the lease term, generally at fair market
value. Future minimum lease payments under noncancelable operating leases are
as follows:
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
1999............................................................. $ 603
2000............................................................. 621
2001............................................................. 621
2002............................................................. 103
------
Total minimum lease payments..................................... $1,948
======
</TABLE>
Rent expense for this operating lease for the fiscal years ended December
31, 1996, 1997 and 1998 and the six months ended June 30, 1998 and 1999 was
$344, $429, $530, $235 (unaudited) and $347 (unaudited), respectively.
NOTE 9--EMPLOYEE BENEFIT PLAN
401(k) Plan:
The Company sponsors a 401(k) savings plan for the benefit of its
employees. Generally, employees who have attained the age of 21 and have one
year's creditable service may make salary deferrals to the plan, up to 6
percent of their salary on a pre-tax basis and up to 15 percent of their salary
on an after-tax basis. The Company, at its discretion, may make matching
contributions from its earnings. Contributions for each of the three years
ended December 31, 1996, 1997 and 1998 and the six months ended June 30, 1998
and 1999 were $52, $61, $67, $30 (unaudited) and $91 (unaudited), respectively.
NOTE 10--COMMITMENTS AND CONTINGENCIES
Litigation:
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
NOTE 11--SUBSEQUENT EVENTS (UNAUDITED)
In March 1999, the Company and its stockholders entered into a definitive
agreement with Centerprise Advisors, Inc. (Centerprise) pursuant to which the
Company will convert from a professional corporation to a business corporation
by adopting a plan of conversion and amending its organizational documents (the
"MFSL Company"). Thereafter, a wholly-owned subsidiary of Centerprise will
merge with and into MFSL Company. All of the MFSL Company's outstanding shares
will be exchanged for cash and common stock of Centerprise concurrently with
the consummation of the initial public offering of the common stock of
Centerprise.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, Centerprise is requiring
that the Company cease providing attest services prior to the
closing of the acquisition. Following the closing, all attest services formerly
provided by the Company will be provided by a newly created separate legal
entity (the Attest Firm) which will be owned by former owners of the Company
who are certified public accountants. Pursuant to a services agreement,
Centerprise will provide professional and other personnel, equipment, office
space and business and administrative services necessary to operate the Attest
Firm.
F-68
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Follmer, Rudzewicz & Company, P.C.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Follmer, Rudzewicz
and Company, P.C. and its subsidiary at May 31, 1998 and 1999 and the results
of their operations and their cash flows for each of the three years in the
period ended May 31, 1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
July 20, 1999
F-69
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
May 31,
----------------
1998 1999
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 771 $ 823
Funds held in trust for clients............................ 10 13
Fees receivable, less allowance for doubtful accounts of
$693 and $754, respectively............................... 5,553 5,749
Unbilled fees, at net realizable value..................... 2,334 2,657
Prepaid expenses and other current assets.................. 314 668
------- -------
Total current assets..................................... 8,982 9,910
Property and equipment, net.................................. 1,234 1,411
Cash surrender value, life insurance......................... 2,832 3,518
Deferred income taxes........................................ 1,066 1,478
Other assets................................................. 106 72
------- -------
Total assets............................................. $14,220 $16,389
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt............................................ $ 345 $ 1,103
Notes payable to shareholders.............................. 1,693 3,798
Accounts payable and other accrued expenses................ 55 83
Accrued compensation and related costs to shareholders..... 4,080 3,987
Accrued compensation and related costs to employees........ 1,259 1,457
Deferred income taxes...................................... 1,245 1,299
------- -------
Total current liabilities................................ 8,677 11,727
Long-term debt............................................... 371 --
Retirement plan.............................................. 2,978 4,280
------- -------
Total liabilities........................................ 12,026 16,007
------- -------
Commitments and contingencies
Shareholders' equity:
Common stock, $1 par value; 50,000 shares authorized,
10,400 and 7,500 shares issued and outstanding at May 31,
1998 and 1999, respectively............................... 10 8
Additional paid-in-capital................................. 1,210 1,234
Treasury stock, at cost, 250 shares at May 31, 1998 and
1999, respectively........................................ (140) (140)
Retained earnings (deficit)................................ 1,114 (720)
------- -------
Total shareholders' equity............................... 2,194 382
------- -------
Total liabilities and shareholders' equity............... $14,220 $16,389
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-70
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
May 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenues:
Professional services............................. $17,954 $19,417 $22,525
------- ------- -------
Expenses:
Shareholder compensation and related costs........ 6,646 7,339 8,797
Employee compensation and related costs........... 7,567 8,225 9,949
Occupancy costs................................... 1,045 990 1,134
Office operating expenses......................... 861 870 977
Depreciation and amortization..................... 394 475 485
Other selling, general and administrative
expenses......................................... 1,742 1,556 2,092
------- ------- -------
18,255 19,455 23,434
------- ------- -------
Operating loss.................................. (301) (38) (909)
------- ------- -------
Other (income) expense:
Interest expense.................................. 79 101 103
Interest income................................... (51) (22) (30)
Other............................................. (156) (192) (80)
------- ------- -------
(128) (113) (7)
------- ------- -------
Income (loss) before provision for income taxes..... (173) 75 (902)
Provision (benefit) for income taxes................ 191 286 (156)
------- ------- -------
Net loss............................................ $ (364) $ (211) $ (746)
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-71
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock Total
------------- Paid-in- --------------- Retained Shareholders'
Shares Amount Capital Shares Amount Earnings Equity
------ ------ ---------- ------ ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31,
1996................... 10 $10 $1,082 2,990 $(1,189) $1,906 $ 1,809
Reissuances of
treasury stock....... -- -- -- (2,900) 959 -- 959
Net loss.............. -- -- -- -- -- (364) (364)
--- --- ------ ------ ------- ------ -------
Balance at May 31,
1997................... 10 10 1,082 90 (230) 1,542 2,404
Issuances of common
stock................ -- -- 141 -- -- -- 141
Purchases of treasury
stock................ -- -- -- 250 (140) -- (140)
Retirement of treasury
stock................ -- -- (13) (90) 230 (217) --
Net loss.............. -- -- -- -- -- (211) (211)
--- --- ------ ------ ------- ------ -------
Balance at May 31,
1998................... 10 10 1,210 250 (140) 1,114 2,194
Purchase and
retirement of common
stock................ (2) (2) -- -- -- (1,088) (1,090)
Shareholder
contribution......... -- -- 24 -- -- -- 24
Net loss.............. -- -- -- -- -- (746) (746)
--- --- ------ ------ ------- ------ -------
Balance at May 31,
1999................... 8 $ 8 $1,234 250 $ (140) $ (720) $ 382
=== === ====== ====== ======= ====== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-72
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year
Ended May 31,
-----------------------
1997 1998 1999
------- ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (364) $ (211) $ (746)
Adjustments to reconcile income to net cash provided
by operating activities:
Depreciation and amortization..................... 394 466 485
Change in deferred taxes.......................... (85) (429) (358)
Loss on disposal of property and equipment........ 5 1 8
Changes in operating assets and liabilities:
Funds held in trust............................. 9 (2) (3)
Fees receivable................................. (154) (565) (196)
Unbilled fees................................... (1,059) 728 (323)
Prepaid expenses and other current assets....... (654) 552 (354)
Accounts payable and other accrued expenses..... 25 (87) 28
Accrued compensation and related costs.......... 1,118 (276) (105)
Income taxes payable............................ (256) -- --
Retirement plans................................ 1,015 1,208 1,302
Other........................................... 232 23 34
------- ------ ------
Net cash provided by (used in) operating
activities................................... 226 1,408 (228)
------- ------ ------
Cash flows from investing activities:
Purchase of property and equipment.................. (646) (307) (437)
Proceeds from sale of property and equipment........ 36 24 1
Increase in cash surrender value.................... (612) (644) (686)
------- ------ ------
Net cash used in investing activities......... (1,222) (927) (1,122)
------- ------ ------
Cash flows from financing activities:
Proceeds from issuance of long-term debt............ -- 500 --
Payments of long-term debt.......................... (139) (481) (613)
Proceeds from borrowings on line of credit.......... -- -- 1,000
Proceeds from (payments of) short-term debt, net.... 500 (500) --
Advances (repayments) to shareholders............... 857 377 2,105
Acquisition and retirement of stock................. -- -- (1,090)
Proceeds from issuance of stock..................... -- 141 --
------- ------ ------
Net cash provided by financing activities..... 1,218 37 1,402
------- ------ ------
Net increase in cash and cash equivalents............. 222 518 52
Cash and cash equivalents at beginning of period...... 31 253 771
------- ------ ------
Cash and cash equivalents at end of period............ $ 253 $ 771 $ 823
======= ====== ======
Supplemental disclosures of cash flow information:
Interest paid....................................... $ 75 $ 101 $ 103
Income taxes paid................................... $ 347 $ 841 $ 536
</TABLE>
Noncash transactions:
As of March 31, 1999, Report Systems, Inc. ("RSI") was contributed to the
Company. The book value of property, plant and equipment was transferred to the
Company as additional paid-in capital. The net book value of transferred
equipment was $24 (Note 10).
During 1998, the Company reacquired 250 shares of treasury stock in the
amount of $140 through issuance of a note payable to shareholder. The Company
also retired 90 shares of treasury stock in the amount of $230 in 1998.
During 1997, the Company issued 2,900 shares of treasury stock in the amount
of $959 through retirement of a note payable to shareholder.
See accompanying Notes to Consolidated Financial Statements.
F-73
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 1--BACKGROUND AND BUSINESS DESCRIPTION
Follmer, Rudzewicz & Company (the Company) is a full service firm of
professional accountants and business advisors to privately held companies and
their owners. The Company was founded in 1968 and primarily operates in
Michigan.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Bridgeco, Inc. All significant intercompany
transactions and accounts are eliminated in consolidation.
Revenue Recognition:
The Company recognizes revenue as the related services are provided. The
Company bills clients based upon actual hours incurred on client projects at
expected net realizable rates per hour, plus any out-of-pocket expenses. The
cumulative impact of any subsequent revision in the estimated realizable value
of unbilled fees for a particular client project is reflected in the period in
which the change becomes known. Outstanding fees receivable are evaluated each
period to assess the adequacy of the allowance for doubtful accounts.
Unbilled Fees:
Unbilled fees represent the anticipated net realizable value for hours
incurred by the Company's professional and administrative staff, plus out-of-
pocket expenses, on projects which had not yet been billed to clients as of
period end.
Cash and Cash Equivalents:
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
Funds Held in Trust for Clients:
Funds held in trust for clients are restricted amounts held for client trust
fund. A corresponding liability is recorded by the Company and is included in
other long-term liabilities.
Property and Equipment:
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization of property and equipment are
computed on the straight-line method over estimated useful asset lives (shorter
of asset life or lease term for leasehold improvements), generally ranging from
3 to 10 years. Expenditures for maintenance and repairs and minor renewals and
betterments which do not improve or extend the life of the respective assets
are expensed. All other expenditures for renewals and
F-74
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Per Share)
betterments are capitalized. The assets and related depreciation accounts are
adjusted for property retirements and disposals with the resulting gain or loss
included in operations.
Asset Impairment Assessments:
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying value of such assets may not be fully
recoverable. An impairment is recognized to the extent that the sum of
undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. If an impairment is recognized the
carrying value of the impaired asset is reduced to its fair value. No
impairment has been recognized through May 31, 1999.
Fair Value of Financial Instruments:
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, fees receivable, accounts payable, accrued liabilities
and debt approximate fair value.
Income Taxes:
Income taxes have been computed using the asset and liability approach.
Under this approach, deferred income tax assets and liabilities are determined
based on the differences between the financial statement and tax basis of
assets and liabilities using currently enacted tax rates in effect for the
years in which the differences are expected to reverse.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of fees receivable. Receivables
arising from services provided to clients are not collateralized and, as a
result, management continually monitors the financial condition of its clients
to reduce the risk of loss.
The Company's cash balances are concentrated primarily with one financial
institution.
Use of Estimates:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. While management believes that the
estimates and related assumptions used in the preparation of the consolidated
financial statements are appropriate, actual results could differ from those
estimates. Estimates are made when accounting for the allowances for doubtful
accounts, depreciation and amortization and income taxes.
F-75
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment, net reflected on the accompanying balance sheet is
comprised as follows:
<TABLE>
<CAPTION>
May 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Property and equipment, net
Furniture and fixtures................................ $ 729 $ 977
Computer equipment..................................... 1,729 2,104
Automobiles............................................ -- 41
Leasehold improvements................................. 261 270
------- -------
2,719 3,392
Less accumulated depreciation and amortization......... (1,485) (1,981)
------- -------
$ 1,234 $ 1,411
======= =======
</TABLE>
NOTE 4--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a rollforward of activity within the allowance for doubtful
accounts:
<TABLE>
<CAPTION>
Fiscal Year
Ended May 31,
-------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Balance at beginning of period........................ $ 598 $ 885 $ 693
Additions to costs and expenses....................... 579 375 693
Less write-offs....................................... (292) (567) (632)
----- ----- -----
Balance at end of period.............................. $ 885 $ 693 $ 754
===== ===== =====
</TABLE>
NOTE 5--CREDIT FACILITIES
Short-Term Debt:
Short-term debt consists of the following:
<TABLE>
<CAPTION>
May 31,
-----------
1998 1999
---- ------
<S> <C> <C>
Line of credit................................................ $-- $1,000
Current maturities of long-term debt.......................... 345 --
Other short term debt......................................... -- $ 103
---- ------
Total short-term debt..................................... $345 $1,103
==== ======
</TABLE>
The Company has available a $1,500 line of credit with Comerica Bank, used
to finance short-term cash flow needs. Interest on the line is payable monthly
at prime rate, and is collateralized by any of the Company's assets in the
bank's possession. There are no significant covenants related to this line.
Other short-term debt consists of a note to a former shareholder that bears
interest at 10%.
F-76
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
May 31,
1998
-------
<S> <C>
Notes payable, secured by certain assets of the Company, interest
rates ranging from 8% to 10%, maturities from August 2000 through
December 2002.................................................... $ 716
Less current maturities of long-term debt......................... (345)
-----
Total long-term debt.......................................... $ 371
=====
</TABLE>
All long-term debt was paid off during fiscal year 1999.
NOTE 6--INCOME TAXES
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
Fiscal Year
Ended
May 31,
------------------
1997 1998 1999
---- ----- -----
<S> <C> <C> <C>
Income taxes currently payable
Federal............................................ $ 90 $ 493 $ (56)
State............................................... 186 222 258
---- ----- -----
276 715 202
Deferred income tax benefit:
Federal............................................. (80) (406) (339)
State............................................... (5) (23) (19)
---- ----- -----
Total provision (benefit) for taxes............... $191 $ 286 $(156)
==== ===== =====
</TABLE>
F-77
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
May 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Current deferred tax liabilities:
Accrual to cash adjustment............................ $(1,245) $(1,299)
------- -------
Long-term deferred tax assets (liabilities):
Property and equipment................................ (36) (105)
Supplemental Executive Retirement Plan................ 1,102 1,583
------- -------
Total long-term deferred tax asset.................. 1,066 1,478
------- -------
Net deferred tax (liability) asset...................... $ (179) $ 179
======= =======
</TABLE>
The Company's income tax expense varied from the amounts resulting from
applying the applicable U.S. federal statutory tax rate to pre-tax income as
follows:
<TABLE>
<CAPTION>
Fiscal Year
Ended May 31,
-----------------
1997 1998 1999
---- ---- -----
<S> <C> <C> <C>
Tax provision (benefit) at U.S. federal statutory
rate................................................ $(61) $ 26 $(317)
Net increase in life insurance cash surrender value.. (15) (14) (95)
Nondeductible expenses............................... 90 83 89
State tax rate....................................... (3) 2 (18)
State permanent differences, net of federal benefit.. 180 189 185
---- ---- -----
Total provision (benefit) for taxes.................. $191 $286 $(156)
==== ==== =====
</TABLE>
NOTE 7--LEASE COMMITMENTS
The Company leases various office facilities and vehicles under
noncancelable lease agreements, which expire at various dates. Certain of these
leases allow the Company, at its option, to extend the lease term and/or
purchase the leased asset at the end of the lease term, generally at fair
market value. Future minimum lease payments under noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year:
------------
<S> <C>
2000............................................................... $1,073
2001............................................................... 1,090
2002............................................................... 1,065
2003............................................................... 1,091
2004............................................................... 1,117
------
Total minimum lease payments....................................... $5,436
======
</TABLE>
F-78
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Rent expense for all operating leases for the fiscal years ended May 31,
1997, 1998 and 1999 was $1,077, $1,129 and $1,216, respectively.
NOTE 8--EMPLOYEE BENEFIT PLANS
401(k) Plan:
The Company has a contributory defined contribution benefit plan covering
substantially all employees who have completed one year of service and have
attained the age of 21. Company contributions are discretionary and amounted to
$150, $115 and $179 for the fiscal years ended May 31, 1997, 1998 and 1999,
respectively.
Supplemental Executive Retirement Plan:
During November 1995, the Company adopted a Supplemental Executive
Retirement Plan (SERP) to provide benefits to certain shareholders and
employees (the Participants) or their beneficiaries. A Participant becomes
eligible to participate in the SERP on June 1 of the year following the
Participant's second anniversary as an account executive.
If the Participants retire from employment with the Company on or after
attaining age 65, they are entitled to an annual SERP benefit of 66.67% of
their highest three year average compensation for the period following their
eligibility to participate in the SERP. If the Participant retires from the
Company prior to obtaining age 65, the benefit otherwise payable is multiplied
by a scheduled vesting factor corresponding to the Participant's total years of
service. If the Participant retires as a result of a total and permanent
disability or dies before retiring, the Participant's (or their beneficiaries')
supplemental disability benefit is deemed to be 33.33% of the Participant's
highest three year average compensation for the period following their
eligibility to participate in the SERP, multiplied by a scheduled vesting
factor corresponding to the Participant's total years of service. In all cases,
SERP benefits are payable for a period of seven years.
The Company may terminate or freeze benefits under the SERP at any time,
provided it commences payment of the present value of the Participant's vested
benefit at the time of such termination.
Net deferred compensation cost for the Company includes the following
components:
<TABLE>
<CAPTION>
Fiscal Year Ended
May 31,
--------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Service cost......................................... $ 344 $ 384 $ 435
Interest cost........................................ 420 476 519
Amortization of prior service cost................... 348 348 348
------ ------ ------
Net deferred compensation cost....................... $1,112 $1,208 $1,302
====== ====== ======
</TABLE>
F-79
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Assumptions used in the development of pension data follow:
<TABLE>
<CAPTION>
Fiscal Year Ended
May 31,
---------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Discount rate...................................... 7.0% 7.0% 7.0%
Rates of increase in compensation levels........... 4.0% 4.0% 4.0%
</TABLE>
The Company's SERP is currently unfunded. However, the Company does maintain
life insurance policies on the SERP's participants. The following table
presents the status of the Company's SERP benefits:
<TABLE>
<CAPTION>
May 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Projected benefit obligation:
Active plan participants.............................. $ 7,291 $ 8,246
Retirees.............................................. -- --
------- -------
Funded status........................................... (7,291) (8,246)
Unrecognized prior service cost......................... 4,301 3,954
Unrecognized gain....................................... 12 12
------- -------
Accrued SERP cost....................................... $(2,978) $(4,280)
======= =======
</TABLE>
NOTE 9--CONTINGENCIES
Litigation:
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
NOTE 10--RELATED PARTY TRANSACTIONS
Report Systems, Inc. (RSI) (which is owned by the shareholders of the
Company) provides bookkeeping services to certain clients of the Company.
Through the end of fiscal year 1997, the Company had leased computer equipment
from RSI. Additionally, RSI provides certain bookkeeping services to the
Company. The cost of these services were negotiated on an arms length basis and
amounted to $64, $10 and $5 for the years ended May 31, 1997, 1998 and the ten
months ended March 31, 1999, respectively.
The partners of the Company also own 100% of RSI. During March 1999, the
Company acquired for cash the accounts receivable and work in process at net
realizable value for $99 and $20, respectively. Subsequently, during March
1999, the partners contributed certain equipment, primarily personal computers,
formerly owned by RSI to the Company. As both companies were controlled by the
partners of the Company, this contribution of non-cash assets by the partners
was accounted for at historical cost.
Notes payable to shareholders represent amounts due under the partner bonus
program. Partner bonuses are accrued at fiscal year end and repaid, together
with interest, over the six month period ending December 31.
F-80
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
The notes accrue interest at rates ranging from 8.0% to 8.5%. Interest payments
of $30 and $70 were paid to shareholders in 1998 and 1999, respectively.
There are notes and other receivables from certain shareholders in the
aggregate amount of $10 and $20 at May 31, 1998 and 1999, respectively, which
are included in other assets.
The Company leases its Southfield, Michigan space from Lincoln Development
Corporation, a company which is 50 percent owned by Follmer Rudzewicz
Development. Follmer Rudzewicz Development is a limited partnership which is
owned in part by Anthony P. Frabotta. The lease term began in 1988 and expires
in 2004. The current annual rent is approximately $680, which increases over
the term of the lease. The annual rent for the 2003 to 2004 term is
approximately $736.
NOTE 11--CENTERPRISE TRANSACTION
In March 1999, the Company and its stockholders entered into a definitive
agreement with Centerprise Advisors, Inc. (Centerprise) pursuant to which the
Company stockholders will create FRF Holding LLC and capitalize it with their
stock of the Company. The Company will convert from a professional corporation
to a business corporation. Thereafter, a wholly-owned subsidiary of Centerprise
will merge with and into the Company. All of the Company's outstanding shares
will be exchanged for cash and common stock of Centerprise concurrently with
the consummation of the initial public offering of the common stock of
Centerprise.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, Centerprise is requiring
that the Company cease providing attest services prior to the closing of the
acquisition. Following the closing, all attest services formerly provided by
the Company will be provided by a newly created separate legal entity (the
Attest Firm) which will be owned by former owners of the Company who are
certified public accountants. Pursuant to a services agreement, Centerprise
will provide professional and other personnel, equipment, office space and
business and administrative services necessary to operate the Attest Firm.
In connection with the pending merger described above, the shareholders have
tentatively agreed to rescind all shareholders' benefits related to the SERP
Plan described in Note 8.
F-81
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Berry, Dunn, McNeil & Parker, Chartered
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Berry,
Dunn, McNeil & Parker, Chartered at June 30, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 26, 1999
F-82
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30,
---------------
1998 1999
------- ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 2,013 $ 69
Fees receivable, less allowance for doubtful accounts of
$924 and $749, respectively................................ 4,349 3,873
Unbilled fees, at net realizable value...................... 1,341 1,556
Prepaid expenses and other current assets................... 183 117
------- ------
Total current assets...................................... 7,886 5,615
Property and equipment, net................................... 1,763 1,548
Intangible assets, net........................................ 1,058 1,247
Deferred income taxes......................................... 423 423
Other assets.................................................. 15 --
------- ------
Total assets.............................................. $11,145 $8,833
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt............................................. $ 2,612 $1,631
Due to principals........................................... 4,906 3,973
Accounts payable............................................ 99 106
Accrued employee compensation and related costs............. 785 860
Deferred compensation....................................... 619 529
Deferred income taxes....................................... 653 653
Other accrued liabilities................................... 208 239
------- ------
Total current liabilities................................. 9,882 7,991
Deferred compensation......................................... 542 495
Other long-term liabilities................................... 4 --
------- ------
Total liabilities......................................... 10,428 8,486
------- ------
Commitments and contingencies
Shareholders' equity:
Redeemable common stock and contributed capital, no par
value; 10,000 shares authorized, 32 and 9,745 common shares
issued and outstanding at June 30, 1998 and 1999,
respectively............................................... 1,222 924
Accumulated deficit......................................... (216) (216)
Related party advances...................................... (289) (361)
------- ------
Total shareholders' equity................................ 717 347
------- ------
Total liabilities and shareholders' equity................ $11,145 $8,833
======= ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-83
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
CONSOLIDATED STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenues:
Professional services............................. $16,812 $17,916 $18,604
------- ------- -------
Expenses:
Shareholder compensation and related costs........ 6,214 7,113 6,574
Employee compensation and related costs........... 6,441 6,318 7,513
Occupancy costs................................... 1,248 1,256 1,438
Office operating expenses......................... 1,690 1,811 1,675
Other selling, general and administrative
expenses......................................... 1,175 1,338 1,348
------- ------- -------
16,768 17,836 18,548
------- ------- -------
Operating income................................ 44 80 56
------- ------- -------
Other (income) expense:
Interest expense.................................. 291 326 347
Interest income................................... (254) (261) (286)
Other............................................. 7 15 (5)
------- ------- -------
44 80 56
------- ------- -------
Net income.......................................... $ -- $ -- $ --
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-84
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Common Stock Related Total
-------------- Accumulated Party Shareholders'
Shares Amount Deficit Advances Equity
------ ------ ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996..... 27 $1,023 $(216) $(425) $ 382
Capital contributed by
principals................ 4 144 -- -- 144
Net decrease in related
party advances............ -- -- -- 198 198
----- ------ ----- ----- -----
Balance at June 30, 1997..... 31 1,167 (216) (227) 724
Capital contributed by
principals................ 2 92 -- -- 92
Redemption of capital
contributed by
principals................ (1) (37) -- -- (37)
Net increase in related
party advances............ -- -- -- (62) (62)
----- ------ ----- ----- -----
Balance at June 30, 1998..... 32 1,222 (216) (289) 717
Capital contributed by
principals................ -- 211 -- -- 211
Issuance of shares......... 9,716 -- -- -- --
Redemption of capital
contributed by
principals................ (3) (509) -- -- (509)
Net increase in related
party advances............ -- -- -- (72) (72)
----- ------ ----- ----- -----
Balance at June 30, 1999..... 9,745 $ 924 $(216) $(361) $ 347
===== ====== ===== ===== =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-85
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ -- $ -- $ --
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 810 908 1,067
Provision for (recovery of) uncollectible fees
receivable..................................... 210 278 (2)
Loss on disposal of property and equipment...... -- -- 8
Changes in operating assets and liabilities:
Fees receivable............................... (735) (798) 478
Unbilled fees................................. (233) (101) (215)
Prepaid expenses and other current assets..... (238) (87) 66
Due to principals............................. 1,232 1,185 (477)
Accounts payable.............................. (26) (105) 7
Other accrued liabilities..................... 154 (15) 31
Accrued employee compensation and related
costs........................................ 121 150 75
Other......................................... (239) 157 (141)
------- ------- -------
Net cash provided by operating activities... 1,056 1,572 897
------- ------- -------
Cash flows from investing activities:
Business acquisitions............................. (453) (390) (342)
Purchase of property and equipment................ (665) (702) (1,163)
Other............................................. (15) 29 15
------- ------- -------
Net cash used in investing activities....... (1,133) (1,063) (1,490)
------- ------- -------
Cash flows from financing activities:
Repayments (advances) to related parties.......... 198 (62) (72)
Proceeds from (payments of) short-term debt, net.. 776 344 (981)
Redemption of capital contributed by principals... -- (37) (509)
Capital contributed by principals................. 144 92 211
------- ------- -------
Net cash provided by (used in) financing
activities................................. 1,118 337 (1,351)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents........................................ 1,041 846 (1,944)
Cash and cash equivalents at beginning of period.... 126 1,167 2,013
------- ------- -------
Cash and cash equivalents at end of period.......... $ 1,167 $ 2,013 $ 69
======= ======= =======
Supplemental disclosures of cash flow information:
Interest paid..................................... $ 291 $ 326 $ 347
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-86
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 1--BACKGROUND AND BUSINESS DESCRIPTION
Berry, Dunn, McNeil & Parker, Chartered (the Company) provides professional
accounting, auditing, tax and consulting services primarily in northern New
England.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, BDMP Decision Development, LLC. All
significant intercompany transactions and accounts are eliminated in
consolidation.
Revenue Recognition:
The Company recognizes revenue as the related services are provided. The
Company bills clients based upon actual hours incurred on client projects at
expected net realizable rates per hour, plus any out-of-pocket expenses. The
cumulative impact of any subsequent revision in the estimated realizable value
of unbilled fees for a particular client project is reflected in the period in
which the change becomes known. Outstanding fees receivable are evaluated each
period to assess the adequacy of the allowance for doubtful accounts.
Unbilled Fees:
Unbilled fees represent the anticipated net realizable value of services
provided by the Company's professional and administrative staff, plus out-of-
pocket expenses, on projects which had not yet been billed to clients as of
period end.
Cash and Cash Equivalents:
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
Property and Equipment:
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization of property and equipment are
computed on the straight-line method over estimated useful asset lives or the
shorter of asset life or lease term for leasehold improvements, generally
ranging from 3 to 10 years. Expenditures for maintenance and repairs and minor
renewals and betterments that do not improve or extend the life of the
respective assets are expensed. All other expenditures for renewals and
betterments are capitalized. The assets and related depreciation (amortization)
accounts are adjusted for property retirements and disposals with the resulting
gain or loss included in operations.
Asset Impairment Assessments:
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying value of such assets may not be fully
recoverable. An impairment loss is recognized to the extent
F-87
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
that the sum of undiscounted estimated future cash flows expected to result
from use of the assets is less than the carrying value. If an impairment is
recognized the carrying value of the impaired asset is reduced to its fair
value. No impairment has been recognized by the Company.
Intangible Assets:
Intangible assets consist of goodwill, which represents the excess of cost
over the fair value of assets acquired in business combinations accounted for
under the purchase method. Substantially all goodwill is amortized on a
straight-line basis over an estimated useful life of 40 years.
Investments:
Investments in companies in which the Company has significant ownership and
influence, but not control, are included in the consolidated financial
statements under the equity method of accounting. Other investments in
companies are stated at cost.
Fair Value of Financial Instruments:
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, fees receivable, accounts payable and accrued liabilities
approximate fair value.
Income Taxes:
Income taxes have been computed using the asset and liability approach.
Under this approach, deferred income tax assets and liabilities are determined
based on the differences between the financial statement and tax basis of
assets and liabilities using currently enacted tax rates in effect for the
years in which the differences are expected to reverse.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of fees receivable. Receivables
arising from services provided to clients are not collateralized and, as a
result, management continually monitors the financial condition of its clients
to reduce the risk of loss.
Use of Estimates:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. While management believes that the
estimates and related assumptions used in the preparation of the consolidated
financial statements are appropriate, actual results could differ from those
estimates. Estimates are made when accounting for the allowances for doubtful
accounts, unbilled fees, depreciation and amortization and income taxes.
F-88
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 3--BUSINESS COMBINATIONS
On January 10, 1995, the Company acquired the firm of Brooks & Carter (B&C)
for one dollar and additional contingent consideration. The additional
contingent consideration is based on actual cash receipts of future gross
billings to former B&C clients for each calendar quarter during the period 1995
through 1999. However, the agreement limits the Company's payments to the
former owners of B&C based on amounts that B&C had collected from its clients
during 1994. Total payments made to the former owners of B&C for the years
ended June 30, 1997, 1998 and 1999 were approximately $30, $34 and $35,
respectively. These amounts are being amortized over the remaining portion of a
forty-year period from the date of acquisition.
On January 31, 1995, the Company acquired the firm of Smith, Batchelder &
Rugg (SBR) for $117 and other consideration as described below. In addition,
the Company paid a $425 note payable from SBR to State Street Bank and Trust
Co. The purchase price consideration also includes payments of $38 per year for
five years, plus variable percentages of cash receipts of future gross billings
to former clients of SBR for and during the five year period starting February
1, 1995 and terminating January 31, 2000. Excluding the initial acquisition
payment of $117, the maximum amount payable to the former owners of SBR under
the terms of the purchase agreement is $1,688. Total payments made to the
former owners of SBR for the years ended June 30, 1997, 1998 and 1999, were
approximately $245, $270 and $196, respectively. These amounts are being
amortized over the remaining portion of a forty-year period from the date of
acquisition.
On January 1, 1996, the Company acquired the firm of Ade & Associates (Ade)
for $45 and additional contingent consideration. The additional contingent
consideration is based on actual cash receipts of future gross billings to
former Ade clients for and during the seven year period commencing January 1,
1996, and terminating December 31, 2002, including all work-in-process as of
December 31, 2002, for former clients of Ade, if and when collected by the
Company. Total contingent payments made to the former owners of Ade for the
years ended June 30, 1997, 1998 and 1999 were approximately $178, $86 and $111,
respectively. These amounts are being amortized over the remaining portion of a
forty-year period from the date of acquisition.
F-89
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 4--SELECTED FINANCIAL STATEMENT INFORMATION
Additional information concerning consolidated financial statement accounts
include the following:
<TABLE>
<CAPTION>
June 30,
----------------
1998 1999
------- -------
<S> <C> <C>
Property and equipment, net:
Furniture and fixtures................................. $ 2,942 $ 1,580
Computer equipment..................................... 828 1,449
Automobiles............................................ 839 --
Leasehold improvements................................. 652 785
------- -------
5,261 3,814
Less accumulated depreciation and amortization......... (3,498) (2,266)
------- -------
$ 1,763 $ 1,548
======= =======
</TABLE>
In June 1999, the Company's shareholders purchased the automobiles from the
Company. Amounts due from the shareholders have been included as a reduction to
the due to principals balance.
<TABLE>
<S> <C> <C>
Intangible assets, net:
Goodwill................................................. $1,134 $1,363
Less accumulated amortization............................ (76) (116)
------ ------
$1,058 $1,247
====== ======
</TABLE>
NOTE 5--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a rollforward of activity within the allowance for doubtful
accounts:
<TABLE>
<CAPTION>
Fiscal Year Ended
June 30,
-------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period..................... $ 789 $ 814 $ 924
Additions to (reductions of)
costs and expenses......... 210 278 (2)
Less (write-offs)
recoveries................. (185) (168) (173)
----- ----- -----
Balance at end of period.... $ 814 $ 924 $ 749
===== ===== =====
</TABLE>
NOTE 6--CREDIT FACILITIES
Short-Term Debt:
Short-term debt consists of notes payable to shareholders' and shareholders'
families, which bear interest at a variable rate of prime plus 1.5 percent and
1.0 percent, respectively. Amounts are due upon demand. The prime rate was 8.5
percent, 8.5 percent and 8.5 percent at June 30, 1997, 1998 and 1999,
respectively.
F-90
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
In addition, the Company has a $3 million line of credit with Peoples
Heritage Bank, with interest payable monthly at prime plus 0.5 percent,
expiring November 1, 1999. At June 30, 1998 and 1999, there were no borrowings
outstanding under the line of credit. The line of credit is collateralized by
substantially all assets of the Company, and guaranteed by the Company's
shareholders.
NOTE 7--INCOME TAXES
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
June 30,
---------
1998 1999
---- ----
<S> <C> <C>
Long-term deferred tax assets:
Deferred compensation......................................... $225 $213
Net operating loss carryforward............................... 141 162
Property and equipment........................................ 57 48
---- ----
Total long-term deferred tax assets......................... 423 423
Current deferred tax liabilities:
Intangible assets............................................. 119 126
Accrual to cash adjustment.................................... 534 527
---- ----
Total current deferred tax liabilities...................... 653 653
---- ----
Net deferred tax liability...................................... $230 $230
==== ====
</TABLE>
NOTE 8--LEASE COMMITMENTS
The Company leases various office facilities and equipment under
noncancelable lease agreements, which expire at various dates through November
2011. Certain of these leases allow the Company, at its option to extend the
lease term and/or purchase the leased asset at the end of the lease term,
generally at fair market value. Future minimum lease payments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year:
------------
<S> <C>
2000............................................................... $ 723
2001............................................................... 779
2002............................................................... 773
2003............................................................... 703
2004............................................................... 703
Thereafter......................................................... 2,359
------
Total minimum lease payments....................................... $6,040
======
</TABLE>
Rent expense for all operating leases for the fiscal years ended June 30,
1998 and 1999 was $806 and $874, respectively.
F-91
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 9--EMPLOYEE BENEFIT PLANS
401(k) and Profit Sharing Plan:
The Company has a contributory defined contribution benefit plan covering
substantially all employees. Total Company contributions to the plan for the
fiscal years ended June 30, 1997, 1998 and 1999 was $493, $503 and $768,
respectively.
Deferred Compensation Plan:
The Company has a nonqualified deferred compensation plan with its retired
principals for retirement benefits earned by the retired principals through
1985 under a benefit plan which is no longer in place, and undistributed
shareholder income related to a change in the Company's fiscal year end during
1990. The benefit to retired principals is paid in 120 equal monthly
instalments. In addition, unpaid salaries and bonuses payable to the retired
principals are included in the deferred compensation balances. These amounts
bear interest at prime plus 1.5 percent.
NOTE 10--SHAREHOLDERS' EQUITY
Each shareholder of the Company (Shareholder) was issued one share of the
Company's no par common stock upon admission as a shareholder. The price of
each share is determined by the Board of Directors. After five years as a
principal, a Shareholder is required to have a capital contribution equal to 50
percent of their salary. Upon retirement, resignation, death, or other defined
events, each Shareholder or Shareholder beneficiary has the right to receive
the amount paid to the Company by each Shareholder for his/her share of common
stock. During 1999, 9,716 shares of common stock were issued to existing
shareholders for no additional consideration.
NOTE 11--COMMITMENTS AND CONTINGENCIES
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
During fiscal 1999, the Company received notice from legal counsel for a
former owner of Ade of a potential claim arising out of the Company's
acquisition of Ade. This claim includes allegations of breach of contract,
fraudulent inducement, breach of fiduciary duty, and violation of state and
federal antitrust laws. The Company believes this lawsuit is without merit and
intends to vigorously contest it.
NOTE 12--RELATED PARTY TRANSACTIONS
The Company has a loan receivable of $230 from BDMP Realty LLC (BDMP), a
related party owned by the Company's principals. The loan bears interest at
prime and does not require scheduled payments. The Company also periodically
advances funds to its shareholders.
Loans to BDMP and advances to shareholders have been included in the
consolidated balance sheet as related party advances.
F-92
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
The Company also leases the Bangor office from BDMP under a 15-year lease.
Annual rent is $230 and the lease is renewable for two periods of five years
each.
As described in Note 6, the Company periodically receives loans from the
Company's shareholders and shareholders' families.
Amounts due to principals consist of accrued bonuses and accrued salaries.
Accrued bonuses and salaries earn interest at prime plus 1.5 percent.
NOTE 13--SUBSEQUENT EVENTS (UNAUDITED)
In March 1999, the Company and its stockholders entered into a definitive
agreement with Centerprise Advisors, Inc. (Centerprise) pursuant to which the
Company stockholders will transfer their Company shares to a newly formed Maine
limited liability company ("BDM&P Holdings"). The Company will be converted
from a professional corporation to a business corporation. A wholly-owned
subsidiary of Centerprise will merge with and into the Company. All of the
Company's outstanding shares will be exchanged for cash and common stock of
Centerprise concurrently with the consummation of the initial public offering
of the common stock of Centerprise.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, Centerprise is requiring
that the Company cease providing attest services prior to the closing of the
acquisition. Following the closing, all attest services formerly provided by
the Company will be provided by a newly created separate legal entity (the
Attest Firm) which will be owned by former owners of the Company who are
certified public accountants. Pursuant to a services agreement, Centerprise
will provide professional and other personnel, equipment, office space and
business and administrative services necessary to operate the Attest Firm.
F-93
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Urbach Kahn & Werlin PC
In our opinion, the accompanying balance sheet and the related statements of
income, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Urbach Kahn & Werlin PC at October
31, 1998 and July 31, 1999, and the results of its operations and its cash
flows for each of the two years in the period ended October 31, 1998 and the
nine months ended July 31, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
September 24, 1999
F-94
<PAGE>
URBACH KAHN & WERLIN PC
BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
October 31, July 31,
1998 1999
----------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 189 $ 2,174
Marketable securities................................... 1,152 --
Fees receivable, less allowance for doubtful accounts of
$1,177
and $1,116, respectively............................... 7,741 8,520
Unbilled fees, at net realizable value.................. 299 684
Due from shareholders................................... 570 550
Prepaid expenses and other current assets............... 829 400
------- -------
Total current assets.................................. 10,780 12,328
Property and equipment, net............................... 699 980
Investments............................................... 927 900
Deferred income taxes..................................... 2,188 2,252
Other assets.............................................. 319 331
------- -------
Total assets.......................................... $14,913 $16,791
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt......................................... $ 946 $ 446
Accounts payable........................................ 340 393
Accrued compensation and related costs to employees..... 249 262
Accrued compensation and related costs to shareholders.. 1,337 3,668
Deferred compensation................................... 262 247
Deferred income taxes................................... 2,603 2,022
Other accrued liabilities............................... 564 1,060
------- -------
Total current liabilities............................. 6,301 8,098
Long-term debt............................................ 1,622 1,269
Deferred compensation..................................... 4,805 5,077
Other..................................................... 149 149
------- -------
Total liabilities..................................... 12,877 14,593
------- -------
Commitments and contingencies
Shareholders' equity:
Redeemable common stock, $.01 par value; 100,000 shares
authorized, and 18,425 shares issued and outstanding .. -- --
Additional paid-in-capital.............................. 3,186 3,364
Accumulated other comprehensive income.................. 151 --
Accumulated deficit..................................... (1,301) (1,166)
------- -------
Total shareholders' equity............................ 2,036 2,198
------- -------
Total liabilities and shareholders' equity............ $14,913 $16,791
======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-95
<PAGE>
URBACH KAHN & WERLIN PC
STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Nine Months
Ended October 31, Ended July 31,
------------------ -------------------
1997 1998 1998 1999
-------- -------- ----------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Professional services........... $ 16,012 $ 17,085 $13,192 $15,997
-------- -------- ------- -------
Expenses:
Shareholder compensation and
related costs.................. 4,798 4,853 3,774 6,434
Employee compensation and
related costs.................. 6,590 7,147 5,363 5,997
Occupancy costs................. 1,036 1,136 847 824
Office operating expenses....... 674 736 571 581
Depreciation and amortization... 222 261 181 255
Other selling, general and
administrative expenses........ 2,385 2,727 2,074 1,917
-------- -------- ------- -------
15,705 16,860 12,810 16,008
-------- -------- ------- -------
Operating income (loss)....... 307 225 382 (11)
-------- -------- ------- -------
Other (income) expense:
Interest expense................ 594 643 482 456
Realized gains on investment.... -- -- -- (366)
Interest income................. (78) (108) (38) (34)
Other........................... (489) (435) (268) (368)
-------- -------- ------- -------
27 100 176 (312)
-------- -------- ------- -------
Income before provision for income
taxes............................ 280 125 206 301
Provision for income taxes........ 172 105 120 162
-------- -------- ------- -------
Net income........................ $ 108 $ 20 $ 86 $ 139
======== ======== ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-96
<PAGE>
URBACH KAHN & WERLIN PC
STATEMENT OF SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total Total
-------------- Paid-in- Accumulated Comprehensive Shareholders' Comprehensive
Shares Amount Capital Deficit Income Equity Income (Loss)
------ ------ ---------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31,
1996................... 17,835 $-- $2,944 $(1,299) $-- $1,645
Cash dividends, $.17
per share............ -- -- -- (3) -- (3)
Issuances of common
stock/ payments of
subscriptions........ 1,125 -- 333 -- -- 333
Retirement of common
stock................ (1,270) -- (319) (124) -- (443)
Unrealized gain on
available for sale
securities........... -- -- -- -- 91 91 $ 91
Net income............ -- -- -- 108 -- 108 108
------ ---- ------ ------- ---- ------ -----
Total comprehensive
income.............. -- -- -- -- -- -- $ 199
=====
Balance at October 31,
1997................... 17,690 -- 2,958 (1,318) 91 1,731
Cash dividends, $.17
per share............ -- -- -- (3) -- (3)
Issuances of common
stock/ payments of
subscriptions........ 735 -- 228 -- -- 228
Unrealized gain on
available for sale
securities........... -- -- -- -- 60 60 $ 60
Net income............ -- -- -- 20 -- 20 20
------ ---- ------ ------- ---- ------ -----
Total comprehensive
income.............. -- -- -- -- -- -- $ 80
=====
Balance at October 31,
1998................... 18,425 -- 3,186 (1,301) 151 2,036
Cash dividends, $.17
per share............ -- -- -- (4) -- (4)
Issuances of common
stock/ payments of
subscriptions........ -- -- 178 -- -- 178
Reclassification
adjustment for gains
included in net
income............... -- -- -- -- (151) (151) $(151)
Net income............ -- -- -- 139 -- 139 139
------ ---- ------ ------- ---- ------ -----
Total comprehensive
loss................ -- -- -- -- -- -- $ (12)
=====
Balance at July 31, 1999
....................... 18,425 $-- $3,364 $(1,166) $-- $2,198
====== ==== ====== ======= ==== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-97
<PAGE>
URBACH KAHN & WERLIN PC
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year
Ended Nine Months Ended
October 31, July 31,
-------------- ------------------
1997 1998 1998 1999
------- ----- ----------- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 108 $ 20 $ 86 $ 139
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization...... 222 261 181 255
Change in deferred income taxes.... 148 105 120 (564)
Gain on sale of investments........ -- -- -- (366)
Increase in related entities' and
investment equity................. (367) (346) (210) (218)
Changes in current assets and
liabilities:
Fees receivable.................. 126 (836) (934) (779)
Unbilled fees.................... 92 (161) (398) (385)
Prepaid expenses and other
current assets.................. (253) (8) 326 429
Accounts payable................. (607) (67) 134 53
Accrued liabilities.............. (74) 405 229 496
Accrued compensation and related
costs to employees.............. (173) (16) (149) 13
Accrued compensation and related
costs to shareholders........... 45 455 367 2,331
Deferred compensation............ 602 298 263 257
Other............................ 140 47 94 (61)
------- ----- ----- ------
Net cash provided by operating
activities.................... 9 157 109 1,600
------- ----- ----- ------
Cash flows from investing activities:
Due from shareholders................ 41 (176) (102) 20
Purchase of property and equipment... (283) (187) (169) (530)
Dividends from corporate joint
venture equity investment........... 176 85 -- 123
Purchase of investments.............. (37) (31) (8) --
Proceeds from sale of investments.... -- -- -- 1,408
Other................................ (75) (40) -- 43
------- ----- ----- ------
Net cash (used in) provided by
investing activities.......... (178) (349) (279) 1,064
------- ----- ----- ------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt................................ 1,700 -- -- --
Payments of long-term debt........... (296) (429) (326) (353)
Proceeds from (payments of) short-
term debt, net...................... (1,100) 500 400 (500)
Payments of dividends................ (3) (3) (3) (4)
Proceeds from issuance of common
stock/payments of subscriptions..... 333 228 216 178
Payments to retire common stock...... (443) -- -- --
Other................................ (10) 67 -- --
------- ----- ----- ------
Net cash provided by (used in)
financing activities.......... 181 363 287 (679)
------- ----- ----- ------
Net increase in cash and cash
equivalents........................... 12 171 117 1,985
Cash and cash equivalents at beginning
of period............................. 6 18 18 189
------- ----- ----- ------
Cash and cash equivalents at end of
period................................ $ 18 $ 189 $ 135 $2,174
======= ===== ===== ======
Supplemental disclosures of cash flow
information:
Interest paid........................ $ 238 $ 254 $ 482 $ 456
Income taxes paid.................... $ 11 $ 34 $ 28 $ 25
</TABLE>
See accompanying Notes to Financial Statements.
F-98
<PAGE>
URBACH KAHN & WERLIN PC
NOTES TO FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 1--BACKGROUND AND BUSINESS DESCRIPTION
The Company:
Urbach Kahn & Werlin PC (the Company or UKW), which was founded in 1964, is
a professional accountancy corporation engaged in providing tax, accounting and
auditing, and consulting services. The Company is headquartered in Albany, New
York and also conducts its practice in five other operating offices, which are
located in: Glens Falls, NY; Poughkeepsie, NY; New York, NY; Los Angeles, CA;
and Washington, DC.
NOTE 2--RELATED ENTITIES AND INVESTMENTS
The accounts and operations of several entities which are affiliated with
the Company through partnership arrangements and/or common stock investments
are not material, are generally carried at the Company's net equity and are
classified as investments. The Company's interest in a corporate joint venture,
which provides malpractice insurance to its members, is also carried at net
equity in underlying net assets and is also classified as an investment.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
The Company recognizes revenue as the related services are provided. The
Company bills clients based upon actual hours incurred on client projects at
expected net realizable rates per hour, plus any out-of-pocket expenses. The
cumulative impact of any subsequent revision in the estimated realizable value
of unbilled fees for a particular client project is reflected in the period in
which the change becomes known. Outstanding fees receivable are evaluated each
period to assess the adequacy of the allowance for doubtful accounts.
Unbilled Fees:
Unbilled fees represent the anticipated net realizable value for hours
incurred by the Company's professional and administrative staff, plus out-of-
pocket expenses, on projects which had not yet been billed to clients as of
period end.
Cash and Cash Equivalents:
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
Marketable Securities:
The Company accounts for marketable securities in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
F-99
<PAGE>
URBACH KAHN & WERLIN PC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Marketable securities consisted of investments in equity securities and are
classified as available for sale securities. At October 31, 1998, the fair
market value of the marketable securities exceeded the adjusted cost. The
unrealized gains, net of deferred income taxes, are reported as an increase to
shareholders' equity. During April 1999, the Company divested all of its
marketable securities ($1,248), which resulted in realized gains of $328.
Marketable securities consisted of:
<TABLE>
<CAPTION>
October 31,
1998
-----------
<S> <C> <C>
Adjusted cost................................................ $ 920
Unrealized holding gains..................................... 232
-------
Fair market value............................................ $ 1,152
=======
</TABLE>
Property and Equipment:
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization of property and equipment are
computed on the straight-line method over estimated useful asset lives (shorter
of asset life or lease term for leasehold improvements), generally ranging from
4 to 10 years. Expenditures for maintenance and repairs and minor renewals and
betterments which do not improve or extend the life of the respective assets
are expensed. All other expenditures for renewals and betterments are
capitalized. The assets and related depreciation accounts are adjusted for
property retirements and disposals with the resulting gain or loss included in
operations.
Intangible Assets:
Intangible assets consist of goodwill, which represents the excess of cost
over the fair value of assets acquired in practice acquisitions accounted for
under the purchase method. Substantially all goodwill is amortized on a
straight-line basis over an estimated useful life of 40 years.
Asset Impairment Assessments:
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying value of such assets may not be fully
recoverable. An impairment is recognized to the extent that the sum of
undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. If an impairment is recognized, the
carrying value of the impaired asset is reduced to its fair value. No
impairment has been recognized through July 31, 1999.
Fair Value of Financial Instruments:
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, fees receivable, accounts payable, accrued liabilities
and debt approximate fair value.
Income Taxes:
Income taxes have been computed using the asset and liability approach.
Under this approach, deferred income tax assets and liabilities are determined
based on the differences between the financial statement and
F-100
<PAGE>
URBACH KAHN & WERLIN PC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
tax basis of assets and liabilities using currently enacted tax rates in effect
for the years in which the differences are expected to reverse.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of fees receivable. Receivables
arising from services provided to clients are not collateralized and, as a
result, management continually monitors the financial condition of its clients
to reduce the risk of loss.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. While management believes that the estimates and related
assumptions used in the preparation of the financial statements are
appropriate, actual results could differ from those estimates. Estimates are
made when accounting for the allowances for doubtful accounts, depreciation and
amortization, income taxes and deferred compensation liability.
Unaudited Interim Financial Statements:
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's results of operations and cash flows for the nine
months ended July 31, 1998, as presented in the accompanying unaudited interim
financial statements.
F-101
<PAGE>
URBACH KAHN & WERLIN PC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 4--SELECTED FINANCIAL STATEMENT INFORMATION
Additional information concerning consolidated financial statement accounts
include the following:
<TABLE>
<CAPTION>
July
October 31, 31,
1998 1999
----------- -------
<S> <C> <C>
Property and equipment, net:
Furniture and fixtures............................. $ 3,795 $ 4,297
Leasehold improvements............................. 696 723
------- -------
4,491 5,020
Less accumulated depreciation and amortization..... (3,792) (4,040)
------- -------
$ 699 $ 980
======= =======
Prepaid expenses and other current assets:
Prepaid insurance.................................. $ 306 $ 50
Prepaid taxes...................................... 65 78
Prepaid rent....................................... 166 --
Other receivables.................................. 138 214
Notes receivables.................................. 83 22
Other.............................................. 71 36
------- -------
$ 829 $ 400
======= =======
Other accrued liabilities:
Accrued income taxes............................... $ -- $ 726
401K employer matching contribution................ 245 51
Other.............................................. 319 283
------- -------
$ 564 $ 1,060
======= =======
</TABLE>
NOTE 5--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a rollforward of activity within the allowance for doubtful
accounts:
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months
October 31, Ended
------------------ July 31,
1997 1998 1999
-------- -------- -----------
<S> <C> <C> <C>
Balance at beginning of period............. $ 1,385 $ 1,070 $1,177
Additions to costs and expenses............ 174 420 351
Less write-offs............................ (489) (313) (412)
-------- -------- ------
Balance at end of period................... $ 1,070 $ 1,177 $1,116
======== ======== ======
</TABLE>
F-102
<PAGE>
URBACH KAHN & WERLIN PC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 6--CREDIT FACILITIES
Short-Term Debt:
Short-term debt consists of the following:
<TABLE>
<CAPTION>
October 31, July 31,
1998 1999
----------- --------
<S> <C> <C>
Lines of credit....................................... $500 $--
Current maturities of long-term debt.................. 446 446
---- ----
Total short-term debt............................... $946 $446
==== ====
</TABLE>
The Company has several bank lines of credit with borrowing capacity of
$5,000. The interest rates range from prime plus .25 percent to prime minus
1.25 percent. The lines of credit are unsecured. The most significant covenant
related to these lines is a debt to equity ratio. On May 3, 1999, the Company
paid off its line of credit in connection with the sale of its marketable
securities.
Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
July
October 31, 31,
1998 1999
----------- ------
<S> <C> <C>
Note payable, unsecured, interest rates ranging from
8% to 8.5%. Maturities from April 2001 through July
2004................................................. $2,068 $1,715
Less current maturities of long-term debt............. (446) (446)
------ ------
Total long-term debt................................ $1,622 $1,269
====== ======
</TABLE>
Maturities on long-term debt as of July 31, 1999, including capital lease
obligations, are as follows:
<TABLE>
<CAPTION>
Twelve Months Ending:
---------------------
<S> <C>
2000............................................................... $ 446
2001............................................................... 399
2002............................................................... 258
2003............................................................... 281
2004............................................................... 306
Thereafter......................................................... 25
------
Total maturities of long-term debt............................... $1,715
======
</TABLE>
F-103
<PAGE>
URBACH KAHN & WERLIN PC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 7--INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
Fiscal Year
Ended Nine Months
October 31, Ended July 31,
----------- ----------------
1997 1998 1998 1999
----- ----- ----------- ----
(Unaudited)
<S> <C> <C> <C> <C>
Income taxes currently payable:
Federal.................................... $ -- $ -- $-- $584
State...................................... 24 -- -- 142
----- ----- ---- ----
24 -- -- 726
Deferred income tax expense (benefit):
Federal.................................... 128 81 92 (416)
State...................................... 20 24 28 (148)
----- ----- ---- ----
Total provision for income taxes......... $ 172 $ 105 $120 $162
===== ===== ==== ====
</TABLE>
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
October 31, July 31,
1998 1999
----------- --------
<S> <C> <C>
Long-term deferred tax assets:
Deferred compensation.............................. $2,018 $2,132
Fixed assets....................................... 120 120
Net operating loss and tax credit carryforwards.... 50 --
------ ------
Total long-term deferred tax assets.............. 2,188 2,252
------ ------
Current deferred tax liabilities:
Accrual to cash adjustments........................ 2,522 2,022
Unrealized gains on investments.................... 81 --
------ ------
Total current deferred tax liabilities........... 2,603 2,022
------ ------
Net deferred tax (liability) asset................... $ (415) $ 230
====== ======
</TABLE>
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
Fiscal Year
Ended Nine Months
October 31, Ended July 31,
----------- ----------------
1997 1998 1998 1999
----- ----- ----------- ----
(Unaudited)
<S> <C> <C> <C> <C>
Income taxes currently payable:
U.S. federal statutory rate............... $ 98 $ 44 $ 72 $105
State income taxes, net of federal income
tax benefit.............................. 44 24 20 28
Non-deductible expenses................... 30 37 28 29
----- ----- ---- ----
Actual income tax provision................. $ 172 $ 105 $120 $162
===== ===== ==== ====
</TABLE>
F-104
<PAGE>
URBACH KAHN & WERLIN PC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 8--LEASE COMMITMENTS
The Company leases its office facilities under noncancelable lease
agreements, which expire at various dates. Certain of these leases allow the
Company, at its option, to extend the lease term and/or purchase the leased
asset at the end of the lease term, generally at fair market value. Future
minimum lease payments under noncancelable operating leases are as follows as
of July 31, 1999:
<TABLE>
<CAPTION>
Twelve Months Ending:
---------------------
<S> <C>
2000............................................................... $ 849
2001............................................................... 868
2002............................................................... 851
2003............................................................... 725
2004............................................................... 725
Thereafter......................................................... 481
------
Total minimum lease payments..................................... $4,499
======
</TABLE>
Rent expense for all operating leases for the fiscal years ended October 31,
1997 and 1998 and the nine months ended July 31, 1998 and 1999 was $915,
$1,043, $774 (unaudited) and $741, respectively.
NOTE 9--EMPLOYEE BENEFIT PLANS
401(k) Plan:
The Company contributes to a 401(k) employee retirement plan based upon
requirements to fund benefits for covered employees. The Company matches ten
percent of an employee's contribution up to six percent of an employee's
salary.
Deferred Compensation:
The Company is liable, under the terms of its wage continuation plan, for
deferred benefits to active shareholders and retired shareholders or
beneficiaries of deceased shareholders. The benefits are based on years of
service and average annual compensation levels, as defined.
The Company is required to purchase all shares of stock held by a retiring
shareholder at the close of the fiscal year in which the separation takes
place.
Net deferred compensation cost for the Company includes the following
components:
<TABLE>
<CAPTION>
Fiscal Year
Ended Nine Months
October 31, Ended
----------- July 31,
1997 1998 1999
----- ----- -----------
<S> <C> <C> <C>
Service cost....................................... $ 141 $ 144 $116
Interest cost...................................... 355 389 300
Amortization of prior service cost................. 58 58 44
----- ----- ----
Net deferred compensation cost..................... $ 554 $ 591 $460
===== ===== ====
</TABLE>
F-105
<PAGE>
URBACH KAHN & WERLIN PC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Assumptions used in the development of pension data follow:
<TABLE>
<CAPTION>
Fiscal Year
Ended Nine Months
October 31, Ended
----------- July 31,
1997 1998 1999
----- ----- -----------
<S> <C> <C> <C>
Discount rate...................................... 7.5% 7.5% 7.5%
Rates of increase in compensation levels........... 4.0% 4.0% 4.0%
</TABLE>
The Company's deferred compensation plan is not funded. The following table
presents the status of the Company's deferred compensation benefits:
<TABLE>
<CAPTION>
July
October 31, 31,
1998 1999
----------- -------
<S> <C> <C>
Projected benefit obligation:
Retirees........................................... $ 1,223 $ 1,098
Active participants................................ 3,796 4,134
------- -------
Funded status........................................ (5,019) (5,232)
Unrecognized prior service cost...................... 175 131
Unrecognized gain.................................... (223) (223)
------- -------
Accrued deferred compensation cost................... $(5,067) $(5,324)
======= =======
</TABLE>
NOTE 10--SHAREHOLDERS' EQUITY
Shareholders' equity accounts are reported net of related amounts due from
the respective individuals for the portion of common stock that the Company
considers subscribed. The terms of subscription arrangements with shareholders
generally provide for payments (with interest) over a five-year term. The
number of common shares recognized as issued (1,125 shares in 1997 and 735
shares in 1998) were substantially all subscribed shares. Additional paid-in
capital is only recognized as cash payments are made.
On November 1, 1997, Common Stock (1,125 shares) was issued to new
shareholders in the amount of $333, including payments of subscriptions. Also
in 1997, Common Stock (1,270 shares) was acquired and retired on April 1 and
August 1 for consideration totaling $443.
On November 1, 1998, Common Stock (735 shares) was issued to new
shareholders in the amount of $228, including payments of subscriptions.
Payments of $178 were made by shareholders on subscriptions during the nine
months ended July 31, 1999.
Dividends of $3, $3 and $4 were declared and paid during fiscal year 1997
and 1998 and the nine months ended July 31, 1999, respectively.
NOTE 11--CONTINGENCIES
Litigation:
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
F-106
<PAGE>
URBACH KAHN & WERLIN PC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 12--CENTERPRISE TRANSACTION
In March 1999, the Company and its shareholders entered into a definitive
agreement with a newly formed Massachusetts corporation (the "UKW Company").
The shareholders of UKW Company will exchange all their stock for proportionate
membership interests in a newly formed Delaware limited liability company ("UKW
LLC"). Thereafter, Centerprise will merge with and into UKW LLC. All of the UKW
LLC interests will be exchanged for cash and common stock of Centerprise
concurrently with the consummation of the initial public offering of the common
stock of Centerprise.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, Centerprise is requiring
that the Company cease providing attest services prior to the closing of the
acquisition. Following the closing, all attest services formerly provided by
the Company will be provided by a newly created separate legal entity (the
Attest Firm) which will be owned by former shareholders of the Company who are
certified public accountants. Pursuant to a services agreement, Centerprise
will provide professional and other personnel, equipment, office space and
business and administrative services necessary to operate the Attest Firm.
F-107
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Self Funded Benefits, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Self Funded Benefits, Inc. d/b/a
Insurance Design Administrators at December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the two years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 5, 1999
F-108
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 194 $ 857 $ 636
Restricted cash.................................... 190 -- --
Administration fees and commissions receivable..... 708 675 631
Funds held for customers........................... 612 660 568
Prepaid expenses and other current assets.......... 28 160 80
Due from principal................................. -- 164 --
------ ------ ------
Total current assets............................. 1,732 2,516 1,915
Property and equipment, net.......................... 966 747 702
Due from principal................................... 155 -- --
Other assets-security deposits....................... 43 38 38
------ ------ ------
Total assets..................................... $2,896 $3,301 $2,655
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................. $ 200 $ 153 $ 140
Accounts payable................................... 53 123 127
Accrued liabilities................................ 266 185 150
Accrued compensation and related costs............. 62 91 35
Deferred income.................................... 69 -- 29
Current portion of customer deposits............... 526 660 568
Refunds due to customers........................... 119 257 350
------ ------ ------
Total current liabilities........................ 1,295 1,469 1,399
Long-term debt, less current portion................. 309 154 95
Customer deposits, less current portion.............. 86 -- --
------ ------ ------
Total liabilities................................ 1,690 1,623 1,494
------ ------ ------
Commitments and contingencies
Shareholders' equity:
Common stock, no par value; 200 shares authorized,
150 common shares issued and outstanding at
December 31, 1997 and 1998. No shares authorized,
issued or outstanding at June 30, 1999
(unaudited)....................................... -- -- --
Common stock--Class A (voting common stock), no par
value; 150 shares authorized, 150 shares issued
and 149 outstanding at June 30, 1999 (unaudited).
No shares authorized, issued or outstanding at
December 31, 1997 and 1998........................ -- -- --
Common stock--Class B (non-voting common stock), no
par value; 14,850 shares authorized, 14,850 shares
issued and 14,660 outstanding at June 30, 1999
(unaudited). No shares authorized, issued or
outstanding at December 31, 1997 and 1998......... -- -- --
Additional paid-in-capital......................... 208 208 208
Treasury stock..................................... -- -- (164)
Retained earnings.................................. 998 1,470 1,117
------ ------ ------
Total shareholders' equity....................... 1,206 1,678 1,161
------ ------ ------
Total liabilities and shareholders' equity....... $2,896 $3,301 $2,655
====== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-109
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended June
December 31, 30,
--------------- --------------
1997 1998 1998 1999
------ ------- ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Administration fees......................... $6,583 $ 6,703 $3,591 $3,910
Reinsurance commissions..................... 1,960 1,343 773 625
Other....................................... 1,118 2,450 628 967
------ ------- ------ ------
9,661 10,496 4,992 5,502
------ ------- ------ ------
Expenses:
Employee compensation and related costs..... 6,047 6,461 2,930 3,156
Occupancy costs............................. 296 299 131 140
Other operating expenses.................... 1,121 1,132 799 909
Depreciation and amortization............... 206 242 120 104
Other selling, general and administrative
expenses................................... 1,045 1,078 538 555
------ ------- ------ ------
8,715 9,212 4,518 4,864
------ ------- ------ ------
Operating income.......................... 946 1,284 474 638
------ ------- ------ ------
Other (income) expense:
Interest expense............................ 28 32 18 10
Interest income............................. (80) (77) (33) (29)
Other....................................... 132 82 -- --
------ ------- ------ ------
80 37 (15) (19)
------ ------- ------ ------
Income before provision for income taxes...... 866 1,247 489 657
Provision for income taxes.................... 31 25 21 10
------ ------- ------ ------
Net income.................................... $ 835 $ 1,222 $ 468 $ 647
====== ======= ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-110
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
STATEMENT OF SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Common Stock Common Stock
Common Stock Class A Class B Additional Total
------------- ------------- -------------- Paid-in- Treasury Retained Shareholders'
Shares Amount Shares Amount Shares Amount Capital Stock Earnings Equity
------ ------ ------ ------ ------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 150 $-- -- $-- -- $-- $208 $ -- $1,143 $1,351
Cash dividends, $6,533
per share............. -- -- -- -- -- -- -- -- (980) (980)
Net income............. -- -- -- 835 835
---- ---- --- ---- ------ ---- ---- ----- ------ ------
Balance at December 31,
1997................... 150 -- -- -- -- -- 208 -- 998 1,206
Cash dividends, $5,666
per share............. -- -- -- -- -- -- -- -- (850) (850)
Net income............. -- -- -- -- -- -- -- -- 1,322 1,322
---- ---- --- ---- ------ ---- ---- ----- ------ ------
Balance at December 31,
1998................... 150 -- -- -- -- -- 208 -- 1,470 1,678
Unaudited Data:
Issuance of Class A
Common Stock and
Class B Common Stock
in exchange for Common
Stock................. (150) -- 150 -- 14,850 -- -- -- -- --
Repurchase of Class A
Common Stock and Class
B Common Stock........ -- -- (1) -- (190) -- -- (164) -- (164)
Cash dividends, $6,000
per share............. -- -- -- -- -- -- -- -- (900) (900)
Net income............. -- -- -- -- -- -- -- -- 547 547
---- ---- --- ---- ------ ---- ---- ----- ------ ------
Balance at June 30, 1999
(unaudited)............ -- $-- 149 $-- 14,660 $-- $208 $(164) $1,117 $1,161
==== ==== === ==== ====== ==== ==== ===== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-111
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30,
-------------- ----------------
1997 1998 1998 1999
----- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 835 $ 1,322 $ 468 $ 647
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 206 242 120 104
Loss on disposal of property and
equipment............................... 49 82 -- --
Changes in current assets and
liabilities:
Administration fees and commissions
receivable............................ (215) 33 401 44
Funds held for customers............... 190 (48) 472 92
Restricted cash........................ (6) 190 190 --
Prepaid expenses and other current
assets................................ (11) (132) (16) 80
Accounts payable....................... 19 70 82 4
Accrued liabilities.................... 216 (81) (227) (135)
Accrued compensation and related
costs................................. 26 29 95 (56)
Deferred income........................ (47) (69) (69) 29
Customer deposits...................... (275) 48 (490) (92)
Refunds due to customers............... 95 138 69 93
Other.................................. (86) (4) -- --
----- ------- ------- -------
Net cash provided by operating
activities.......................... 996 1,820 1,095 810
----- ------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment......... (451) (105) (10) (59)
----- ------- ------- -------
Net cash used in investing
activities.......................... (451) (105) (10) (59)
----- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt... 400 -- -- --
Payments of long-term debt................. (150) (202) (111) (72)
Payments of dividends...................... (980) (850) (650) (900)
----- ------- ------- -------
Net cash used in financing
activities.......................... (730) (1,052) (761) (972)
----- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................. (185) 663 324 (221)
Cash and cash equivalents at beginning of
year........................................ 379 194 194 857
----- ------- ------- -------
Cash and cash equivalents at end of year..... $ 194 $ 857 $ 518 $ 636
===== ======= ======= =======
Supplemental disclosures of cash flow
information:
Interest paid.............................. $ 28 $ 32 $ 8 $ 10
Income taxes paid.......................... $ 29 $ 27 $ 21 $ 9
Non-cash transaction:
Retirement of an amount due from principal
for treasury stock........................ $ -- $ -- $ -- $ 164
</TABLE>
See accompanying Notes to Financial Statements.
F-112
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
NOTES TO FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 1--BACKGROUND AND BUSINESS DESCRIPTION
Self Funded Benefits, Inc. d/b/a Insurance Design Administrators (the
Company) administers self-funded benefit plans of employees of their customers
in both the public sector and private industry primarily in New Jersey.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
The Company recognizes revenue as the related services are provided. The
Company bills administration fees for administering their customers' self-
insured health plans. Administration fees are based on a fixed amount per
eligible life per month. The Company receives reinsurance commissions from the
various reinsurance carriers utilized. The reinsurance commissions are
determined by the terms of the reinsurance carrier agreements. Reinsurance
commissions and contingent commissions are recorded when received. Outstanding
fees receivable are evaluated each period to assess the adequacy of the
allowance for doubtful accounts. As of December 31, 1997 and 1998 and June 30,
1999 (unaudited), the Company has determined that no allowance for doubtful
accounts was necessary.
Cash and Cash Equivalents:
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
Property and Equipment:
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization of property and equipment are
computed on the straight-line method over estimated useful asset lives (shorter
of asset life or lease term for leasehold improvements), generally ranging from
5 to 7 years. Expenditures for maintenance and repairs and minor renewals and
betterment's which do not improve or extend the life of the respective assets
are expensed. All other expenditures for renewals and betterments are
capitalized. The assets and related depreciation accounts are adjusted for
property retirements and disposals with the resulting gain or loss included in
operations.
Asset Impairment Assessments:
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying value of such assets may not be fully
recoverable. An impairment is recognized to the extent that the sum of
undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. If an impairment is recognized the
carrying value of the impaired asset is reduced to its fair value. No
impairment has been recognized through December 31, 1998.
Fair Value of Financial Instruments:
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, administration fees and commissions receivable, accounts
payable, accrued liabilities and debt approximate fair value.
F-113
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Income Taxes:
During the year ended December 31, 1995, the Company elected S corporation
status for Federal and New Jersey income tax purposes. The Company received a
tax determination letter approving the S corporation status from the Internal
Revenue Service. This election resulted in an elimination of Federal income
taxes and a reduction of New Jersey income taxes at the corporation level.
State income taxes have been computed using the asset and liability
approach. Under this approach, deferred income tax assets and liabilities are
determined based on the differences between the financial statement and tax
basis of assets and liabilities using currently enacted tax rates in effect for
the years in which the differences are expected to reverse.
Customer Deposits:
The Company holds client funds as deposits to pay claims of participants in
various self insurance plans. The related asset is accounted for as funds held
for customers and the corresponding liability is accounted for as customer
deposits on the balance sheet.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of administration fees and
commissions receivable. Receivables are not collateralized and, as a result,
management continually monitors the financial condition of its clients and
requires customer deposits for certain customers to reduce the risk of loss.
Sales Concentration:
A significant portion of the Company's total revenue comes from several
major customers. The following is a summary of the customers and corresponding
revenue for customers which consists of 10 percent or more of the Company's
total revenue for the years ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
December 31,
-------------
Customer 1997 1998
-------- ------ ------
<S> <C> <C>
County of Bergen............................................ $1,228 $ 995
Trump Casino Services, LLC.................................. 1,583 1,556
North Jersey School......................................... 1,212 1,199
------ ------
$4,023 $3,750
====== ======
</TABLE>
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. While management believes that the estimates and related
assumptions used in the preparation of the financial statements are
appropriate, actual
F-114
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
results could differ from those estimates. Estimates are made when accounting
for the allowances for doubtful accounts, depreciation and amortization and
income taxes.
Unaudited Interim Financial Statements:
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company at June 30, 1999, and the
results of its operations and its cash flows for the six months ended June 30,
1998 and 1999, as presented in the accompanying unaudited interim financial
statements.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment, net reflected on the accompanying balance sheet is
comprised as follows:
<TABLE>
<CAPTION>
December 31,
--------------- June 30,
1997 1998 1999
------ ------- -----------
(Unaudited)
<S> <C> <C> <C>
Property and equipment, net:
Furniture and fixtures.................... $ 349 $ 284 $ 339
Computer equipment and software........... 1,444 1,626 1,128
Automobiles............................... 14 14 14
Leasehold improvements.................... 74 70 70
------ ------- ------
1,881 1,994 1,551
Less accumulated depreciation and
amortization............................. (915) (1,247) (849)
------ ------- ------
$ 966 $ 747 $ 702
====== ======= ======
</TABLE>
NOTE 4--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December
31,
--------- June 30,
1997 1998 1999
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
Notes payable, secured by certain assets of the
Company, interest rate 7.5% to 11.5%,
maturities from 1999 through 2002............. $506 $307 $235
Other.......................................... 3 -- --
---- ---- ----
509 307 235
Less current maturities of long-term debt...... 200 153 140
---- ---- ----
Total long-term debt......................... $309 $154 $ 95
==== ==== ====
Maturities on long-term debt are as follows:
1999..................................................... $153
2000..................................................... 106
2001..................................................... 34
2002..................................................... 14
----
Total maturities of long-term debt....................... $307
====
</TABLE>
F-115
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 5--LEASE COMMITMENTS
The Company leases various types of office facilities, equipment, and
furniture and fixtures under noncancelable operating lease agreements, which
expire at various dates. Certain of these leases allow the Company, at its
option to extend the lease term and/or purchase the leased asset at the end of
the lease term, generally at fair market value. Future minimum lease payments
under noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 285
2000............................................................... 255
2001............................................................... 253
2002............................................................... 230
2003............................................................... 230
Thereafter......................................................... 211
------
Total minimum lease payments..................................... $1,464
======
</TABLE>
Rent expense for all operating leases for the fiscal years ended December
31, 1997 and 1998 and the six months ended June 30, 1998 and 1999 was $253,
$269, $118 (unaudited) and $131 (unaudited), respectively.
NOTE 6--EMPLOYEE BENEFIT PLAN
401(k) Plan:
The Company has a 401(K) plan in which all full time employees can
participate. Employees can contribute up to 15 percent of their earnings. The
Company matches 40 percent of the employees' contributions up to a maximum of 5
percent of compensation. The 401(K) employee benefit expense for the fiscal
years ended December 31, 1997 and 1998 and the six months ended June 30, 1998
and 1999 was $39, $37, $22 (unaudited) and $22 (unaudited), respectively.
NOTE 7--COMMITMENTS AND CONTINGENCIES
Litigation:
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
Letter of Credit:
The Company obtained a letter of credit from Bergen Commercial Bank for the
benefit of a health insurance carrier on January 5, 1993 for $250. On January
5, 1998, the letter of credit was reduced to $200. The letter of credit was
secured by a restricted money market account at the bank and expired on
December 31, 1998. Letter of credit fees incurred by the Company for each of
the years ended December 31, 1997 and 1998 were $1.
NOTE 8--RELATED PARTY TRANSACTIONS
The Company purchased certain leasehold improvements and travel related
services from two companies owned by a shareholder of the Company. During the
fiscal years ended December 31, 1997 and
F-116
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
1998 and the six months ended June 30, 1998 and 1999, these expenditures
totaled $74, $14, $3 (unaudited) and $4 (unaudited), respectively. There were
no outstanding payable balances related to these purchased items or services as
of December 31, 1997 and 1998.
The Company has a loan receivable balance due from a shareholder of the
Company. The outstanding balance of the loan as of December 31, 1997 and 1998
was $155 and $164, respectively. The loan bears interest at 5.63 percent and
5.85 percent as of December 31, 1997 and 1998, respectively.
NOTE 9--SUBSEQUENT EVENTS (UNAUDITED)
In March 1999, the Company and its stockholders entered into a definitive
agreement with Centerprise Advisors, Inc. (Centerprise) pursuant to which a
wholly-owned subsidiary of Centerprise will merge with and into the Company.
All of the Company's outstanding shares will be exchanged for cash and common
stock of Centerprise concurrently with the consummation of the initial public
offering of the common stock of Centerprise.
On March 16, 1999, the Company's certificate of incorporation was amended to
create a Class A and Class B Common Stock of the Company. The Class A Voting
Common Stock has 150 authorized shares with no par value. The Class B Non-
Voting Common Stock has 14,850 authorized shares with no par value. The
Shareholders and Board of Directors resolved that once the amendment to the
Company's certificate of incorporation has been filed, the Company will be able
to issue one (1) share of Class A Voting Common Stock and ninety-nine (99)
shares of Class B Non-Voting Common Stock in exchange for each share of the
Company's common stock which is returned to the Company.
On March 16, 1999, the two shareholders of the Company redeemed their shares
of the Company's common stock in exchange for shares of Class A and Class B
Common Stock as described above.
On March 26, 1999, the two shareholders of the Company entered into a
Reversion Agreement. As part of this agreement, the shareholders have agreed to
cause the Company to cancel advances due from one shareholder in exchange for
the redemption by this shareholder of one (1) share of Class A Voting Common
Stock and 190 shares of Class B Non-Voting Common Stock owned by that
shareholder. In the event that the Centerprise transaction, as described above,
does not occur, the shareholders will revert to their prior position.
F-117
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Grace & Company, P.C.
In our opinion, the accompanying balance sheet and the related statements of
income, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Grace & Company, P.C. at December
31, 1998, and the results of its operations and its cash flows for the period
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 12, 1999
F-118
<PAGE>
GRACE & COMPANY, P.C.
BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 6 $ 19
Fees receivable, less allowance for doubtful
accounts of $761 and $790 (unaudited),
respectively....................................... 1,531 2,404
Unbilled fees, at net realizable value.............. 815 1,151
Prepaid expenses and other current assets........... 204 258
------ ------
Total current assets.............................. 2,556 3,832
Property and equipment, net........................... 515 488
Cash surrender value of life insurance................ 993 998
Deferred income taxes................................. 11 11
Other assets.......................................... 30 41
------ ------
Total assets...................................... $4,105 $5,370
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt..................................... $ 742 $1,296
Due to shareholders................................. 601 229
Accounts payable.................................... 160 92
Accrued compensation and related costs.............. 530 776
Deferred income taxes............................... 766 1,153
Other accrued liabilities........................... 93 90
------ ------
Total current liabilities......................... 2,892 3,636
Long-term debt........................................ 419 389
------ ------
Total liabilities................................. 3,311 4,025
------ ------
Commitments
Shareholders' equity:
Common stock, $1 stated value; 30,000 shares
authorized, 16,500 shares issued and 15,000
outstanding at December 31, 1998 and June 30, 1999
(unaudited), respectively.......................... 17 17
Additional paid-in-capital.......................... 350 350
Treasury stock, 1,500 shares at December 31, 1998
and June 30, 1999 (unaudited), respectively........ (89) (89)
Retained earnings................................... 516 1,067
------ ------
Total shareholders' equity........................ 794 1,345
------ ------
Total liabilities and shareholders' equity........ $4,105 $5,370
====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-119
<PAGE>
GRACE & COMPANY, P.C.
STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended June 30,
December 31, --------------
1998 1998 1999
------------ ------ ------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Professional services........................... $9,691 $5,684 $6,269
Expenses:
Shareholder compensation and related costs...... 2,709 1,395 1,464
Employee compensation and related costs......... 5,075 2,713 2,955
Occupancy costs................................. 406 192 238
Office operating expenses....................... 95 59 73
Depreciation and amortization................... 190 104 102
Other selling, general and administrative
expenses....................................... 689 406 425
------ ------ ------
9,164 4,869 5,257
------ ------ ------
Operating income.............................. 527 815 1,012
------ ------ ------
Other (income) expense:
Interest expense................................ 122 62 95
Interest income................................. (23) (6) (4)
Other........................................... (135) (62) (17)
Loss on equity investment....................... 40 -- --
------ ------ ------
4 (6) 74
------ ------ ------
Income before provision for income taxes.......... 523 821 938
Provision for income taxes........................ 232 334 387
------ ------ ------
Net income........................................ $ 291 $ 487 $ 551
====== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-120
<PAGE>
GRACE & COMPANY, P.C.
STATEMENT OF SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Treasury
Common Stock Additional Stock Total
------------- Paid-in- ------------- Retained Shareholders'
Shares Amount Capital Shares Amount Earnings Equity
------ ------ ---------- ------ ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... 13,500 $14 $182 1,500 $(89) $ 225 $ 332
Issuances of common
stock................ 3,000 3 168 -- -- -- 171
Net income............ -- -- -- -- -- 291 291
------ --- ---- ----- ---- ------ ------
Balance at December 31,
1998................... 16,500 17 350 1,500 (89) 516 794
------ --- ---- ----- ---- ------ ------
Net income
(unaudited).......... -- -- -- -- -- 551 551
------ --- ---- ----- ---- ------ ------
Balance at June 30, 1999
(unaudited)............ 16,500 $17 $350 1,500 $(89) $1,067 $1,345
====== === ==== ===== ==== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-121
<PAGE>
GRACE & COMPANY, P.C.
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended June 30,
December 31, ------------
1998 1998 1999
------------ ----- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 291 $ 487 $ 551
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 190 104 102
Change in deferred income taxes................. 127 117 387
Changes in operating assets and liabilities:
Fees receivable............................... (581) (358) (873)
Unbilled fees................................. 113 (197) (337)
Prepaid expenses and other current assets..... 44 8 (53)
Other assets.................................. (15) (7) (11)
Accounts payable.............................. (3) 66 (68)
Accrued compensation and related costs........ (13) 177 245
Other accrued liabilities..................... 84 216 (2)
----- ----- -----
Net cash provided by (used in) operating
activities................................. 237 613 (59)
----- ----- -----
Cash flows from investing activities:
Purchase of property and equipment................ (328) (75) (77)
Proceeds from sale of property and equipment...... 6 -- 2
Increase in cash surrender value.................. (171) (101) (5)
----- ----- -----
Net cash used in investing activities....... (493) (176) (80)
----- ----- -----
Cash flows from financing activities:
Proceeds from issuance of long-term debt.......... 450 250 50
Payments of long-term debt........................ (77) (30) (80)
Proceeds from (payments of) short-term debt, net.. (292) (765) 182
Issuance of common stock.......................... 171 99 --
----- ----- -----
Net cash provided by (used in) financing
activities................................. 252 (446) 152
----- ----- -----
Net (decrease) increase in cash..................... (4) (9) 13
Cash at beginning of period......................... 10 10 6
----- ----- -----
Cash at end of period............................... $ 6 $ 1 $ 19
===== ===== =====
Supplemental disclosures of cash flow information:
Interest paid..................................... $ 134 $ 62 $ 95
Income taxes paid................................. $ 20 $ 1 $ 46
</TABLE>
See accompanying Notes to Financial Statements.
F-122
<PAGE>
GRACE & COMPANY, P.C.
NOTES TO FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 1--BACKGROUND AND BUSINESS DESCRIPTION
Grace & Company, P.C. (the Company) is a full service firm of professional
accountants and business advisors serving privately-held companies and their
owners and is based in St. Louis, Missouri.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
The Company recognizes revenue as the related services are provided. The
Company bills clients based upon actual hours incurred on client projects at
expected net realizable rates per hour, plus any out-of-pocket expenses. The
cumulative impact of any subsequent revision in the estimated realizable value
of unbilled fees for a particular client project is reflected in the period in
which the change becomes known. Outstanding fees receivable are evaluated each
period to assess the adequacy of the allowance for doubtful accounts.
Unbilled Fees:
Unbilled fees represent the anticipated net realizable value for hours
incurred by the Company's professional and administrative staff, plus out-of-
pocket expenses, on projects which had not yet been billed to clients as of
period end.
Property and Equipment:
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization of property and equipment are
computed on the straight-line method over estimated useful asset lives (shorter
of asset life or lease term for leasehold improvements), generally ranging from
3 to 10 years. Expenditures for maintenance and repairs and minor renewals and
betterments which do not improve or extend the life of the respective assets
are expensed. All other expenditures for renewals and betterments are
capitalized. The assets and related depreciation accounts are adjusted for
property retirements and disposals with the resulting gain or loss included in
operations.
Asset Impairment Assessments:
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying value of such assets may not be fully
recoverable. An impairment is recognized to the extent that the sum of
undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. If an impairment is recognized the
carrying value of the impaired asset is reduced to its fair value. No
impairment has been recognized through December 31, 1998.
Fair Value of Financial Instruments:
The carrying amounts of the Company's financial instruments including cash,
fees receivable, accounts payable, notes payable, accrued liabilities and debt
approximate fair value.
Income Taxes:
Income taxes have been computed using the asset and liability approach.
Under this approach, deferred income tax assets and liabilities are determined
based on the differences between the financial statement and tax basis of
assets and liabilities using currently enacted tax rates in effect for the
years in which the differences are expected to reverse.
F-123
<PAGE>
GRACE & COMPANY, P.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of fees receivable.
Receivables arising from services provided to clients are not collateralized
and, as a result, management continually monitors the financial condition of
its clients to reduce the risk of loss.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. While management believes that the estimates and related
assumptions used in the preparation of the financial statements are
appropriate, actual results could differ from those estimates. Estimates are
made when accounting for the allowance for doubtful accounts, net
realizability of unbilled fees, depreciation and amortization, and income
taxes.
Unaudited Interim Financial Statements:
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company at June 30, 1999 and the
results of its operations and its cash flows for the six months ended June 30,
1998 and 1999, as presented in the accompanying unaudited interim financial
statements.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment, net reflected on the accompanying balance sheets is
comprised of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Property and equipment, net:
Furniture and fixtures............................... $ 663 $ 622
Computer equipment................................... 1,079 1,111
Automobiles.......................................... 47 47
Leasehold improvements............................... 56 59
------- -------
1,845 1,839
Less accumulated depreciation and amortization....... (1,330) (1,351)
------- -------
$ 515 $ 488
======= =======
</TABLE>
F-124
<PAGE>
GRACE & COMPANY, P.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 4--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The rollforward of activity within the allowance for doubtful accounts is as
follows:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Balance at beginning of period.................... $903 $761
Additions to costs and expenses................... 96 87
Recoveries of previously reserved amounts......... (105) --
Less write-offs................................... (133) (58)
---- ----
Balance at end of period.......................... $761 $790
==== ====
</TABLE>
NOTE 5--CREDIT FACILITIES
Short-Term Debt:
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Line of credit.................................... $595 $1,160
Current maturities of long-term debt.............. 147 136
---- ------
Total short-term debt........................... $742 $1,296
==== ======
</TABLE>
The Company has a $1,600 line of credit with Commerce Bank, N.A. with
interest payable monthly at the Federal Funds rate plus 2.75 percent expiring
April 30, 2000. The line of credit is collateralized by accounts receivable,
unbilled fees and all fixed assets. The line of credit is also partially
guaranteed by ten shareholders of the Company. Each shareholder has guaranteed
$100. The most significant covenant related to this line requires the Company
to maintain a minimum tangible net worth of not less than $1,100.
F-125
<PAGE>
GRACE & COMPANY, P.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Notes payable, secured by certain assets of the
Company, interest rate 7.90% to 8.33%,
maturities from April 2001 through October
2002............................................ $ 566 $ 525
Less current maturities of long-term debt........ (147) (136)
----- -----
Total long-term debt........................... $ 419 $ 389
===== =====
The notes payable include $118 at December 31, 1998 and $95 (unaudited) at
June 30, 1999 due to former shareholders of the Company.
Maturities of long-term debt are as follows:
Fiscal Year:
1999........................................... $ 147
2000........................................... 148
2001........................................... 197
2002........................................... 49
2003........................................... 5
Thereafter..................................... 20
-----
Total maturities of long-term debt........... $ 566
=====
</TABLE>
NOTE 6--INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended June 30,
December 31, -----------
1998 1998 1999
------------ ----- -----
(Unaudited)
<S> <C> <C> <C>
Income taxes currently payable:
Federal........................................ $ 94 $ 212 $ --
State.......................................... 11 24 --
Deferred income tax expense:
Federal........................................ 114 87 348
State.......................................... 13 11 39
---- ----- -----
Total provision for income taxes............. $232 $334 $ 387
==== ===== =====
</TABLE>
F-126
<PAGE>
GRACE & COMPANY, P.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Long-term deferred tax assets:
Property and equipment/intangible assets........ $ 11 $ 11
----- -------
Total long-term deferred tax assets........... 11 11
Current deferred tax liabilities:
Accrual to cash................................. (766) (1,153)
----- -------
Total current deferred tax liabilities........ (766) (1,153)
----- -------
Net deferred tax liability........................ $(755) $(1,142)
===== =======
</TABLE>
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended June 30,
December 31, -------------
1998 1998 1999
------------ ----- -----
(Unaudited)
<S> <C> <C> <C>
U.S. federal statutory rate................. 35% 35% 35%
State income taxes, net of federal income
tax benefit................................ 4 4 4
Meals and entertainment..................... 5 2 2
--- ----- -----
Effective income tax rate................... 44% 41% 41%
=== ===== =====
</TABLE>
NOTE 7--LEASE COMMITMENTS
The Company leases various types of office facilities, equipment, and
furniture and fixtures under noncancelable lease agreements, which expire at
various dates. Certain of these leases allow the Company, at its option to
extend the lease term. Future minimum lease payments under noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
Fiscal Year:
1999............................................................. $ 576
2000............................................................. 576
2001............................................................. 552
2002............................................................. 561
2003............................................................. 505
Thereafter....................................................... 1,115
------
Total minimum lease payments..................................... $3,885
======
</TABLE>
Rent expense for all operating leases for the year ended December 31, 1998
was $399 and for the six months ended June 30, 1998 and 1999 was $192
(unaudited) and $238 (unaudited), respectively.
NOTE 8--EMPLOYEE BENEFIT PLAN
401(k) Plan:
The Company offers a qualified contributory 401k plan (the Plan) to all its
employees. Employee participation in the Plan is optional; participants
contribute at least one percent but no more than 18 percent of
F-127
<PAGE>
GRACE & COMPANY, P.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
base compensation. The Company makes a matching contribution based on the
amount of eligible employee contributions. The Company matches 50 percent of
the first 4 percent of the eligible contributions made by employees. The
Company's total expense for this plan was $112 for 1998 and for the six months
ended June 30, 1998 and 1999 was $63 (unaudited) and $64 (unaudited),
respectively.
NOTE 9--COMMITMENTS
The Company entered into an agreement with a current non-equity principal to
guarantee that principal's base salary through September 30, 2004.
NOTE 10--RELATED PARTY TRANSACTIONS
In September 1998, the Company invested $40 in Better Business Methods
(BBM). The Company subsequently loaned $184 to BBM for working capital needs.
The Company also had an obligation to guarantee or loan up to an additional
$176. For the period from investment through disposition, the Company recorded
its 50 percent equity share in BBM's net losses substantially eliminating the
carrying value of the investment.
Effective December 1, 1998, the Company sold its investment and note
receivable to Grace Capital, LLP whose partners are largely comprised of
shareholders of the Company. Both transactions were consummated at net book
value. In connection with this sale, the Company was relieved of all
obligations for additional funding to BBM.
The Company has a receivable of $11 at December 31, 1998 and $27 at June 30,
1999 (unaudited) from employees for expense advances.
The Company has a note payable of $21 on behalf of shareholders which was
paid in January 1999.
The Company has $840 at December 31, 1998 and $870 (unaudited) at June 30,
1999 in notes payable to shareholders and principals of the Company. The notes
payable are offset by receivables from the shareholders of $55 at December 31,
1998 and $3 (unaudited) at June 30, 1999. These notes are payable on demand
and, if no demand is made, then payable in full on December 31, 1999.
NOTE 11--SUBSEQUENT EVENTS (UNAUDITED)
In March 1999, the Company and its shareholders entered into a definitive
agreement with Centerprise Advisors, Inc. (Centerprise) pursuant to which the
stockholders of the Company have transferred their Company shares to a newly
formed Missouri limited liability partnership ("Grace Capital"). The Company
will be converted from a professional corporation to a business corporation.
Thereafter, a wholly-owned subsidiary of Centerprise will merge with and into
the Company. All of the Company's outstanding shares will be exchanged for cash
and common stock of Centerprise concurrently with the consummation of the
initial public offering of the common stock of Centerprise.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, Centerprise is requiring
that the Company cease providing attest services prior to the closing of the
acquisition. Following the closing, all attest services formerly provided by
the Company will be provided by a newly created separate legal entity (the
Attest Firm) which will be owned by former owners of the Company who are
certified public accountants. Pursuant to a services agreement, Centerprise
will provide professional and other personnel, equipment, office space and
business and administrative services necessary to operate the Attest Firm.
F-128
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The Reppond Companies
In our opinion, the accompanying combined balance sheet and the related
combined statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of The Reppond
Company, Inc., the Reppond Administrators L.L.C. and Verasource Excess Risk
Ltd. (collectively, The Reppond Companies or the Company) at December 31, 1998,
and the results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
January 29, 1999
F-129
<PAGE>
THE REPPOND COMPANIES
COMBINED BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 148 $ 208
Accounts receivable................................. 842 956
Prepaid expenses and other current assets........... 77 150
------ ------
Total current assets.............................. 1,067 1,314
Property and equipment, net........................... 792 833
Deferred income taxes................................. 7 7
Other assets.......................................... 27 23
------ ------
Total assets...................................... $1,893 $2,177
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt..................................... $ 368 $ 587
Accounts payable.................................... 248 161
Accrued compensation and related costs.............. 243 218
Income taxes payable................................ 103 --
Deferred income taxes............................... 120 153
Other accrued liabilities........................... 5 --
------ ------
Total current liabilities......................... 1,087 1,119
Long-term debt........................................ 130 264
------ ------
Total liabilities................................. 1,217 1,383
------ ------
Commitments
Shareholders' equity:
Members' equity of the Reppond Administrators
L.L.C.............................................. (26) 54
Common stock of The Reppond Company, $1 par value;
50,000 shares authorized; 500 shares issued and
outstanding at December 31, 1998 and 501 shares
issued and outstanding at June 30, 1999
(unaudited)........................................ 1 1
Common stock of Verasource Excess Risk Ltd., $1 par
value; 50,000 shares authorized; 250 shares issued
and outstanding at December 31, 1998 and June 30,
1999 (unaudited)................................... -- --
Additional paid-in capital.......................... 56 56
Note receivable from shareholder.................... (28) (28)
Retained earnings................................... 673 711
------ ------
Total shareholders' equity........................ 676 794
------ ------
Total liabilities and shareholders' equity........ $1,893 $2,177
====== ======
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-130
<PAGE>
THE REPPOND COMPANIES
COMBINED STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended June 30,
December 31, --------------
1998 1998 1999
------------ ------ ------
(Unaudited)
<S> <C> <C> <C>
Revenue:
Commission...................................... $6,423 $3,350 $3,563
Fee for service................................. 1,469 743 790
------ ------ ------
7,892 4,093 4,353
------ ------ ------
Expenses:
Producer compensation and related costs......... 2,359 1,267 1,364
Employee compensation and related costs......... 2,708 1,217 1,310
Occupancy costs................................. 391 194 239
Office operating expenses....................... 501 274 344
Depreciation and amortization................... 332 156 153
Other selling, general and administrative
expenses....................................... 1,090 369 679
------ ------ ------
7,381 3,477 4,089
------ ------ ------
Operating income.............................. 511 616 264
------ ------ ------
Other (income) expense:
Interest expense................................ 72 42 25
Interest income................................. (43) (2) (1)
Other........................................... 22 9 2
------ ------ ------
51 49 26
------ ------ ------
Income before provision for income taxes.......... 460 567 238
Provision for income taxes........................ 113 156 120
------ ------ ------
Net income........................................ $ 347 $ 411 $ 118
====== ====== ======
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-131
<PAGE>
THE REPPOND COMPANIES
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Members'
Common Stock Equity of the Common Stock
of the Reppond of Verasource
Reppond Administrators Excess Risk, Note Accumulated
Company L.L.C. Ltd. Additional Receivable Other Total
------------- -------------- ------------- Paid-in Retained from Comprehensive Shareholders'
Shares Amount Amount Shares Amount Capital Earnings Shareholder Income (Loss) Equity
------ ------ -------------- ------ ------ ---------- -------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1998............ 500 $ 1 $(215) 313 $-- $70 $518 $(28) $(10) $336
Repurchase of
62.5 shares of
Verasource
stock.......... -- -- -- (63) -- (14) (3) -- -- (17)
Unrealized loss
on marketable
securities..... -- -- -- -- -- -- -- -- 10 10
Net income...... -- -- 189 -- -- -- 158 -- -- 347
--- --- ----- --- ---- --- ---- ---- ---- ----
Total
comprehensive
income.........
Balance at
December 31,
1998............ 500 1 (26) 250 -- 56 673 (28) -- 676
Unaudited data:
Issuance of
shares 1 -- -- -- -- -- -- -- -- --
Net income...... -- -- 80 -- -- -- 38 -- -- 118
--- --- ----- --- ---- --- ---- ---- ---- ----
Total
comprehensive
income.........
Balance at June
30, 1999
(unaudited)..... 501 $ 1 $ 54 250 $-- $56 $711 $(28) $-- $794
=== === ===== === ==== === ==== ==== ==== ====
<CAPTION>
Total
Comprehensive
Income
-------------
<S> <C>
Balance at
January 1,
1998............
Repurchase of
62.5 shares of
Verasource
stock..........
Unrealized loss
on marketable
securities..... $ 10
Net income...... 490
-------------
Total
comprehensive
income......... $500
=============
Balance at
December 31,
1998............
Unaudited data:
Issuance of
shares
Net income...... $118
-------------
Total
comprehensive
income......... $118
=============
Balance at June
30, 1999
(unaudited).....
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-132
<PAGE>
THE REPPOND COMPANIES
COMBINED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended June 30,
December 31, ------------
1998 1998 1999
------------ ----- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 347 $ 411 $ 118
Adjustments to reconcile net income to net
cash provided by (used in ) operating
activities:
Depreciation and amortization................ 332 152 153
Changes in current operating assets and
liabilities:
Accounts receivable....................... 41 (48) (114)
Prepaid expenses.......................... (38) (26) (73)
Accounts payable.......................... 102 (35) (87)
Accrued compensation and related costs.... 78 (8) (25)
Income taxes payable...................... 184 39 (103)
Deferred income taxes..................... (67) 43 33
Other assets and liabilities.............. (20) -- (1)
----- ----- -----
Net cash provided by (used in) operating
activities............................. 959 528 (99)
----- ----- -----
Cash flows from investing activities:
Purchase of property and equipment............ (301) (122) (194)
----- ----- -----
Net cash used in investing activities... (301) (122) (194)
----- ----- -----
Cash flows from financing activities:
Proceeds from long-term debt.................. -- -- 350
Payments of long-term debt.................... (346) (93) (229)
Repurchase of common stock.................... (17) (17) --
Proceeds from (payments of) short-term debt,
net.......................................... (185) (274) 232
----- ----- -----
Net cash (used in) provided by financing
activities............................. (548) (384) 353
----- ----- -----
Net increase in cash and cash equivalents....... 110 22 60
Cash and cash equivalents at beginning of
period......................................... 38 38 148
----- ----- -----
Cash and cash equivalents at end of year........ $ 148 $ 60 $ 208
===== ===== =====
Supplemental disclosures of cash flow
information:
Interest paid................................. $ 72 $ 29 $ 25
Income taxes paid............................. $ 111 $ 105 $ 232
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-133
<PAGE>
THE REPPOND COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 1--BACKGROUND AND BUSINESS DESCRIPTION
The Reppond Companies (the Company) comprises three business entities, The
Reppond Company, Inc. (TRC), Reppond Administrators L.L.C. (RA) and Verasource
Excess Risk Ltd. (VS).
TRC is a group insurance brokerage firm in the Pacific Northwest primarily
marketing group medical, dental and life insurance products. Ben Reppond and
Louis Baransky own 75 percent and 25 percent of TRC, respectively. TRC
represents 77 percent of the Company's total revenues for the year ended
December 31, 1998.
RA provides administrative services for a fee primarily to TRC's client
base. RA administers COBRA plans, flexible spending accounts, direct dental
reimbursement and single billing. Ben and Deborah Reppond (husband and wife)
and Louis Baransky own 99 percent and 1 percent of RA, respectively. RA
represents 19 percent of the Company's total revenues for the year ended
December 31, 1998.
VS is a reinsurance brokerage firm marketing stop loss coverage to mid-size
companies that wish to limit losses related to its self-insured plans. Ben
Reppond and Scott Perry each own 50 percent of VS. VS represents 4 percent of
the Company's total revenues for the year ended December 31, 1998.
NOTE 2--BASIS OF PRESENTATION
The combined financial statements present the combined financial position
and results of operations of TRC, RA and VS. TRC, RA and VS are related through
common management. In view of their close operating and financial
relationships, the preparation of combined financial statements is considered
appropriate. The combined statements, however, do not refer to a legal entity.
All significant transactions and accounts among TRC, RA and VS have been
eliminated.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
The Company recognizes commission income on the later of the effective date
of the policy or the billing date. Contingent commissions are recorded when
received. Service fee income is recognized as earned, which is over the period
in which the services are provided.
Cash and Cash Equivalents:
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
Property and Equipment:
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization of property and equipment are
computed on a straight-line basis over estimated useful asset lives (shorter of
asset life or lease term for leasehold improvements), generally ranging from 3
to 7 years. Expenditures for maintenance and repairs and minor renewals and
betterments which do not improve or extend the life of the respective assets
are expensed. All other expenditures for renewals and betterments are
capitalized. The assets and related depreciation accounts are adjusted for
property retirements and disposals with the resulting gain or loss included in
operations.
F-134
<PAGE>
THE REPPOND COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Asset Impairment Assessments:
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying value of such assets may not be fully
recoverable. An impairment is recognized to the extent that the sum of
undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. If an impairment is recognized the
carrying value of the impaired asset is reduced to its fair value. No
impairment has been recognized through December 31, 1998.
Fair Value of Financial Instruments:
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable, accounts payable, accrued
liabilities and debt approximate fair value.
Income Taxes:
Income taxes have been computed using the asset and liability approach for
TRC and VS. Under this approach, deferred income tax assets and liabilities are
determined based on the differences between the financial statement and tax
basis of assets and liabilities using currently enacted tax rates in effect for
the years in which the differences are expected to reverse.
RA's members elected to treat RA as a partnership for federal and state
income tax purposes. Under the election, RA's results of operations are passed
through to, and taken into account by, its members in computing their
individual tax liabilities. These items are not taxed at the entity's level;
thus, no provision for income taxes has been made, with respect to RA, in the
combined financial statements.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable.
Receivables arising from services provided to clients are not collateralized
and, as a result, management continually monitors the financial condition of
its clients to reduce the risk of loss.
Use of Estimates:
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the combined financial statements and the reported amounts of revenues and
expenses during the reporting period. While management believes that the
estimates and related assumptions used in the preparation of the combined
financial statements are appropriate, actual results could differ from those
estimates. Estimates are made when accounting for accounts receivable,
depreciation and income taxes.
Unaudited Interim Financial Statements:
In the opinion of management, the Company has made all the adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company at June 30, 1999 and the
results of its operations and its cash flow for the six months ended June 30,
1999 and 1998, as presented in the accompanying unaudited interim financial
statements.
F-135
<PAGE>
THE REPPOND COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment, net reflected on the accompanying balance sheet
is comprised as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Property and equipment:
Furniture and fixtures......................... $ 438 $ 457
Computer equipment............................. 823 883
Leasehold improvements......................... 103 114
Office equipment............................... 302 311
Vehicles....................................... 19 19
Computer software.............................. 286 381
------- -------
1,971 2,165
Less accumulated depreciation and amortization... (1,179) (1,332)
------- -------
$ 792 $ 833
======= =======
</TABLE>
NOTE 5--CREDIT FACILITIES
Short-Term Debt:
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Line of credit.................................... $183 $415
Current maturities of long-term debt.............. 185 172
---- ----
Total short-term debt........................... $368 $587
==== ====
</TABLE>
The Company has a $525 line of credit with The Commerce Bank of Washington,
N.A. with interest payable monthly at prime (7.75 percent at December 31, 1998)
plus 0.25 percent expiring April 30, 1999. The line of credit is collateralized
by substantially all assets.
F-136
<PAGE>
THE REPPOND COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Note payable, secured by certain assets of the
Company, interest rate of prime (7.75 percent
at December 31, 1998) plus 0.25 percent........ $315 $436
Less current maturities of long-term debt....... 185 172
---- ----
Total long-term debt........................ $130 $264
==== ====
Maturities on long-term debt, are as follows:
1999............................................ $185
2000............................................ 130
----
Total maturities of long-term debt.......... $315
====
</TABLE>
NOTE 6--INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1998 1999
------------ ----- -----
(Unaudited)
<S> <C> <C> <C>
Income taxes currently payable:
Federal....................................... $180 $ 218 $ 87
---- ----- -----
Deferred income tax expense (benefit):
Federal....................................... (67) (62) 33
---- ----- -----
Total provision for income taxes............ $113 $ 156 $ 120
==== ===== =====
</TABLE>
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
Six Months
Ended
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Non-current deferred tax assets:
Property and equipment.......................... $ 7 $ 7
==== ====
Current deferred tax liabilities:
Accrual to cash differences..................... $116 $149
Unrealized losses............................... 4 4
---- ----
$120 $153
==== ====
</TABLE>
F-137
<PAGE>
THE REPPOND COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
Six Months
Ended June
Year Ended 30,
December 31, -------------
1998 1998 1999
------------ ----- -----
(Unaudited)
<S> <C> <C> <C>
U.S. federal statutory rate.................. 34% 34% 34%
Limited liability company income not subject
to level taxation........................... (14) (14) (11)
Meals and entertainment...................... 4 4 3
Merger costs................................. -- -- 25
Other........................................ 1 4 --
--- ----- -----
25% 28% 50%
=== ===== =====
</TABLE>
NOTE 7--LEASE COMMITMENTS
The Company leases various types of office facilities, equipment, and
furniture and fixtures under noncancelable lease agreements, which expire at
various dates. Certain of these leases allow the Company, at its option to
extend the lease term and/or purchase the leased asset at the end of the lease
term, generally at fair market value. Future minimum lease payments under
noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 325
2000............................................................... 369
2001............................................................... 382
2002............................................................... 388
2003............................................................... 388
------
Total minimum lease payments....................................... $1,852
======
</TABLE>
Rent expense for all operating leases for the fiscal year ended December 31,
1998, and for the three months ended June 30, 1998 and 1999 was $386, $193
(unaudited), and $237 (unaudited), respectively.
NOTE 8--EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution pension plan covering
substantially all employees. At its discretion, the Company may make
contributions to the plan up to 6 percent of employees wages. Contributions for
the year ended December 31, 1998 were $25.
NOTE 9--RELATED PARTY TRANSACTIONS
The December 31, 1998 accounts receivable balance includes a $17 receivable
from a related party. This amount represents expenses that were paid by the
Company on behalf of the related party.
The Company is a party to a sublicense agreement in which it pays a related
party approximately $25 per year for the use of a luxury box at the Key Arena
in Seattle, Washington.
F-138
<PAGE>
THE REPPOND COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 10--SUBSEQUENT EVENTS (UNAUDITED)
In March 1999, the Company and its shareholders entered into a definitive
agreement with Centerprise Advisors, Inc. (Centerprise) pursuant to which three
wholly owned subsidiaries of Centerprise will merge with and into The Reppond
Company, Inc., Reppond Administrators L.L.C. and Vera Source Excess Risk Ltd.,
respectively. All of the Company's outstanding shares and membership interests
will be exchanged for promissory notes and common stock of Centerprise
concurrently with the consummation of the initial public offering of the common
stock of Centerprise.
In April 1999, the Company obtained a note payable from The Commerce Bank of
Washington, N.A. with a borrowing limit of $600,000. The Note bears interest at
prime plus 0.25 percent and expires in April of 2004. The Note is
collateralized by substantially all assets of the Company. The Company has
borrowed $350,000 on the Note through August 15, 1999.
In August 1999, the Company extended its line of credit agreement with the
Commerce Bank of Washington, N.A. to December 31, 1999.
F-139
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Members of
Simione, Scillia, Larrow & Dowling LLC
In our opinion, the accompanying balance sheet and the related statements of
income, of members' equity and of cash flows present fairly, in all material
respects, the financial position of Simione, Scillia, Larrow & Dowling LLC at
December 31, 1998, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
January 29, 1999
F-140
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
BALANCE SHEET
(In Thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 169 $ 189
Fees receivable, less allowance for doubtful
accounts of $177 and $177 (unaudited).............. 1,562 2,142
Notes receivable.................................... 12 12
Unbilled fees, at net realizable value.............. 254 443
Prepaid expenses and other current assets........... 23 112
------ ------
Total current assets.............................. 2,020 2,898
------ ------
Property and equipment, net........................... 133 122
Fees receivable....................................... 43 43
Notes receivable...................................... 46 60
------ ------
Total assets...................................... $2,242 $3,123
====== ======
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Short-term debt..................................... $1,101 $1,258
Loans from managers................................. 26 --
Due to managers..................................... 152 175
Accounts payable.................................... 115 135
Accrued expenses.................................... 142 164
------ ------
Total current liabilities......................... 1,536 1,732
------ ------
Long-term debt........................................ 153 --
Deferred rent......................................... 113 117
------ ------
Total liabilities................................. 1,802 1,849
------ ------
Commitments and contingencies
Members' equity:
Managers............................................ 440 1,274
------ ------
Total members' equity............................. 440 1,274
------ ------
Total liabilities and members' equity............. $2,242 $3,123
====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-141
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30,
December 31, -----------------
1998 1998 1999
------------ -------- --------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Professional services......................... $6,217 $ 3,283 $ 4,180
------ -------- --------
Expenses:
Managers' compensation and related costs...... 2,104 1,037 1,145
Employee compensation and related costs....... 2,292 1,173 1,291
Occupancy costs............................... 372 175 172
Office operating expenses..................... 494 231 286
Depreciation and amortization................. 31 16 16
Other selling, general and administrative
expenses..................................... 467 231 264
------ -------- --------
5,760 2,863 3,174
------ -------- --------
Operating income............................ 457 420 1,006
------ -------- --------
Other expense:
Interest expense.............................. 130 67 64
Other......................................... 50 -- 108
------ -------- --------
180 67 172
------ -------- --------
Net income...................................... $ 277 $ 353 $ 834
====== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-142
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
STATEMENT OF MEMBERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Total
Members' Managers' Members'
Equity Equity Equity
-------- --------- --------
<S> <C> <C> <C>
Balance at January 1, 1998.......................... $-- $ 163 $ 163
Net income.......................................... -- 277 277
---- ------ ------
Balance at December 31, 1998........................ -- 440 440
---- ------ ------
Net income (unaudited).............................. -- 834 834
---- ------ ------
Balance at June 30, 1999 (unaudited)................ $-- $1,274 $1,274
==== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-143
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30,
December 31, ----------------
1998 1998 1999
------------ -------- --------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 277 $ 353 $ 834
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 31 16 16
Provision for losses on accounts
receivable................................ 56 6 37
Changes in deferred rent expense........... 17 -- 4
Changes in current assets and liabilities:
Fees receivable.......................... (266) (92) (635)
Unbilled fees............................ (159) (178) (189)
Prepaid expenses and other current
assets.................................. (2) (6) (89)
Due to managers.......................... 152 (55) 23
Accounts payable......................... (10) (18) 20
Accrued expenses......................... 33 29 26
----- ------- --------
Net cash provided by operating
activities............................ 129 55 47
----- ------- --------
Cash flows from investing activities:
Purchase of property and equipment........... (11) (7) (5)
----- ------- --------
Net cash used in investing activities.. (11) (7) (5)
----- ------- --------
Cash flows from financing activities:
Payments of long-term debt................... (133) (66) (153)
Proceeds from short-term debt................ 197 57 157
Payments of loans from managers.............. (16) (7) (26)
----- ------- --------
Net cash provided by (used in)
financing activities.................. 48 (16) (22)
----- ------- --------
Net increase in cash........................... 166 32 20
Cash and cash equivalents at beginning of
year.......................................... 3 3 169
----- ------- --------
Cash and cash equivalents at end of year....... $ 169 $ 35 $ 189
===== ======= ========
Supplemental disclosure of cash flow
information:
Interest paid................................ $ 130 $ 67 $ 64
</TABLE>
See accompanying Notes to Financial Statements.
F-144
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
NOTE 1--BACKGROUND AND BUSINESS DESCRIPTION
Nature of Operations and Organization:
Simione, Scillia, Larrow & Dowling LLC (the Company) is a limited liability
company engaged in the practice of providing audit, accounting, tax, and
management consulting services. The Company has offices in New Haven, Hartford,
and Hamden, Connecticut. The primary area is Connecticut, although the Company
has clients throughout the United States. The Company specializes in providing
services for small and mid-sized privately owned business and governmental
clients. More than half of the Company's revenue is derived from audit and
accounting services.
The Company was formed pursuant to the Connecticut Limited Liability Company
Act. The term of the Company began as of January 1, 1996 and shall continue
until December 31, 2046 unless sooner terminated in accordance with the
Operating Agreement. Ownership in the Company consists of members, certain of
which are designated as managers. Members have limited personal liability for
the obligations or debts of the Company. The managers are responsible for the
business, property, and affairs of the Company. Each individual who becomes a
manager of the Company shall have capital in the Company to the extent of: (i)
capital contributions actually made, and (ii) the amount of guaranteed payments
(as defined) "contributed" in relation to total guaranteed payments
"contributed" by all managers, with such percentage interest applied to
unallocated capital of the Company.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
The Company recognizes revenue as the related services are provided. The
Company bills clients based upon actual hours incurred on client projects at
expected net realizable rates per hour, plus any out-of-pocket expenses. The
cumulative impact of any subsequent revision in the estimated realizable value
of unbilled fees for a particular client project is reflected in the period in
which the change becomes known. Outstanding fees receivable are evaluated each
period to assess the adequacy of the allowance for doubtful accounts.
Unbilled Fees:
Unbilled fees represent the anticipated net realizable value for hours
incurred by the Company's professional and administrative staff, plus out-of-
pocket expenses, on projects which had not yet been billed to clients as of
period end.
Cash and Cash Equivalents:
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
Property and Equipment:
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization of property and equipment are
computed on the straight-line method over estimated useful asset lives (shorter
of asset life or lease term for leasehold improvements), generally ranging from
5 to 7 years. Expenditures for maintenance and repairs and minor renewals and
betterments which do not improve or extend
F-145
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
the life of the respective assets are expensed. All other expenditures for
renewals and betterments are capitalized. The assets and related depreciation
accounts are adjusted for property retirements and disposals with the resulting
gain or loss included in operations.
Income Taxes:
The Company is treated as a partnership for income tax purposes. As such,
the Company has no current or deferred income tax assets or liabilities
outstanding at December 31, 1998 as the taxes associated with net income of the
Company is borne by the individual members.
Asset Impairment Assessments:
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying value of such assets may not be fully
recoverable. An impairment is recognized to the extent that the sum of
undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. If an impairment is recognized the
carrying value of the impaired asset is reduced to its fair value. No
impairment has been recognized through December 31, 1998.
Fair Value of Financial Instruments:
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, fees receivable, accounts payable, accrued liabilities
and debt approximate fair value.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of fees receivable. Receivables
arising from services provided to clients are not collateralized and, as a
result, management continually monitors the financial condition of its clients
to reduce the risk of loss.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. While management believes that the estimates and related
assumptions used in the preparation of the financial statements are
appropriate, actual results could differ from those estimates. Estimates are
made when accounting for the allowances for doubtful accounts and deprecation.
Unaudited Interim Financial Statements:
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company at June 30, 1999, and the
results of its operations and its cash flows for the six months ended June 30,
1998 and 1999, as presented in the accompanying unaudited interim financial
statements.
F-146
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment, net reflected on the accompanying balance sheet is
comprised as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Property and equipment, net:
Furniture and fixtures........................ $197 $199
Computer equipment............................ 19 22
---- ----
216 221
Less accumulated depreciation and
amortization................................. (83) (99)
---- ----
$133 $122
==== ====
</TABLE>
NOTE 4--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a rollforward of activity within the allowance for doubtful
accounts:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Balance at beginning of period.................... $255 $177
Additions to costs and expenses................... 56 37
Less write-offs................................... (134) (37)
---- ----
Balance at end of period.......................... $177 $177
==== ====
</TABLE>
NOTE 5--CREDIT FACILITIES
Short-Term Debt:
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Line of credit borrowings......................... $ 969 $1,258
Current maturities of long-term debt.............. 132 --
------ ------
Total short-term debt........................... $1,101 $1,258
====== ======
</TABLE>
Line of credit borrowings consist of amounts outstanding under the Company's
$1,500 revolving credit note with a bank. That note bears interest at the
bank's prime rate (as defined) plus .5 percent (8.25 percent at December 31,
1998). The line of credit borrowings are secured by all assets of the Company
and are personally guaranteed by the Managers. The line of credit borrowings
cannot exceed 80 percent of the Company's eligible accounts receivable (as
defined). The revolving line of credit matures five months after the proposed
initial public offering of Centerprise. See Note 10.
F-147
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
As a condition of the line of credit borrowings, the Company is required to
comply with certain loan covenants. The financial covenants require the Company
to cause its members' equity to increase by a minimum of $250 for the fiscal
year ending December 31, 1998 and for each year thereafter.
Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Commercial promissory note, due in 48 monthly principal
installments of $11 plus interest at the bank's prime rate
(as defined) plus .5%(8.25% at December 31, 1998) through
March 1, 2001. The note is secured by all assets of the
Company................................................... $285
Less current maturities of long-term debt.................. (132)
----
Total long-term debt................................... $153
====
Maturities on long-term debt as of December 31, 1998 are
as follows:
1999....................................................... $132
2000....................................................... 132
2001....................................................... 21
----
Total.................................................. $285
====
</TABLE>
NOTE 6--LEASE COMMITMENTS
The Company leases office equipment and office space under operating leases
expiring at various dates through April 2006. The office space lease has a
renewal option and requires the Company to pay a proportionate share of common
area costs in addition to the base rental amount. Further, the office space
lease includes scheduled base rent increases over the term of the lease. The
total amount of the base rent payments is being charged to expense on the
straight-line method over the term of the lease. The Company has recorded a
deferred credit as a long-term liability to reflect the excess of rent expense
over cash payments since inception of the lease. Rent expense totaled
approximately $505, $256 and $252 (unaudited) for the fiscal year ended
December 31, 1998 and for the six months ended June 30, 1998 and 1999,
respectively.
Total future minimum rental payments under noncancelable operating leases at
December 31, 1998 were as follows:
<TABLE>
<S> <C>
1999................................................................ $ 444
2000................................................................ 416
2001................................................................ 336
2002................................................................ 311
2003................................................................ 311
Thereafter.......................................................... 726
------
$2,544
======
</TABLE>
F-148
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 7--EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 401(k) savings plan. The plan is
available to all full time employees and members who have completed one year of
employment and worked a minimum of 1,000 hours. The Company contributes an
amount equal to 15 percent of the compensation earned by each eligible
participant up to $1. At its discretion, the Company may also contribute a
portion of its net income. No discretionary contributions were made to the plan
during 1998. Contributions to the plan by the Company amounted to $22, $13
(unaudited) and $8 (unaudited) for the fiscal year ended December 31, 1998 and
the six months ended June 30, 1998 and 1999, respectively.
NOTE 8--RELATED PARTY TRANSACTIONS
The Company is indebted to a partnership comprised of certain managers of
the Company. The unsecured note payable is due in 36 monthly installments of
$2, including interest at 10 percent through April 1, 2000. This note was paid
in full during June 1999.
The Company leases office space from a partnership, including two of the
managers. The lease is classified as an operating lease and provides for month
to month rentals of $1.
NOTE 9--CONTINGENCIES
Litigation:
The Company, two managers, and two predecessor firms are defendants in a
lawsuit filed by a former client claiming fraud, negligence, and breach of
fiduciary duty, among other allegations. The plaintiff seeks unspecified
damages but has indicated through responses to discovery that damages could
exceed $1,000. The Company and outside counsel for the Company believe the suit
to be without merit and intend to defend the suit vigorously.
NOTE 10--SUBSEQUENT EVENTS (UNAUDITED)
In March 1999, the Company and its members entered into a definitive
agreement with Centerprise Advisors, Inc. (Centerprise) pursuant to which the
Company will transfer all of its assets and liabilities other than the assets
and liabilities relating to the provision of attest services to a newly formed
Delaware limited liability company ("SSLD LLC"). Thereafter, SSLD LLC will
merge with and into a wholly-owned subsidiary of Centerprise. All of the
members' equity in SSLD LLC will be exchanged for cash and common stock of
Centerprise concurrently with the consummation of the initial public offering
of the common stock of Centerprise.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, Centerprise is requiring
that the Company cease providing attest services prior to the closing of the
acquisition. Following the closing, all attest services formerly provided by
the Company will be provided by a newly created separate legal entity (the
Attest Firm) which will be owned by former members of the Company who are
certified public accountants. Pursuant to a services agreement, Centerprise
will provide professional and other personnel, equipment, office space and
business and administrative services necessary to operate the Attest Firm.
In June 1999, the Company amended its line of credit with a bank. The line
was extended to five months after the initial public offering of Centerprise
Advisors, Inc. All rights to request advances under the line of credit
terminate on the date of the proposed initial public offering of Centerprise.
F-149
<PAGE>
Appendix A
CALIFORNIA DISSENTERS' RIGHTS
(S) 1300. Reorganization or short-form merger; dissenting shares; corporate
purchase at fair market value; definitions
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to
vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as
defined in subdivision (b). The fair market value shall be determined as of the
day before the first announcement of the terms of the proposed reorganization
or short-form merger, excluding any appreciation or depreciation in consequence
of the proposed action, but adjusted for any stock split, reverse stock split,
or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302. (c) As used in this chapter, "dissenting
shareholder" means the recordholder of dissenting shares and includes a
transferee of record.
(S) 1301. Notice to holders of dissenting shares in reorganizations; demand
for purchase; time; contents (a) If, in the case of a reorganization, any
shareholders of a corporation have a right under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, to require
the corporation to purchase their shares for cash, such corporation shall mail
to each such shareholder a notice of the approval of the reorganization by its
outstanding shares (Section 152) within 10 days after the date of such
approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this
section, a statement of the price determined by the corporation to represent
the fair market value of the dissenting shares, and a brief description of the
procedure to be followed if the shareholder desires to exercise the
shareholder's right under such sections. The statement of price constitutes an
offer by the corporation to purchase at the price stated any dissenting shares
as defined in subdivision (b) of Section 1300, unless they lose their status as
dissenting shares under Section 1309. (b) Any shareholder who has a right to
require the corporation to purchase the
A-1
<PAGE>
shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder. (c) The demand shall state the number and class of
the shares held of record by the shareholder which the shareholder demands that
the corporation purchase and shall contain a statement of what such shareholder
claims to be the fair market value of those shares as of the day before the
announcement of the proposed reorganization or short-form merger. The statement
of fair market value constitutes an offer by the shareholder to sell the shares
at such price.
(S) 1302. Submission of share certificates for endorsement; uncertificated
securities within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
(S) 1303. Payment of agreed price with interest; agreement fixing fair
market value; filing; time of payment (a) If the corporation and the
shareholder agree that the shares are dissenting shares and agree upon the
price of the shares, the dissenting shareholder is entitled to the agreed price
with interest thereon at the legal rate on judgments from the date of the
agreement. Any agreements fixing the fair market value of any dissenting shares
as between the corporation and the holders thereof shall be filed with the
secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
(S) 1304. Action to determine whether shares are dissenting shares or fair
market value; limitation; joinder; consolidation; determination of issues;
appointment of appraisers (a) If the corporation denies that the shares are
dissenting shares, or the corporation and the shareholder fail to agree upon
the fair market value of the shares, then the shareholder demanding purchase of
such shares as dissenting shares or any interested corporation, within six
months after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the shares
are dissenting shares or the fair market value of the dissenting shares or both
or may intervene in any action pending on such a complaint. (b) Two or more
dissenting shareholders may join as plaintiffs or be joined as defendants in
any such action and two or more such actions may be consolidated. (c) On the
trial of the action, the court shall determine the issues. If the status of the
shares as dissenting shares is in issue, the court shall first determine that
issue. If the fair market value of the dissenting shares is in issue, the court
shall determine, or shall appoint one or more impartial appraisers to
determine, the fair market value of the shares.
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Appendix B
Delaware Dissenters' Rights
Section 262 Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except: a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository receipts in
respect thereof; b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository receipts
in respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders; c. Cash in lieu
of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a. and b. of this paragraph; or d. Any combination
of the shares of stock, depository receipts and cash in lieu of fractional
shares or fractional depository receipts described in the foregoing
subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
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provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows: (1) If a proposed merger
or consolidation for which appraisal rights are provided under this section is
to be submitted for approval at a meeting of stockholders, the corporation, not
less than 20 days prior to the meeting, shall notify each of its stockholders
who was such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsection (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of the
vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy
or vote against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or (S)
253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such
notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record date
is fixed and the notice is given prior to the effective date, the record date
shall be the close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value
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of the stock of all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the effective date of the merger or consolidation,
any stockholder shall have the right to withdraw such stockholder's demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after such
stockholder's written request for such a statement is received by the surviving
or resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by one or more
publications at least one week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees
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in the Court of Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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Appendix C
Washington Dissenters' Rights (Corporations)
23B.13.020. Right to dissent
(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions: (a) Consummation of a plan of merger to which the
corporation is a party (i) if shareholder approval is required for the merger
by RCW 23B.11.030, 23B.11.080, or the articles of incorporation and the
shareholder is entitled to vote on the merger, or (ii) if the corporation is a
subsidiary that is merged with its parent under RCW 23B.11.040; (b)
Consummation of a plan of share exchange to which the corporation is a party
as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan; (c) Consummation of a sale or exchange of all,
or substantially all, of the property of the corporation other than in the
usual and regular course of business, if the shareholder is entitled to vote
on the sale or exchange, including a sale in dissolution, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be distributed
to the shareholders within one year after the date of sale; (d) An amendment
of the articles of incorporation that materially reduces the number of shares
owned by the shareholder to a fraction of a share if the fractional share so
created is to be acquired for cash under RCW 23B.06.040; or (e) Any corporate
action taken pursuant to a shareholder vote to the extent the articles of
incorporation, bylaws, or a resolution of the board of directors provides that
voting or nonvoting shareholders are entitled to dissent and obtain payment
for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any
one of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
23B.13.030. Dissent by nominees and beneficial owners
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person on
whose behalf the shareholder asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which the dissenter dissents and the dissenter's other shares were registered
in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
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23B.13.200. Notice of dissenters' rights
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this chapter and be accompanied by a copy of this
chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210. Notice of intent to demand payment
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must (a) deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is effected, and (b) not
vote such shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.220. Dissenters' notice
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the
date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230. Duty to demand payment
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220 must
demand payment, certify whether the shareholder acquired beneficial ownership
of the shares before the date required to be set forth in the dissenters'
notice pursuant to RCW 23B.13.220(2)(c), and deposit the shareholder's
certificates in accordance with the terms of the notice.
(2) The shareholder who demand payment and deposits the shareholder's share
certificates under subsection (1) of this section retains all other rights of a
shareholder until the proposed corporate action is effected.
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(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.240. Share restrictions
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until the effective date of
the proposed corporate action.
23B.13.250. Payment
(1) Except as provided in RCW 23B.13.270, within thirty days of the later of
the effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
23B.13.260. Failure to take action
(1) If the corporation does not effect the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment
demand procedure.
23B.13.270. After-acquired shares
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
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23B.13.280. Procedure if shareholder dissatisfied with payment or offer
(1) A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section unless
the dissenter notifies the corporation of the dissenter's demand in writing
under subsection (1) of this section within thirty days after the corporation
made or offered payment for the dissenter's shares.
23B.13.300. Court action
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding
within the sixty-day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this chapter. If the court
determines that such shareholder has not complied with the provisions of this
chapter, the shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under RCW
23B.13.270.
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23B.13.310. Court costs and counsel fees
(1) The court in a proceeding commenced under RCW 23B.13.300 shall determine
all costs of the proceeding, including the reasonable compensation and expenses
of appraisers appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess the costs against all or some
of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously, or not in good faith
in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by chapter 23B.13.RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefitted.
Washington Dissenters' Rights (Limited Liability Companies)
25.15.425. Definitions
As used in this article, unless the context otherwise requires:
(1) "Limited liability company" means the domestic limited liability company
in which the dissenter holds or held a membership interest, or the surviving
limited liability company, limited partnership, or corporation by merger,
whether foreign or domestic, of that limited liability company.
(2) "Dissenter" means a member who is entitled to dissent from a plan of
merger and who exercises that right when and in the manner required by this
article.
(3) "Fair value," with respect to a dissenter's limited liability company
interest, means the value of the member's limited liability company interest
immediately before the effectuation of the merger to which the dissenter
objects, excluding any appreciation or depreciation in anticipation of the
merger unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the merger until
the date of payment, at the average rate currently paid by the limited
liability company on its principal bank loans or, if none, at a rate that is
fair and equitable under all the circumstances.
25.15.430. Member--Dissent--Payment of fair value
(1) Except as provided in RCW 25.15.440 or 25.15.450(2), a member of a
domestic limited liability company is entitled to dissent from, and obtain
payment of, the fair value of the member's interest in a limited liability
company in the event of consummation of a plan of merger to which the limited
liability company is a party as permitted by RCW 25.15.395 or 25.15.415.
(2) A member entitled to dissent and obtain payment for the member's
interest in a limited liability company under this article may not challenge
the merger creating the member's entitlement unless the merger fails to comply
with the procedural requirements imposed by this title, Title 23B RCW, RCW
25.10.800 through 25.10.840, or the limited liability company agreement, or is
fraudulent with respect to the member or the limited liability company.
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(3) The right of a dissenting member in a limited liability company to
obtain payment of the fair value of the member's interest in the limited
liability company shall terminate upon the occurrence of any one of the
following events:
(a) The proposed merger is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
merger; or
(c) The member's demand for payment is withdrawn with the written
consent of the limited liability company.
25.15.435. Dissenters' rights--Notice--Timing
(1) Not less than ten days prior to the approval of a plan of merger, the
limited liability company must send a written notice to all members who are
entitled to vote on or approve the plan of merger that they may be entitled to
assert dissenters' rights under this article. Such notice shall be accompanied
by a copy of this article.
(2) The limited liability company shall notify in writing all members not
entitled to vote on or approve the plan of merger that the plan of merger was
approved, and send them the dissenters' notice as required by RCW 25.15.445.
25.15.440. Member--Dissent--Voting restriction
A member of a limited liability company who is entitled to vote on or
approve the plan of merger and who wishes to assert dissenters' rights must not
vote in favor of or approve the plan of merger. A member who does not satisfy
the requirements of this section is not entitled to payment for the member's
interest in the limited liability company under this article.
25.15.445. Members--Dissenters' notice--Requirements
(1) If the plan of merger is approved, the limited liability company shall
deliver a written dissenters' notice to all members who satisfied the
requirements of RCW 25.15.440.
(2) The dissenters' notice required by RCW 25.15.435(2) or by subsection (1)
of this section must be sent within ten days after the approval of the plan of
merger, and must:
(a) State where the payment demand must be sent;
(b) Inform members as to the extent transfer of the member's interest in
the limited liability company will be restricted as permitted by RCW
25.15.455 after the payment demand is received;
(c) Supply a form for demanding payment;
(d) Set a date by which the limited liability company must receive the
payment demand, which date may not be fewer than thirty nor more than sixty
days after the date the notice under this section is delivered; and
(e) Be accompanied by a copy of this article.
25.15.450. Member--Payment demand--Entitlement
(1) A member of a limited liability company who demands payment retains all
other rights of a member of such company until the proposed merger becomes
effective.
(2) A member of a limited liability company sent a dissenters' notice who
does not demand payment by the date set in the dissenters' notice is not
entitled to payment for the member's interest in the limited liability company
under this article.
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25.15.455. Member's interests--Transfer restriction
The limited liability company agreement may restrict the transfer of
members' interests in the limited liability company from the date the demand
for their payment is received until the proposed merger becomes effective or
the restriction is released under this article.
25.15.460. Payment of fair value--Requirements for compliance
(1) Within thirty days of the later of the date the proposed merger becomes
effective, or the payment demand is received, the limited liability company
shall pay each dissenter who complied with RCW 25.15.450 the amount the
limited liability company estimates to be the fair value of the dissenting
member's interest in the limited liability company, plus accrued interest.
(2) The payment must be accompanied by:
(a) Copies of the financial statements for the limited liability company
for its most recent fiscal year;
(b) An explanation of how the limited liability company estimated the
fair value of the member's interest in the limited liability company;
(c) An explanation of how the accrued interest was calculated;
(d) A statement of the dissenter's right to demand payment; and
(e) A copy of this article.
25.15.465. Merger--Not effective within sixty days--Transfer restrictions
(1) If the proposed merger does not become effective within sixty days
after the date set for demanding payment, the limited liability company shall
release any transfer restrictions imposed as permitted by RCW 25.15.455.
(2) If, after releasing transfer restrictions, the proposed merger becomes
effective, the limited liability company must send a new dissenters' notice as
provided in RCW 25.15.435(2) and 25.15.445 and repeat the payment demand
procedure.
25.15.470. Dissenter's estimate of fair value--Notice
(1) A dissenting member may notify the limited liability company in writing
of the dissenter's own estimate of the fair value of the dissenter's interest
in the limited liability company, and amount of interest due, and demand
payment of the dissenter's estimate, less any payment under RCW 25.15.460, if:
(a) The dissenter believes that the amount paid is less than the fair
value of the dissenter's interest in the limited liability company, or that
the interest due is incorrectly calculated;
(b) The limited liability company fails to make payment within sixty
days after the date set for demanding payment; or
(c) The limited liability company, having failed to effectuate the
proposed merger, does not release the transfer restrictions imposed on
members' interests as permitted by RCW 25.15.455 within sixty days after
the date set for demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the limited liability company of the dissenter's
demand in writing under subsection (1) of this section within thirty days
after the limited liability company made payment for the dissenter's interest
in the limited liability company.
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25.15.475. Unsettled demand for payment--Proceeding--Parties--Appraisers
(1) If a demand for payment under RCW 25.15.450 remains unsettled, the
limited liability company shall commence a proceeding within sixty days after
receiving the payment demand and petition the court to determine the fair value
of the dissenting member's interest in the limited liability company, and
accrued interest. If the limited liability company does not commence the
proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(2) The limited liability company shall commence the proceeding in the
superior court. If the limited liability company is a domestic limited
liability company, it shall commence the proceeding in the county where its
registered office is maintained.
(3) The limited liability company shall make all dissenters (whether or not
residents of this state) whose demands remain unsettled parties to the
proceeding as in an action against their membership interests in the limited
liability company and all parties must be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law.
(4) The limited liability company may join as a party to the proceeding any
member who claims to be a dissenter but who has not, in the opinion of the
limited liability company, complied with the provisions of this article. If the
court determines that such member has not complied with the provisions of this
article, the member shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced is
plenary and exclusive. The court may appoint one or more persons as appraisers
to receive evidence and recommend decisions on the question of fair value. The
appraisers have the powers described in the order appointing them or in any
amendment to it. The dissenters are entitled to the same discovery rights as
parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of the
dissenter's membership interest in the limited liability company, plus
interest, exceeds the amount paid by the limited liability company.
25.15.480. Unsettled demand for payment--Costs--Fees and expenses of counsel
(1) The court in a proceeding commenced under RCW 25.15.475 shall determine
all costs of the proceeding, including the reasonable compensation and expenses
of appraisers appointed by the court. The court shall assess the costs against
the limited liability company, except that the court may assess the costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or
not in good faith demanding payment.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the limited liability company and in favor of any or all
dissenters if the court finds the limited liability company did not
substantially comply with the requirements of this article; or
(b) Against either the limited liability company or a dissenter, in
favor of any other party, if the court finds that the party against whom
the fees and expenses are assessed acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the limited liability
company, the court may award to these counsel reasonable fees to be paid out of
the amounts awarded to the dissenters who were benefitted.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Centerprise's certificate of incorporation provides that Centerprise shall,
to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law, as amended from time to time, indemnify all persons whom it
may indemnify pursuant thereto.
Section 145 of the Delaware General Corporation Law permits a corporation,
under specified circumstances, to indemnify its directors, officers, employees
or agents against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties by
reason of the fact that they were or are directors, officers, employees, or
agents of the corporation, if such directors, officers, employees or agents
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent
that the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to be indemnified for such expenses despite such
adjudication of liability.
Centerprise's certificate of incorporation provides that Centerprise's
directors will not be personally liable to Centerprise or its stockholders for
monetary damages resulting from breaches of their fiduciary duty as directors
except (a) for any breach of the duty of loyalty to Centerprise or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) under Section 164 of
the Delaware General Corporation Law, which makes directors liable for unlawful
dividends or unlawful stock repurchase or redemptions or (d) for transactions
from which directors derive improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Item 21. Exhibits and Financial Statement Schedules
(a) The following exhibits are filed with this Registration Statement:
Exhibits
<TABLE>
<C> <S>
2.1* Merger Agreement between Centerprise, Reznick Fedder & Silverman,
Certified Public Accountants, A Professional Corporation ("Reznick"),
Reznick Mergersub Inc., Reznick Fedder & Silverman, C.P.A.s, L.L.C., and
the members of Reznick Fedder & Silverman, C.P.A.s, L.L.C., dated as of
March 31, 1999.
2.2* Merger Agreement between Centerprise, Robert F. Driver Co., Inc.
("Driver"), RFD Mergersub Inc. and the stockholders of Robert F. Driver
Co., Inc., dated as of March 31, 1999.
2.3* Merger Agreement between Centerprise, Follmer, Rudzewicz & Company, P.C.
("Follmer"), FRF Holding LLC, FRC Mergersub Inc. and the stockholders of
Follmer Rudzewicz & Company, P.C., dated as of March 31, 1999.
2.4* Merger Agreement between Centerprise, Mann Frankfort Stein & Lipp, P.C.
("Maxx Frankfort"), MFSL Mergersub Inc. and the stockholders of Mann
Frankfort & Stein & Lipp, P.C., dated as of March 31, 1999.
</TABLE>
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<TABLE>
<C> <S>
2.5* Merger Agreement between Centerprise, Berry, Dunn, McNeil & Parker,
Chartered ("Berry Dunn"), Berry Dunn Mergersub Inc., BDM&P Holdings,
LLC and certain members of BDM&P Holdings, LLC, dated as of March 31,
1999.
2.6* Merger Agreement between Centerprise, Urbach Kahn & Werlin, PC
("Urbach"), a New York professional corporation, Urbach, Kahn &
Werlin, P.C., UKW Mergersub Inc., UKW Management LLC and the members
of UKW LLC, dated as of March 31, 1999.
2.7* Merger Agreement between Centerprise, Self Funded Benefits, Inc.
(d/b/a Insurance Design Administrators) ("IDA"), IDA Mergersub Inc.
and the stockholders of Self Funded Benefits, Inc. (d/b/a Insurance
Design Administrators), dated as of March 31, 1999.
2.9* Merger Agreement between Centerprise, Grace & Company, P.C.
("Grace"), Grace Capital, LLP, Grace Mergersub Inc. and the partners
of Grace Capital, LLP, dated as of March 31, 1999.
2.10* Merger Agreement between Centerprise, The Reppond Company Inc.,
Reppond Administrators, LLC, Vera Source Excess Risk Ltd., Reppond
Mergersub Inc., RA Mergersub LLC and Verasource Mergersub Inc., dated
as of March 31, 1999.
2.11* Merger Agreement between Centerprise, Simione, Scillia, Larrow &
Dowling LLC ("Simione"), SSLD Mergersub LLC and the members of
Simione, dated as of March 31, 1999.
2.12* Voting Agreement by and among Centerprise and named members of
Reznick, Fedder & Silverman, C.P.A.s, L.L.C., dated March 31, 1999.
2.13* Voting Agreement by and among Centerprise and named stockholders of
Driver, dated March 31, 1999.
2.14* Voting Agreement by and among Centerprise and named stockholders of
Follmer, dated March 31, 1999.
2.15* Voting Agreement by and among Centerprise and named stockholders of
Mann Frankfort, dated March 31, 1999.
2.16* Voting Agreement by and among Centerprise and named stockholders of
Berry Dunn, dated March 31, 1999.
2.17* Voting Agreement by and among Centerprise and named stockholders of
Urbach, dated March 31, 1999.
2.18* Voting Agreement by and among Centerprise and named stockholders of
IDA, dated March 31, 1999.
2.20* Voting Agreement by and among Centerprise and named partners of
Grace, dated March 31, 1999.
2.21* Voting Agreement by and among Centerprise and the stockholders of The
Reppond Company, Inc., dated March 31, 1999.
2.22* Voting Agreement by and among Centerprise and the members of Reppond
Administrators, L.L.C., dated March 31, 1999.
2.23* Voting Agreement by and among Centerprise and the stockholders of
VeraSource Excess Risk Ltd., dated March 31, 1999.
2.24* Voting Agreement by and among Centerprise, Simione and the managers
of Simione, dated March 31, 1999.
2.25** Extension Agreement and Acknowledgement between Centerprise and
Reznick, dated August 31, 1999.
</TABLE>
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<TABLE>
<C> <S>
2.26** Extension Agreement and Acknowledgement between Centerprise and
Driver, dated August 31, 1999.
2.27** Extension Agreement and Acknowledgement between Centerprise and
Follmer, dated August 31, 1999.
2.28** Extension Agreement and Acknowledgement between Centerprise and Mann
Frankfort, dated August 31, 1999.
2.29** Extension Agreement and Acknowledgement between Centerprise and Berry
Dunn, dated August 31, 1999.
2.30** Extension Agreement and Acknowledgement between Centerprise and
Urbach, dated August 31, 1999.
2.31** Extension Agreement and Acknowledgement between Centerprise and IDA,
dated August 31, 1999.
2.32** Extension Agreement and Acknowledgement between Centerprise and
Grace, dated August 31, 1999.
2.33** Extension Agreement and Acknowledgement between Centerprise, The
Reppond Company Inc., Reppond Administrators L.L.C. and VeraSource
Excess Risk Ltd., dated August 31, 1999.
2.34** Extension Agreement and Acknowledgement between Centerprise and
Simione, dated August 31, 1999.
2.35 Amended and Restated Merger Agreement between Centerprise, Reznick,
Reznick Mergersub Inc. and Reznick Fedder & Silverman, C.P.A.s,
L.L.C. dated as of September 24, 1999.
2.36 Amended and Restated Merger Agreement between Centerprise, Driver and
RFD Mergersub Inc. dated as of September 24, 1999.
2.37 Amended and Restated Merger Agreement between Centerprise, Follmer,
FRF Holding LLC and FRC Mergersub Inc. dated as of September 24,
1999.
2.38 Amended and Restated Merger Agreement between Centerprise, Mann
Frankfort and MFSL Mergersub Inc. dated as of September 24, 1999.
2.39 Amended and Restated Merger Agreement between Centerprise, Berry Dunn
and Berry Dunn Mergersub Inc. dated as of September 24, 1999.
2.40 Amended and Restated Merger Agreement between Centerprise, Urbach and
UKW Mergersub Inc. dated as of September 24, 1999.
2.41 Amended and Restated Merger Agreement between Centerprise, IDA and
IDA Mergersub Inc. dated as of September 24, 1999.
2.42 Amended and Restated Merger Agreement between Centerprise, Grace,
Grace Capital, LLP and Grace Mergersub Inc. dated as of September 24,
1999.
2.43 Amended and Restated Merger Agreement between Centerprise, The
Reppond Company Inc., Reppond Administrators, LLC, VeraSource Excess
Risk Ltd., Reppond Mergersub Inc., RA Mergersub LLC and Verasource
Mergersub Inc. dated as of September 24, 1999.
2.44 Amended and Restated Merger Agreement between Centerprise, SSLD
Mergersub LLC, and Simione dated as of September 24, 1999.
2.45 Form of Company Stockholder Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
4.1** Specimen stock certificate representing common stock.
5 Opinion of Katten Muchin & Zavis as to the legality of the securities
being registered (including consent).
8.1** Opinion of Katten Muchin & Zavis as to tax matters.
10.1** Form of Employment Agreement between Centerprise and Robert C. Basten.
10.2** Form of Employment Agreement between Centerprise and DeAnn L. Brunts.
10.3** Form of Employment Agreement between Centerprise and Rondol E. Eagle.
10.4** Form of Employment Agreement between Centerprise and Dennis W. Bikun.
10.5* Form of Employment Agreement between Self Funded Benefits, Inc. (d/b/a
Insurance Design Administrators) and Robert F. Gallo.
10.6* Form of Employment Agreement between Centerprise, Robert F. Driver
Co., Inc. and Thomas W. Corbett.
10.7* Form of Stockholders' Agreement.
10.8* Form of Incentive Compensation Agreement.
10.9* Form of Separate Practice Agreement.
10.10* Form of Services Agreement.
10.11* Form of Employee Incentive Compensation Plan.
10.12* Form of Stock Plan.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of KPMG LLP.
23.3** Consent of Katten Muchin & Zavis (contained in its opinion filed as
Exhibit 5 hereto).
23.4* Consent of Proposed Director (David Reznick)
23.5* Consent of Proposed Director (Thomas W. Corbett)
23.6* Consent of Proposed Director (Richard H. Stein)
23.7* Consent of Proposed Director (Anthony P. Frabotta)
23.8* Consent of Proposed Director (Charles H. Roscoe)
23.9* Consent of Proposed Director (Steven N. Fischer)
23.10* Consent of Proposed Director (Robert F. Gallo)
23.11* Consent of Proposed Director (Wayne J. Grace)
23.13* Consent of Proposed Director (Anthony P. Scillia)
23.14* Consent of Proposed Director (Louis C. Fornetti)
23.15* Consent of Proposed Director (William J. Lynch)
23.16** Consent of Proposed Director (John M. Cook)
24** Power of Attorney (see signature page).
99.1** Form of Rescission Acceptance Form
99.2** Form of Rescission Rejection Form
</TABLE>
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* Incorporated by reference to the corresponding exhibit to the Registrant's
registration statement on Form S-1 (file no. 333-75863).
** Previously filed.
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<PAGE>
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Chicago, State of Illinois, on the 23rd day of
September, 1999.
Centerprise Advisors, Inc.
/s/ Robert C. Basten
By: _________________________________
Robert C. Basten
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-
effective Amendment No. 1 to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Robert C. Basten Chairman of the Board, September 23, 1999
______________________________________ President and Chief
Robert C. Basten Executive Officer
* Executive Vice President, September 23, 1999
______________________________________ Chief Financial Officer
DeAnn L. Brunts and a Director
* Vice President and Chief September 23, 1999
______________________________________ Accounting Officer
Dennis W. Bikun
* Director September 23, 1999
______________________________________
Scott H. Lang
/s/ Robert C. Basten September 23, 1999
*By: ____________________________
Robert C. Basten
Attorney-in-fact
</TABLE>
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<PAGE>
Exhibit 2.35
------------------------------
AMENDED AND RESTATED
MERGER AGREEMENT
by and among
CENTERPRISE ADVISORS, INC.,
REZNICK MERGERSUB INC.,
and
REZNICK FEDDER & SILVERMAN,
CERTIFIED PUBLIC ACOUNTANTS,
A PROFESSIONAL CORPORATION
September 24, 1999
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TABLE OF CONTENTS
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Page
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ARTICLE I
THE MERGER.........................................................2
1.1 The Merger...........................................2
1.2 Effects of the Merger................................2
1.3 Directors and Officers of the Surviving
Corporation..........................................3
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT................................3
2.1 Merger Consideration.................................3
2.1.1 Basic Purchase Consideration...................3
2.1.2 Treasury Stock.................................3
2.1.3 Dissenters.....................................3
2.1.4 Conversion of Mergersub Stock..................3
2.1.5 Exchange of Certificates.......................4
2.2 Purchase of AR.......................................4
2.3 Post-Closing Adjustments to Basic Purchase
Consideration........................................4
2.3.1 Adjustments for Net Working Capital
Shortfall/Excess...............................4
2.3.2 Preliminary Balance Sheet and Adjustment.......4
2.3.3 Interim Adjustment.............................4
2.3.4 Final Adjustment...............................4
2.3.5 Disputes.......................................5
2.3.6 Payment of Adjustments.........................5
2.4 Post-Closing Management of AR........................5
2.5 Assignment of Uncollected AR.........................6
2.6 Definitions..........................................6
ARTICLE III
THE CLOSING AND CONSUMMATION DATE..................................7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................7
4.1 Organization and Qualification.......................7
4.2 Company Subsidiaries.................................7
4.3 Authority; Non-Contravention; Approvals..............8
4.4 Capitalization.......................................9
4.5 Year 2000...........................................10
4.6 Financial Statements................................10
4.7 Absence of Undisclosed Liabilities..................10
4.8 Unbilled Fees and Expenses..........................11
4.9 Absence of Certain Changes or Events................11
4.10 Litigation..........................................13
4.11 Compliance with Applicable Laws.....................14
4.12 Licenses............................................14
4.13 Material Contracts..................................15
4.14 Properties..........................................17
4.15 Intellectual Property...............................19
(i)
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4.16 Taxes...............................................20
4.17 Employee Benefit Plans; ERISA.......................20
4.18 Labor Matters.......................................22
4.19 Environmental Matters...............................23
4.20 Insurance...........................................23
4.21 Interest in Customers and Suppliers; Affiliate
Transactions........................................24
4.22 Business Relationships..............................24
4.23 Compensation........................................24
4.24 Bank Accounts.......................................25
4.25 Professional Credentials............................25
4.26 Disclosure; No Misrepresentation....................25
ARTICLE V
[RESERVED]
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE.....................28
6.1 Organization And Qualification......................28
6.2 Capitalization......................................28
6.3 No Subsidiaries.....................................29
6.4 Authority; Non-Contravention; Approvals.............29
6.5 Absence of Undisclosed Liabilities..................30
6.6 Litigation..........................................30
6.7 Compliance with Applicable Laws.....................31
6.8 No Misrepresentation................................31
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS.................................31
7.1 Conduct of Business by the Company Pending the
Acquisition.........................................31
7.2 No-Shop.............................................34
7.3 Schedules...........................................34
7.4 Company Stockholders Meeting........................35
7.5 Conversion..........................................35
ARTICLE VIII
ADDITIONAL AGREEMENTS.............................................36
8.1 Access to Information...............................36
8.2 Registration Statements.............................36
8.3 Expenses and Fees...................................38
8.4 Agreement to Cooperate..............................38
8.5 Public Statements...................................38
8.6 [Reserved]..........................................38
8.7 Centerprise Covenants. ............................40
8.8 Release of Guarantees...............................40
8.9 [Reserved]..........................................41
8.10 Preparation and Filing of Tax Returns...............41
8.11 Maintenance of Insurance............................41
8.12 Administration......................................41
8.13 Member Representative...............................41
(ii)
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ARTICLE IX
[RESERVED]
ARTICLE X
CLOSING CONDITIONS................................................50
10.1 Conditions to Each Party's Obligation to Effect
the Acquisition.....................................50
10.2 Conditions to Obligation of the Members, Seller
and the Company to Effect the Acquisition...........51
10.3 Conditions to Obligation of Centerprise to Effect
the Acquisition.....................................52
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER.................................54
11.1 Termination.........................................54
11.2 Effect of Termination...............................55
11.3 Amendment...........................................55
11.4 Waiver..............................................56
ARTICLE XII
[RESERVED]
ARTICLE XIII
[RESERVED]
ARTICLE XIV
[RESERVED]
ARTICLE XV
GENERAL PROVISIONS................................................60
15.1 Brokers.............................................60
15.2 Notices.............................................60
15.3 Interpretation......................................61
15.4 Certain Definitions.................................61
15.5 Entire Agreement; Assignment........................61
15.6 Applicable Law......................................62
15.7 Counterparts........................................62
15.8 Parties in Interest.................................62
(iii)
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LIST OF SCHEDULES
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Schedule 2.1 Consideration
Schedule 2.6 Net Working Capital Adjustment Items
Schedule 4.2 Company Subsidiaries
Schedule 4.3.2 Required Consents
Schedule 4.4 Capitalization
Schedule 4.7 Liabilities
Schedule 4.9 Certain Changes and Events
Schedule 4.10 Litigation
Schedule 4.11 Noncompliance with Applicable Laws
Schedule 4.12 Licenses and Permits
Schedule 4.13 Material Contracts
Schedule 4.14.1-1 Real Property
Schedule 4.14.1-2(a) Exceptions Regarding Owned Property
Schedule 4.14.1-2(b) Exceptions Regarding Leased Property
Schedule 4.14.2 Tangible Personal Property; Liens
Schedule 4.15 Intellectual Property
Schedule 4.16.1-1 Taxes
Schedule 4.16.1-2 Tax Audits
Schedule 4.17.1 Employee Plans
Schedule 4.17.2 Unwritten Employee Plans
Schedule 4.18 Labor Matters
Schedule 4.19 Environmental Matters
(iv)
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Schedule 4.20 Insurance
Schedule 4.21 Affiliate Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 6.2 Centerprise's Capitalization
Schedule 6.5 Liabilities
Schedule 7.1.4(i) Terminated Employee Plans and Agreements
Schedule 7.1.4(ii) Excluded Assets
Schedule 8.8 Members' Guarantees
Schedule 8.13 Payees
Schedule 15.1 Brokers
(v)
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LIST OF EXHIBITS
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Exhibit 10.2(c) Form of Opinion of Centerprise's Counsel
Exhibit 10.2(d) Form of Incentive Compensation Agreement
Exhibit 10.2(f) Form of Stockholders Agreement
Exhibit 10.3(c) Form of Opinion of Counsel to Seller, the Company
and Members
Exhibit 10.3(d)(A) Form of Separate Practice Agreement
Exhibit 10.3(d)(B) Form of Services Agreement
Exhibit 10.3(j) Form of Members' Release
Exhibit 10.3(R) Form of Company Stockholder Agreement
(vi)
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DEFINED TERMS
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Accounting Licenses.............................................Section 4.12
Actions.......................................................Section 4.10.1
Acquisition.....................................................Introduction
Affiliate.......................................................Section 15.4
Affiliate Transactions..........................................Section 4.21
Agreement.......................................................Introduction
AR...............................................................Section 2.6
Arbitrator.....................................................Section 2.3.5
Attestation Practice............................................Introduction
Basic Purchase Consideration...................................Section 2.1.1
Business........................................................Introduction
Cash Consideration.............................................Section 2.1.1
Centerprise.....................................................Introduction
Centerprise Accountants........................................Section 2.3.2
Centerprise Common Stock.......................................Section 2.1.1
Centerprise Material Adverse Effect............................Section 6.4.3
Centerprise Representatives....................................Section 8.1.1
Centerprise Required Statutory Approvals.......................Section 6.4.3
Closing..........................................................Article III
Closing Balance Sheet..........................................Section 2.3.2
Closing Date.....................................................Article III
Code............................................................Introduction
Company.........................................................Introduction
Company Material Adverse Effect................................Section 4.3.3
(vii)
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Company Representatives........................................Section 8.1.1
Company Shareholders' Agreement................................Section 7.1.4
Company Stock..................................................Section 2.1.1
Company Subsidiary(ies)..........................................Section 4.2
Contracts.......................................................Section 4.13
Conversion..................................................... Introduction
Copyrights......................................................Section 4.15
DGCL.............................................................Section 1.1
Disputed Item..................................................Section 2.3.5
Dissenting Shares..............................................Section 2.1.3
Effective Time...................................................Section 1.1
Employee Plan..............................................Section 4.17.5(a)
Environmental and Safety Requirements...........................Section 4.19
ERISA......................................................Section 4.17.5(b)
Excluded Assets................................................Section 7.1.4
Excluded Liabilities...........................................Section 7.1.4
Final Adjustment...............................................Section 2.3.4
Financial Statements.............................................Section 4.6
First Person...............................................Section 4.17.5(c)
Form S-1.......................................................Section 4.3.3
Form S-4.......................................................Section 4.3.3
Founding Companies..............................................Introduction
GAAP.............................................................Section 4.6
general increase................................................Section 4.23
Governmental Authority.........................................Section 4.3.2
(viii)
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Hazardous Materials.............................................Section 4.19
herein..........................................................Section 15.3
hereof..........................................................Section 15.3
hereunder.......................................................Section 15.3
HSR Act........................................................Section 4.3.3
Incentive Compensation Agreement.............................Section 10.2(d)
Intellectual Property...........................................Section 4.15
Intellectual Property Licenses..................................Section 4.15
Interim Adjustment.............................................Section 2.3.3
IPO.............................................................Introduction
Knowledge.......................................................Section 15.4
Latest Balance Sheet.............................................Section 4.6
Laws............................................................Section 4.11
Leased Property...............................................Section 4.14.1
Licenses........................................................Section 4.12
Lien(s)........................................................Section 4.3.2
Liquidated Damages Amount........................................Section 7.3
Marks...........................................................Section 4.15
Material Contracts..............................................Section 4.13
Member(s).......................................................Introduction
Merger..........................................................Introduction
Mergersub.......................................................Introduction
Mergersub Stock................................................Section 6.2.1
Merger Documents.................................................Section 1.1
Net Working Capital..............................................Section 2.6
(ix)
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1933 Act.......................................................Section 4.3.3
Organizational Documents.........................................Section 4.1
Other Agreements................................................Introduction
Other Acquisitions..............................................Introduction
Owned Property................................................Section 4.14.1
Patents.........................................................Section 4.15
Person..........................................................Section 15.4
Plan Affiliate.............................................Section 4.17.5(c)
Purchased AR.....................................................Section 2.2
Real Property.................................................Section 4.14.1
Registration Statements........................................Section 4.3.3
Resolution Period..............................................Section 2.3.5
Returns.......................................................Section 4.16.1
Schedules........................................................Section 7.3
SEC............................................................Section 4.3.3
Securities Act.................................................Section 4.3.3
Seller..........................................................Introduction
Special Bonus Plan...............................................Section 2.6
Stock Consideration............................................Section 2.1.1
Stockholders Agreement.......................................Section 10.2(f)
Surviving Corporation............................................Section 1.2
Target...........................................................Section 2.6
Tax Accrual......................................................Section 2.6
Taxes.........................................................Section 4.16.2
Territory....................................................Section 13.1(a)
(x)
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Trade Secrets...................................................Section 4.15
Underwriters...................................................Section 8.1.1
Voting Agreement................................................Introduction
(xi)
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AMENDED AND RESTATED
MERGER AGREEMENT
THIS AMENDED AND RESTATED MERGER AGREEMENT (this "Agreement") is made
as of September 24, 1999, by and among Centerprise Advisors, Inc., a Delaware
corporation ("Centerprise"), Reznick Mergersub Inc., a Delaware corporation and
wholly owned subsidiary of Centerprise ("Mergersub"), and Reznick Fedder &
Silverman, Certified Public Accountants, A Professional Corporation, a Maryland
professional corporation (the "Company").
WITNESSETH:
WHEREAS, the Company engages directly, and indirectly through the
Company Subsidiaries, in the business of providing accounting, tax and other
related services (such business provided by the Company is referred to as the
"Business");
WHEREAS, prior to, and in anticipation of, completion of the
transactions contemplated hereby (a) the Company will cease to provide services
related to the practice of accounting that, pursuant to applicable laws and
regulations, may only be conducted by certified public accountants (the
"Attestation Practice", (b) the Company will be converted from a professional
corporation to a business corporation by amending the Company's Organizational
Documents (as defined in Section 4.1) such that it converts to a business
corporation, and (c) the Company's close corporation status will be terminated
(the actions described in the foregoing (a), (b) and (c), the "Conversion");
WHEREAS, the Boards of Directors of the Company, Centerprise and
Mergersub deem it advisable and in the best interests of their respective
shareholders to approve and consummate the business combination transaction
provided for herein in which Mergersub would merge with the Company, with the
Company being the surviving corporation in the merger (the "Acquisition" or
"Merger");
WHEREAS, Centerprise is entering into other agreements (the "Other
Agreements") substantially similar to this Agreement with each of Robert F.
Driver Company, Inc., Mann Frankfort Stein & Lipp, P.C., The Reppond Company,
Inc., Reppond Administrators, LLC, Verasource Excess Risk Ltd., Berry, Dunn,
McNeil & Parker, Chartered, Urbach Kahn & Werlin PC, Self Funded Benefits, Inc.
d/b/a Insurance Design Administrators, Grace & Company, P.C., Simione, Scillia,
Larrow & Dowling LLC and Follmer Rudzewicz & Co., P.C., (which companies
together with the Company are collectively referred to herein as the "Founding
Companies"), which agreements provide for the merger of a wholly owned
subsidiary of Centerprise with each such Founding Company (the "Other
Acquisitions") simultaneously with the Acquisition; Centerprise has provided a
side letter to each holder of equity interests of the Company to such effect;
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WHEREAS, the Voting Agreement, dated as of March 31, 1999, among
Centerprise and certain stockholders of the Company has been terminated and is
no longer in force and effect;
WHEREAS, simultaneously with the consummation of the Acquisition,
Centerprise will close an initial public offering (the "IPO") of Centerprise
Common Stock (as defined in Section 2.1); and
WHEREAS, the parties intend the acquisition of Centerprise Common Stock
pursuant to the terms hereof to be tax-free under the provisions of Section 351
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the
mutual representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement and in reliance upon the representations and warranties set
forth herein, Mergersub shall be merged with and into the Company, the result of
which will cause the separate corporate existence of Mergersub to cease and the
Company to continue under the laws of the State of Maryland. As promptly as
possible on the Closing Date, the parties shall cause the Merger to be completed
by filing articles of merger and a certificate of merger, as applicable (the
"Merger Documents"), with the Secretary of State of the State of Maryland, as
provided in the Maryland General Corporation Law, as amended (the "MGCL"), and
with the Secretary of State of the State of Delaware, as provided in the General
Corporation Law of the State of Delaware (the "DGCL"). The Merger shall become
effective (the "Effective Time") upon the filing of the Merger Documents with
the Secretary of State of the State of Maryland and the Secretary of State of
the State of Delaware or at such later time, contemporaneously with the closing
of the IPO, as agreed by Centerprise and the Company and specified in the Merger
Documents.
1.2 Effects of the Merger. At the Effective Time (i) the separate
existence of Mergersub shall cease and Mergersub shall be merged with and into
the Company, with the Company being the surviving corporation in the Merger (the
Company is sometimes referred to herein as the "Surviving Corporation"), (ii)
the Articles of Incorporation and By-laws of the Surviving Corporation shall be
amended in form and substance acceptable to Centerprise and as specified in the
Merger Documents, (iii) the Merger shall have all the effects provided by
applicable law, and (iv) the Company shall be a wholly-owned subsidiary of
Centerprise.
2
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1.3 Directors and Officers of the Surviving Corporation. From and after
the Effective Time, the directors and officers of Mergersub shall be the
directors and officers of the Surviving Corporation until their successors are
duly elected and qualified.
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2.1 Merger Consideration.
2.1.1 Basic Purchase Consideration. At the Closing, by virtue
of the Merger and without any action on the part of the holder thereof, the
outstanding shares of capital stock, consisting of 2,900 shares of common stock,
no par value, of the Company (the "Company Stock") shall be converted into the
right to receive: (a) that number of shares of Centerprise common stock, par
value $.01 per share (the "Centerprise Common Stock") shown on line T of
Schedule 2.1; provided, however, that if the initial public offering price of
the Centerprise Common Stock is below $11.90 per share, the number of shares of
Centerprise Common Stock received at Closing shall be increased such that the
value of the shares, using the initial public offering price, equals the amount
shown on line U of Schedule 2.1 (the "Stock Consideration") and (b) the amount
of cash shown on line S of Schedule 2.1 (the "Cash Consideration"). The sum of
the Cash Consideration and the Stock Consideration is herein referred to as
"Basic Purchase Consideration."
2.1.2 Treasury Stock. Each share of capital stock of the
Company held in treasury of the Company shall be canceled and retired and no
payment shall be made in respect thereof.
2.1.3 Dissenters. Each outstanding share of capital stock of
the Company the holder of which has perfected his right to dissent under
applicable law and has not effectively withdrawn or lost such right as of the
Effective Time (the "Dissenting Shares") shall not be converted into the right
to receive Basic Purchase Consideration, and the holder thereof shall be
entitled only to such rights as are granted by applicable law. The Company shall
give Centerprise prompt notice upon receipt by the Company of any such written
demands for payment of fair value of shares of capital stock of the Company and
any other instruments provided pursuant to applicable law. Any payments made in
respect of Dissenting Shares shall be made by the Surviving Corporation.
2.1.4 Conversion of Mergersub Stock. At the Effective Time,
each share of Mergersub Stock issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and become one validly issued, fully
paid and non-assessable share of the Surviving Corporation. Such newly issued
shares shall thereafter constitute all of the issued and outstanding capital
stock of the Surviving Corporation.
3
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2.1.5 Exchange of Certificates. At the Closing, Centerprise
shall receive the original Company Stock certificates, duly endorsed in blank by
the Company's stockholder(s) or accompanied by blank stock powers, in exchange
for the allocated share of (a) Centerprise Common Stock certificates
representing the Stock Consideration and (b) payment of the Cash Consideration
by certified check, cashier's check or wire transfer of immediately available
funds to a bank account or bank accounts in the amounts and manner specified by
the Company in a writing delivered to Centerprise at least three (3) business
days prior to the Closing Date. The shares represented by the Company Stock
certificates so delivered to Centerprise shall be canceled. Until surrendered as
contemplated by this Section 2.1.5, each certificate representing shares of
Company Stock represents only the right to receive Basic Purchase Consideration,
as adjusted in accordance with this Article II.
2.2 [Reserved]
2.3 Post-Closing Adjustments to Basic Purchase Consideration.
2.3.1 Adjustments for Net Working Capital Shortfall/Excess.
The Basic Purchase Consideration shall be (a) reduced dollar-for-dollar
to the extent Net Working Capital on the Closing Date is less than the
Target or (b) increased dollar-for-dollar to the extent Net Working
Capital on the Closing Date is greater than the Target.
2.3.2 Preliminary Balance Sheet and Adjustment. At or about
the Closing, the Company will prepare, and the firm
PricewaterhouseCoopers LLP (the "Centerprise Accountants") will review,
a balance sheet of the Company, as of the Closing Date, in accordance
with GAAP and consistent with the accounting policies and practices
used in connection with the preparation of the Financial Statements
(the "Closing Balance Sheet") along with a preliminary calculation of
any excess or shortfall of Net Working Capital as compared to the
Target.
2.3.3 Interim Adjustment. As soon as practicable, the Company
will prepare and deliver to Centerprise a revised calculation of Net
Working Capital reflecting all collections of AR up to the date 90 days
from the Closing Date. Within 10 days of receipt of such calculation,
Centerprise will deliver to the Member Representative a written report
indicating the amount and nature of any adjustment to the Basic
Purchase Consideration determined in accordance with Section 2.3.1 (the
"Interim Adjustment").
2.3.4 Final Adjustment. As soon as practicable, the Company
will prepare and deliver to Centerprise a final calculation of Net
Working Capital revised to reflect all collections of AR up to the date
180 days from the Closing Date. Centerprise will review such
calculation and any records, work papers and other documents related
thereto. Within 10 days of receipt of such calculation, Centerprise
will deliver to the Member Representative a written report indicating
the amount and nature of any adjustment to the Basic Purchase
Consideration determined in accordance with Section 2.3.1 (the "Final
Adjustment").
4
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2.3.5 Disputes. The parties hereto shall not object to the
Interim Adjustment which shall be binding on the parties hereto, and
shall withhold all objections until delivery of the Final Adjustment
report. If the Member Representative does not object (or otherwise
respond) in writing to the Final Adjustment report within 30 days after
its delivery, the Final Adjustment shall automatically become final,
binding and conclusive on all parties hereto. Any objection to the
Final Adjustment report shall be in writing and shall specify the item
or items in dispute (each a "Disputed Item").
If the Member Representative and Centerprise are unable to
resolve any Disputed Item within 30 days after notice from the Member
Representative that a dispute exists (the "Resolution Period"), then a
representative from the office of a nationally recognized accounting
firm (the "Arbitrator") selected jointly by Centerprise and the Member
Representative will arbitrate the dispute. The Member Representative
and Centerprise shall, within 20 days after expiration of the
Resolution Period, present their respective positions with respect to
any Disputed Item to the Arbitrator together with such materials as the
Arbitrator deems appropriate. To the extent any Disputed Item is
similar to a disputed item under the Other Agreements, the Arbitrator
shall arbitrate the Disputed Item based on the submitted materials and
without regard to the disputed item under the Other Agreements. The
Arbitrator shall, after the submission of the materials, submit a
written decision on each Disputed Item to the Member Representative and
Centerprise and such determination shall be final and binding on the
parties hereto. The arbitration shall be conducted in Chicago,
Illinois. The parties hereto agree that the cost of the Arbitrator
shall be borne by the non-prevailing party or as determined by the
Arbitrator.
2.3.6 Payment of Adjustments. In the event Net Working Capital
is less than the Target, the Company's stockholders shall pay the
amount of the shortfall to Centerprise. In the event Net Working
Capital is greater than the Target, Centerprise shall pay the amount of
the excess to the Company's stockholders. Any payment required to be
made pursuant to this paragraph shall be made, within ten days of
delivery of the report indicating any adjustment, by wire transfer of
immediately available funds to an account designated in writing by the
party that is to receive payment of such adjustment. In respect of the
Final Adjustment, the party making a payment required by such
adjustment shall make such payment within ten days after the Final
Adjustment becomes final and shall receive credit for or return of any
amount previously paid in connection with the Interim Adjustment.
2.4 Post-Closing Management of AR. Following the Closing, the billing,
servicing, administering and collection of the AR shall be conducted by the
Company. The Company shall take all such actions as may be necessary or
advisable to collect the AR in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in accordance with the
Company's credit and collection policy in effect at Closing. The Company may
modify, adjust or write-off AR from time to time in accordance with the
Company's credit and collection policy in effect at Closing. Unless otherwise
required by contract or law, payments by an obligor in respect of services
rendered or expenses advanced by the Company shall be applied as follows: in the
event any such payment specifically references the invoice being paid or clearly
relates to
5
<PAGE>
an outstanding invoice, the payment will be applied to the corresponding
invoice; and, in any other case, the payment will be applied to satisfy AR
relating to such obligor in the order that such AR arose. Any adjustment,
modification or write-off affecting AR and fees and expenses receivable and
unbilled fees and expenses of the Company incurred after Closing with respect to
the same client engagement shall be allocated ratably to the pre-Closing and
post-Closing periods.
2.5 Assignment of Uncollected AR. If any AR remain uncollected by the
Company as of 180 days after the Closing Date, the Company will assign the
uncollected AR to the Company's stockholders. Notwithstanding the foregoing, the
Company will retain the sole right to service, administer and collect the
uncollected AR in accordance with Section 2.4.
2.6 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) "AR" means any fees and expenses receivable and unbilled
fees and expenses of the Company on the Closing Date.
(b) "Net Working Capital" means an amount determined as of the
Closing Date, whenever calculated, equal to difference between: (i) the
sum of any AR, prepaid expenses and other current assets less (ii) the
sum of accounts payable, accrued current liabilities, the items listed
on Schedule 2.6, the Tax Accrual and the portion of employer-paid FICA
attributable to Medicare, payable in connection with accrued salary and
bonus accounts and the Special Bonus Plan. For purposes of this Section
2.6(b), the Special Bonus Plan accrual shall not constitute a current
liability.
(c) "Special Bonus Plan" means the Company's Special Bonus
Plan dated March 1, 1999.
(d) "Target" means an amount equal to 1% of the Company's net
revenues for the four quarter period ending on the last day of the
calendar quarter prior to Closing.
(e) "Tax Accrual" means an amount equal to the product of (i)
Net Working Capital (calculated before deduction of the Tax Accrual)
less an amount equal to any tax deductions realized by Centerprise as a
result of any payments pursuant to the Special Bonus Plan times (ii)
the sum of 34% plus the effective state tax rate on the Company (net of
any federal tax benefit). A negative Tax Accrual shall be treated as a
current asset for purposes of Section 2.6(b)(i).
ARTICLE III
THE CLOSING AND CONSUMMATION DATE
The consummation of the Acquisition and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Katten Muchin & Zavis, Chicago,
6
<PAGE>
Illinois, contemporaneously with the closing of the IPO, or at such other time
and date as the parties hereto may mutually agree (the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Centerprise, as of March 31,
1999 and, subject to Section 7.3, as of the date on which Centerprise and the
lead Underwriter (as defined in Section 8.1.1) execute and deliver the
Underwriting Agreement related to the IPO and as of the Closing Date, as
follows:
4.1 Organization and Qualification. The Company is a professional
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland and, following the Conversion, the Company will be a
business corporation duly organized, validly existing and in good standing under
the laws of the State of Maryland. Each Company Subsidiary (as defined in
Section 4.2) is duly organized, validly existing and in good standing under the
laws of the state of its organization set forth on Schedule 4.2. Each of the
Company and the Company Subsidiaries has the requisite power and authority to
own, lease and operate its assets and properties and to carry on its business as
it is now being conducted, and is qualified to do business and is in good
standing in each jurisdiction in which the properties owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary. True, accurate and complete copies of the Company's and each Company
Subsidiary's Organizational Documents, in each case as in effect on March 31,
1999 have heretofore been delivered to Centerprise. "Organizational Documents"
means (a) the articles or certificate of incorporation and the bylaws of a
corporation (professional or otherwise), (b) the partnership agreement and any
statement of partnership of a general partnership, (c) the limited partnership
agreement and the certificate of limited partnership of any limited partnership,
(d) the operating or limited liability company agreement and certificate of
formation of any limited liability company, (e) any charter or similar document
adopted and filed in connection with the creation, formation, organization or
governance (as applicable) of any Person and (f) any amendment to any of the
foregoing.
4.2 Company Subsidiaries. Schedule 4.2 sets forth the name (including
any assumed names), jurisdiction of organization and ownership of the issued and
outstanding equity interests of each Person in which the Company owns, directly
or indirectly, securities or other interests having the power to elect a
majority of such Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of such Person
(each a "Company Subsidiary" and collectively, the "Company Subsidiaries").
Except as set forth on Schedule 4.2, the Company does not, directly or
indirectly, own, of record or beneficially, or control any capital stock,
securities convertible into capital stock or any other equity interest in any
Person.
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4.3 Authority; Non-Contravention; Approvals.
4.3.1 The Company has full right, power and authority to enter
into this Agreement and, subject to the approval of the Merger and the
transactions contemplated hereby by the Company's stockholders, to
consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by the Company have been
duly authorized by all necessary corporate action on the part of the
Company, subject to the approval of the Merger and the transactions
contemplated hereby by the Company's stockholders. This Agreement has
been duly executed and delivered by the Company, and, assuming the due
authorization, execution and delivery hereof by Centerprise,
constitutes a valid and legally binding agreement of the Company,
enforceable against it in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and (ii) general
equitable principles.
4.3.2 The execution and delivery of this Agreement by the
Company does not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in
the creation of any claim, lien, privilege, mortgage, charge,
hypothecation, assessment, security interest, pledge or other
encumbrance, conditional sales contract, equity charge, restriction, or
adverse claim of interest of any kind or nature whatsoever (each a
"Lien" and collectively, the "Liens"), upon any of the properties or
assets of the Company or any Company Subsidiary under, any of the
terms, conditions or provisions of (i) the Organizational Documents of
the Company or any Company Subsidiary, (ii) following completion of the
Conversion, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or
federal, state, provincial, local or foreign government, or any
subdivision, agency or authority of any thereof ("Governmental
Authority") applicable to the Company, any Company Subsidiary, or the
Business, properties or assets of the Company or any Company
Subsidiary, except for those items discussed in (ii) above relating to
regulating, licensing or permitting the practice of public accountancy,
or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which any of the Company or any
Company Subsidiary is a party or by which any of the Company, any
Company Subsidiary or any of the properties or assets of the Company or
any Company Subsidiary may be bound or affected. The consummation by
the Company of the transactions contemplated hereby will not result in
a violation, conflict, breach, right of termination, creation or
acceleration of Liens under the terms, conditions or provisions of the
items described in clauses (i) through (iii) of the immediately
preceding sentence, subject in the case of the terms, conditions or
provisions of the items described in clause (iii) above, to obtaining
(prior to the Closing Date) such consents required from third parties
set forth on Schedule 4.3.2 and except for those items described in
(ii) and (iii) above, relating to regulating, licensing or permitting
the practice of public accountancy and any filing which may be required
under the HSR Act.
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4.3.3 Except for (i) the declaration of effectiveness of a
registration statement on Form S-1 (the "Form S-1") and a
post-effective amendment to the registration statement on Form S-4 (the
"Form S-4") (Form S-1 and Form S-4 are collectively the "Registration
Statements") with the Securities and Exchange Commission (the"SEC")
pursuant to the Securities Act of 1933, as amended (the "Securities
Act"or the "1933 Act"), and filings, if required, with various state
securities or "blue sky" authorities, (ii) any filing which may be
required under the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as amended (the "HSR Act"), and (iii) any filing which may be required
by any Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy,
no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any Governmental Authority is
necessary for the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions
contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if
not made or obtained, as the case may be, would not, individually or in
the aggregate, have a "Company Material Adverse Effect," which, for
purposes of this Agreement means a material adverse effect on the
operations, assets, condition (financial or other), operating results,
employee or client relations, or prospects of the Company or any
Company Subsidiary.
4.4 Capitalization.
4.4.1 The authorized capital stock of the Company consists of
10,000 shares of Company Stock, of which 2,900 shares are issued and
outstanding. The authorized capital stock of each of the Company
Subsidiaries, if any, and the number of such shares issued and
outstanding is completely and accurately set forth in Schedule 4.4. All
of such issued and outstanding shares are validly issued and are fully
paid, nonassessable and free of preemptive rights. The Company owns all
shares of the Company Subsidiaries as indicated on Schedule 4.4, in
each case free and clear of all Liens, and the Company has good and
marketable title to such shares of the Company Subsidiaries. All of
such issued and outstanding shares are validly issued and are fully
paid, nonassessable and free of preemptive rights.
4.4.2 Except as set forth on Schedule 4.4, there are no
outstanding subscriptions, options, calls, contracts, commitments,
undertakings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of the capital stock of
the Company or any Company Subsidiary or obligating the Company or any
Company Subsidiary to grant, extend or enter into any such agreement or
commitment or obligating the Company or any Company Subsidiary to
convey or transfer any Company Stock or Company Subsidiary stock, as
the case may be. As of the Closing Date, there will be no voting
trusts, proxies or other agreements or understandings to which the
Company or any Company Subsidiary is a party or is bound
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with respect to the voting of any shares of capital stock or other
equity interests of the Company or any Company Subsidiary.
4.5 Year 2000. To the Knowledge of the Company, all of the computer
software, computer firmware, computer hardware (whether general or special
purpose), and other similar or related items of automated, computerized, and/or
software system(s) that are used or relied on by the Company or any Company
Subsidiary in the conduct of the Business will not malfunction, will not cease
to function, will not generate incorrect data, and will not produce incorrect
results when processing, providing, and/or receiving (i) date-related data into
and between the twentieth (20th) and twenty-first (21st) centuries and (ii)
date-related data in connection with any valid date in the twentieth (20th) and
twenty-first (21st) centuries, except for any malfunctions or generations of
incorrect data or results that would not individually or in the aggregate have a
Company Material Adverse Effect. Nothing in this Section 4.5 is intended or
shall be construed as a representation or warranty with respect to embedded
systems.
4.6 Financial Statements. The Company has previously furnished to
Centerprise copies of the audited consolidated balance sheets of the Company as
of September 30 in each of the years 1997 and 1998 and an unaudited consolidated
balance sheet of the Company for the three month period ending December 31, 1998
(the "Latest Balance Sheet"), and the related audited consolidated statements of
income, stockholders' equity and cash flow for each of the years in the three
(3) year period ended September 30, 1998, including all notes thereto, and
related unaudited consolidated statements of income, stockholders' equity and
cash flow for the three month period ending December 31, 1998, including all
notes thereto (collectively, the "Financial Statements"). Each of the Financial
Statements is accurate and complete in all material respects, is consistent with
the books and records of the Company and the Company Subsidiaries (which, in
turn, are accurate and complete in all material respects), and fairly presents
in all material respects the financial condition, assets and liabilities of the
Company and the Company Subsidiaries as of its date and the results of
operations and cash flows for the periods related thereto, in each case in
accordance with generally accepted accounting principles, applied on a
consistent basis ("GAAP").
4.7 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
4.7, neither the Company nor any Company Subsidiary had, as of the date of the
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent clearly and accurately reflected or accrued or fully
reserved against in the Financial Statements or (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business and consistent with past custom and practices (none of which
is a liability resulting from a breach of contract, breach of warranty, tort,
infringement claim, legal violation or lawsuit).
4.8 Unbilled Fees and Expenses. At the Closing all unbilled fees and
expenses at net realizable value reflected in the records of the Company and the
Company Subsidiaries arose in the ordinary course of business and will be
billable in the ordinary course of business using normal billing practices and
adjustments employed as of the date of this Agreement by the Company and each
Company Subsidiary. Upon such billing any such amounts will be collectible in
the ordinary
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course of business using normal collection practices and policies employed by
the Company and each Company Subsidiary (net of any allowance for doubtful
accounts determined in accordance with the Company's and the Company
Subsidiaries' past practice and custom).
4.9 Absence of Certain Changes or Events. Except as set forth on
Schedule 4.9, since the date of the Latest Balance Sheet, each of the Company
and the Company Subsidiaries has conducted its business only in the ordinary
course consistent with past custom and practices. Except as set forth on
Schedule 4.9, since the date of the Latest Balance Sheet, there has not been
any:
(a) material adverse change in the operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee or client relations or prospects of the Company or any Company
Subsidiary;
(b) damage, destruction or loss of any property owned by the
Company or any Company Subsidiary, or used in the operation of the
Business, whether or not covered by insurance, having a replacement
cost or fair market value in excess of five percent (5%) of the amount
of net property, plant and equipment shown on the Latest Balance Sheet,
in the aggregate;
(c) voluntary or involuntary sale, transfer, surrender,
cancellation, abandonment, waiver, release or other disposition of any
kind by the Company or any Company Subsidiary of any right, power,
claim, or debt, except the collection of accounts and billing of
work-in-process, each in the ordinary course of business consistent
with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination or other labor dispute or similar occurrence that is
reasonably expected to adversely affect the Company, a Company
Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary
to any Person, other than as a result of services performed for, or
expenses properly and reasonably advanced for the benefit of, customers
in the ordinary course of business consistent with past custom and
practices;
(f) notice (formal or otherwise) of any liability, potential
liability or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or
other distribution in respect of the Company's capital stock or other
equity interests or any direct or indirect redemption, purchase, or
other acquisition of the Company's or any Company Subsidiary's capital
stock or other equity interests, or the payment of principal or
interest on any note, bond, debt instrument or debt to any Affiliate
(as defined in Section 15.4) of the Company or any Company Subsidiary,
except bonuses and distributions to employees and
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stockholders of the Company disclosed to Centerprise in writing that
are consistent with the Company's past custom and practices or as
otherwise contemplated by this Agreement;
(h) incurrence by the Company or any Company Subsidiary of
debts, liabilities or obligations except current liabilities incurred
in connection with or for services rendered or goods supplied in the
ordinary course of business consistent with past custom and practices,
liabilities on account of taxes and governmental charges (but not
penalties, interest or fines in respect thereof), and obligations or
liabilities incurred by virtue of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any
notes, bonds, or other debt securities or any equity securities or
securities convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or
amendment or termination of, any material commitment, contract,
agreement, or transaction, other than in the ordinary course of
business and other than expiration of contracts in accordance with
their terms;
(k) loss or threatened loss of, or any material reduction or
threatened material reduction in revenues from, any client of the
Company or any Company Subsidiary that accounted for revenues during
the last twelve months in excess of one percent (1%) of the
consolidated net revenues of the Company and the Company Subsidiaries,
or change in the relationship of the Company or any Company Subsidiary
with any client or Governmental Authority that is reasonably expected
to adversely affect the Company, any Company Subsidiary or the
Business;
(l) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or
amortization policies or rates) utilized by the Company or any Company
Subsidiary;
(m) discharge or satisfaction by the Company or any Company
Subsidiary of any material liability or encumbrance or payment by the
Company or any Company Subsidiary of any material obligation or
liability, other than current liabilities paid in the ordinary course
of its business consistent with past custom and practices;
(n) sale, lease or other disposition by the Company or any
Company Subsidiary of any tangible assets (having an aggregate
replacement cost or fair market value in excess of five percent (5%) of
the amount of net property, plant and equipment shown on the Latest
Balance Sheet) other than in the ordinary course of business, or the
sale, assignment or transfer by the Company or any Company Subsidiary
of any trademarks, service marks, trade names, corporate names,
copyright registrations, trade secrets or other intangible assets, or
disclosure of any proprietary confidential information of the Company
or any Company Subsidiary to any Person other than an employee, agent,
attorney, accountant
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or other representative of the Company that has agreed to maintain the
confidentiality of any such proprietary confidential information;
(o) capital expenditures or commitments therefor by the
Company or any Company Subsidiary in excess of $50,000 individually or
$100,000 in the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the
Company or any Company Subsidiary or creation of any easements, Liens
or other interests against or on any of the Real Property (as defined
in Section 4.14.1);
(q) adoption, amendment or termination of any Employee Plan
(as defined in Section 4.17.5(a)) or increase in the benefits provided
under any Employee Plan, or promise or commitment to undertake any of
the foregoing in the future; or
(r) an occurrence or event not included in clauses (a) through
(q) that has resulted or, based on information of which the Company has
Knowledge, is reasonably expected to result in a Company Material
Adverse Effect.
4.10 Litigation. Except as set forth on Schedule 4.10 (which shall
disclose the parties to, nature of and relief sought for each matter to be
disclosed on Schedule 4.10):
4.10.1 There is no suit, action, proceeding, investigation,
claim or order pending or, to the Knowledge of the Company, threatened
against the Company or any Company Subsidiary, or with respect to the
Merger, or with respect to any Employee Plan, or any fiduciary of any
such plan (or pending or, to the Knowledge of the Company, threatened
against any of the officers, directors, members, stockholders, partners
or employees of the Company or any Company Subsidiary with respect to
its business or proposed business activities), or to which the Company
or any Company Subsidiary is otherwise a party, or that is reasonably
expected to have a Company Material Adverse Effect, before any court,
or before any Governmental Authority (each an "Action" and
collectively, the "Actions"); nor, to the Knowledge of the Company, is
there any basis for any such Action.
4.10.2 Neither the Company nor any Company Subsidiary is
subject to any unsatisfied or continuing judgment, order or decree of
any court or Governmental Authority. Neither the Company nor any
Company Subsidiary, to the Knowledge of the Company, is otherwise
exposed, from a legal standpoint, to any liability or disadvantage that
is reasonably expected to result in a Company Material Adverse Effect,
and neither the Company nor any Company Subsidiary is a party to any
legal action to recover monies due it or for damages sustained by it,
other than collection of past due charges for services rendered or
expenses incurred by the Company.
4.10.3 Schedule 4.10 lists the insurer for each Action covered
by insurance or designates such Action, or a portion of such Action, as
uninsured and lists the individual
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and aggregate policy limits for the insurance covering each insured
Action and the applicable policy deductibles for each insured Action.
4.10.4 Schedule 4.10 sets forth all material closed litigation
matters to which the Company or any Company Subsidiary was a party
during the five (5) year period preceding the Closing Date, the date
such litigation was commenced and concluded, and the nature of the
resolution thereof (including amounts paid in settlement or judgment).
4.11 Compliance with Applicable Laws. Except as set forth on Schedules
4.11 and 4.19, each of the Company and the Company Subsidiaries has complied in
all material respects with all laws, rules, regulations, writs, injunctions,
decrees, and orders (collectively, the "Laws") applicable to it or to the
operation of the Business, and neither the Company nor any Company Subsidiary
has received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of the Company, no event has occurred or circumstances exist that
(with or without notice or lapse of time) is reasonably expected to constitute
or result in a violation by the Company or any Company Subsidiary of any Law
that gives rise to any liability on the part of the Company or any Company
Subsidiary under any Law.
4.12 Licenses. Schedule 4.12 lists all Licenses used by the Company and
the Company Subsidiaries that are material to the conduct of the Business.
"Licenses" means all notifications, licenses, permits, franchises, certificates,
approvals, exemptions, classifications, registrations and other similar
documents and authorizations, and applications therefor, held by the Company or
any Company Subsidiary and issued by, or submitted by the Company or any Company
Subsidiary to, any Governmental Authority or other Person, other than those
relating to the practice of public accountancy. Section B of Schedule 4.12 lists
all licenses, certificates, approvals, registrations and other similar documents
and authorizations, and applications therefor, relating to the practice of
public accountancy (the "Accounting Licenses") held by the Company or a Company
Subsidiary and issued by, or submitted by the Company or any Company Subsidiary
to, any Governmental Authority or other Person. All such Licenses and Accounting
Licenses are valid, binding and in full force and effect. Except as described on
Schedule 4.12, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not adversely affect
any such Licenses. To the Knowledge of the Company, the Company and the Company
Subsidiaries have taken all necessary action to maintain such Licenses. Except
as set forth on Schedule 4.12, no loss or expiration of any such License is
pending or, to the Company's Knowledge, threatened or reasonably foreseeable.
4.13 Material Contracts. Except as listed or described on Schedule 4.13
(such contracts, or those which should have been listed on Schedule 4.13, are
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments (each a
"Contract" and collectively, the "Contracts") relating to or in any way
affecting the operation or ownership of the Business that are of a type
described below and no such agreements are currently in negotiation or proposed:
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(a) any consulting agreement pursuant to which the Company or
a Company Subsidiary is to receive consulting services (other than
consulting agreements that may be terminated by the Company or a
Company Subsidiary on not more than 30 days notice without penalty),
employment agreement, change-in-control agreement, or collective
bargaining arrangement with any labor union;
(b) any Contract for capital expenditures or the acquisition
or construction of fixed assets in excess of $50,000;
(c) any Contract for the purchase, maintenance or acquisition,
or the sale or furnishing, of materials, supplies, merchandise,
machinery, equipment, parts or other property or services (except if
such Contract is made in the ordinary course of business and requires
aggregate future payments of less than $25,000);
(d) any Contract, other than trade payables in the ordinary
course of business, relating to the borrowing of money, or the guaranty
of another Person's borrowing of money, including, without limitation,
any notes, mortgages, indentures and other obligations, guarantees of
performance, agreements and instruments for or relating to any lending
or borrowing, including assumed indebtedness;
(e) any Contract granting any Person a Lien on all or any part
of the assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions
in connection with Hazardous Materials (as defined in Section 4.19),
the remediation of any existing environmental liabilities or relating
to the performance of any environmental audit or study;
(g) any Contract granting to any Person an option or a first
refusal, first-offer or similar preferential right to purchase or
acquire any material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative
which is not terminable by the Company or a Company Subsidiary upon
ninety (90) calendar days or less notice without penalty;
(i) any Contract under which the Company or any Company
Subsidiary is (A) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property, or (B) a lessor of any
tangible personal property owned by the Company or any Company
Subsidiary, in either case having an original purchase price or
requiring aggregate lease payments in excess of $50,000;
(j) any Contract under which the Company or any Company
Subsidiary has granted or received a license or sublicense or under
which it is obligated to pay or has the
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right to receive a royalty, license fee or similar payment, in either
case which provides for payments over the life of such Contract in
excess of $25,000;
(k) any Contract concerning an Affiliate Transaction (as
defined in Section 4.21);
(l) any Contract providing for the indemnification or holding
harmless of any officer, director, employee or other Person;
(m) any Contract (A) for purchase or sale by the Company or
any Company Subsidiary of any real property on which the Company or any
Company Subsidiary conducts any aspect of the Business, (B) granting
any options to lease or purchase all or any portion of the Real
Property, or (C) providing for labor, services or materials to the Real
Property (including, without limitation, brokerage or management
services) involving aggregate future payments of more than $25,000;
(n) any Contract limiting, restricting or prohibiting the
Company or any Company Subsidiary from conducting business anywhere in
the United States or elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to
the Leased Property (as defined in Section 4.14.1);
(q) any Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the
Company or any Company Subsidiary, which, if amended, modified or
terminated as a result of, relating to or in connection with a failure
to provide prior notice, or gain such consent or approval, would result
in a Company Material Adverse Effect; or
(r) any other Contract, whether or not made in the ordinary
course of business, which involves future payments by the Company or
any Company Subsidiary in excess of $25,000.
The Company has provided Centerprise with a true and complete copy of
each written Material Contract and a true and complete summary of each oral
Material Contract, in each case including all amendments or other modifications
thereto. Except as set forth on Schedule 4.13, each Material Contract is a valid
and binding obligation of, and enforceable in accordance with its terms against,
the Company or a Company Subsidiary, as applicable, and, to the Knowledge of the
Company, the other parties thereto, and is in full force and effect, subject
only to bankruptcy, reorganization, receivership and other laws affecting
creditors' rights generally and equitable principles. Except as set forth on
Schedule 4.13, the Company or one of the Company Subsidiaries, as applicable,
has performed in all material respects all obligations required to be performed
by it as of the date hereof and will have performed in all material respects all
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obligations required to be performed by it as of the Closing Date under each
Material Contract and neither the Company or Company Subsidiary, as applicable,
nor, to the Knowledge of the Company, any other party to any Material Contract
is in breach or default thereunder, and, to the Knowledge of the Company, there
exists no condition which would, with or without the lapse of time or the giving
of notice, or both, constitute a breach or default thereunder. The Company has
not been notified that any party to any Material Contract intends to cancel,
terminate, not renew, or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
4.14 Properties.
4.14.1 Schedule 4.14.1-1 is a correct and complete list, and a
brief description of, all real estate in which the Company or any of
the Company Subsidiaries has an ownership interest (the "Owned
Property") and all real property leased by the Company (the "Leased
Property"). Except as lessee of Leased Property, neither the Company
nor any Company Subsidiary is a lessee under or otherwise a party to
any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which another Person has granted to the
Company or any Company Subsidiary the right to use or occupy all or any
portion of any real property.
The Company or one or more of the Company Subsidiaries has
good and marketable fee simple title to the Owned Property and,
assuming good title in the Landlord, a valid leasehold interest in the
Leased Property (the Owned Property and the Leased Property being
sometimes referred to herein as "Real Property"), in each case free and
clear of all Liens, assessments or restrictions (including, without
limitation, inchoate liens arising out of the provision of labor,
services or materials to any such real estate) other than (a) mortgages
shown on the Financial Statements as securing specified liabilities or
obligations, with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default) exists,
(b) Liens for current taxes not yet due, (c) (i) minor imperfections of
title, including utility and access easements depicted on subdivision
plats for platted lots that do not impair the intended use of the
property, if any, none of which materially impairs the current
operations of the Company, any Company Subsidiary or the Business, and
(ii) zoning laws and other land use restrictions or restrictive
covenants that do not materially impair the present use of the property
subject thereto, and (d) Liens, assessments, and restrictions pursuant
to and by virtue of the terms of the lease of the Leased Property. The
Real Property constitutes all real properties reflected on the
Financial Statements or used or occupied by the Company or any Company
Subsidiary in connection with the Business or otherwise.
With respect to the Owned Property, except as reflected on
Schedule 4.14.1-2(a):
(a) the Company or one of the Company Subsidiaries is in
exclusive possession thereof and no easements, licenses or rights are
necessary to conduct the Business thereon in addition to those which
exist as of the date hereof;
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(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority
materially adverse to the Owned Property and, to the Knowledge of the
Company, there is no threatened condemnation or proceeding with respect
thereto;
(c) there is no violation of any covenant, condition,
restriction, easement or agreement of any Governmental Authority that
affects the Owned Property or the ownership, operation, use or
occupancy thereof;
(d) no portion of any parcel of the Owned Property is subject
to any roll-back tax, dual or exempt valuation tax, and no portion of
any Owned Property is omitted from the appropriate tax rolls; and
(e) all assessments and taxes currently due and payable on
such Owned Property have been paid.
With respect to the Leased Property, except as reflected on Schedule
4.14.1-2(b):
(i) the Company and/or one of the Company
Subsidiaries is in exclusive, peaceful and undisturbed possession
thereof and, to the Knowledge of the Company, no easements, licenses or
rights are necessary to conduct the Business thereon in addition to
those which exist as of the date hereof; and
(ii) to the Knowledge of the Company, no portion
thereof is subject to any pending condemnation proceeding or proceeding
by any public or quasi-public authority materially adverse to the
Leased Property and there is no threatened condemnation or proceeding
with respect thereto.
4.14.2 The Latest Balance Sheet and/or Schedule 4.14.2 reflect
all material tangible personal property owned by the Company or any
Company Subsidiary, except as sold or otherwise disposed of or acquired
in the ordinary course of business. Except as set forth on Schedule
4.14.2, the Company or one of the Company Subsidiaries has good and
marketable title to, or a valid leasehold interest in, or valid license
of, such personal property (including, without limitation, machinery,
equipment and computers), in each case free and clear of any Liens
(other than Liens that are part of such leasehold or license), and each
such asset is in working order and has been maintained in a
commercially reasonable manner and does not contain, to the Knowledge
of the Company, any material defect. Except as set forth in Schedule
4.14.2, no personal property (including, without limitation, software
and databases maintained on off-premises computers) used by the Company
or any Company Subsidiary in connection with the Business is held under
any lease, security agreement, conditional sales contract or other
title retention or security arrangement or is located other than on the
Real Property.
4.15 Intellectual Property. The (i) patents, patent applications,
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered
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trademarks, trade names, company names, assumed business names and service marks
(collectively, the "Marks"), (iii) copyrights (the "Copyrights"), and (iv) know
how, trade secrets, confidential information, client lists, software, technical
information, data, process technology, plans and drawings (collectively, the
"Trade Secrets") owned, used or licensed by the Company or any Company
Subsidiary (collectively, the "Intellectual Property") are all those necessary
to enable the Company and the Company Subsidiaries to conduct and to continue to
conduct the Business substantially as it is currently conducted. Schedule 4.15
contains a complete and accurate list of all material Patents, Marks and
Copyrights and a brief description of all material Trade Secrets owned, used by
or directly licensed to the Company or any Company Subsidiary, and a list of all
material license agreements and arrangements with respect to any of the
Intellectual Property to which the Company or any Company Subsidiary is a party,
whether as licensee, licensor or otherwise (collectively, the "Intellectual
Property Licenses"). Except as set forth on Schedule 4.15, (i) all of the
Intellectual Property is owned or, to the Knowledge of the Company, used under a
valid Intellectual Property License, by the Company or one of the Company
Subsidiaries, and is free and clear of all Liens and other adverse claims; (ii)
none of the Company nor any Company Subsidiary has received any written notice
that it is or has infringed on, misappropriated or otherwise conflicted with, or
otherwise has Knowledge that it is infringing on, misappropriating, or otherwise
conflicting with the intellectual property rights of any third parties; (iii)
there is no claim pending or, to the Knowledge of the Company, threatened
against the Company or any Company Subsidiary with respect to the alleged
infringement or misappropriation by the Company or Company Subsidiary, or a
conflict with, any intellectual property rights of others; (iv) the operation of
any aspect of the Business in the manner in which it has heretofore been
operated or is presently operated does not give rise to any such infringement or
misappropriation; and (v) there is no infringement or misappropriation of the
Intellectual Property by a third party or claim, pending or, to the Knowledge of
the Company, threatened, against any third party with respect to the alleged
infringement or misappropriation of the Intellectual Property.
4.16 Taxes.
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4.16.1 Except as set forth on Schedule 4.16.1-1, each of the
Company and the Company Subsidiaries has timely and accurately prepared
and filed or been included in or will timely and accurately prepare and
file or be included in all federal, state, local and foreign returns,
declarations and reports, information returns and statements
(collectively, the "Returns") for Taxes (as defined in Section 4.16.2)
required to be filed by or with respect to the Company or the Company
Subsidiaries before the Closing Date, and has paid or caused to be
paid, or has made adequate provision or set up an adequate accrual or
reserve for the payment of, all Taxes required to be paid in respect of
the periods for which Returns are due on or prior to the Closing Date,
and will establish an adequate accrual or reserve for the payment of
all Taxes payable in respect of the period, including portions thereof,
subsequent to the last of said periods required to be so accrued or
reserved, in each case in accordance with GAAP up to and including the
Closing Date. All such Returns are or will be true and correct in all
material respects. The Company has delivered to Centerprise true and
complete copies of all Returns referred to in the first sentence of
this Section 4.16.1 (including any amendments thereof) for the five (5)
most recent taxable years. Neither the Company nor any Company
Subsidiary is delinquent in the payment of any Tax, and no material
deficiencies for any Tax, assessment or governmental charge have been
threatened, claimed, proposed or assessed. No waiver or extension of
time to assess any Taxes has been given or requested. No written claim,
or any other claim, by any taxing authority in any jurisdiction where
the Company or any Company Subsidiary does not file Tax returns is
pending pursuant to which the Company or Company Subsidiary, as
applicable, is or may be subject to taxation by that jurisdiction. The
Company's and the Company Subsidiaries' Returns were last audited by
the Internal Revenue Service or comparable state, local or foreign
agencies on the dates set forth on Schedule 4.16.1-2.
4.16.2 For purposes of this Agreement, the term "Taxes" shall
mean all taxes, charges, withholdings, fees, levies, penalties,
additions, interest or other assessments, including, without
limitation, income, gross receipts, excise, property, sales,
employment, withholding, social security, occupation, use, service,
service use, license, payroll, franchise, transfer and recording taxes,
fees and charges, windfall profits, severance, customs, import, export,
employment or similar taxes, charges, fees, levies or other
assessments, imposed by the United States, or any state, local, foreign
or provincial government or subdivision or any agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other
basis.
4.17 Employee Benefit Plans; ERISA.
4.17.1 Except as described in Schedule 4.17.1, neither the
Company nor any Company Subsidiary has or is reasonably expected to
have any liability (including contingent liability) whether direct or
indirect (and regardless of whether it would be derived from a current
or former Plan Affiliate, as defined in Section 4.17.5(c)) with respect
to any of the following (whether written, unwritten or terminated): (i)
any employee welfare benefit plan, as defined in Section 3(1) of
"ERISA," including, but not limited to, any medical plan, life
insurance plan, short-term or long-term disability plan
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or dental plan; (ii) any "employee pension benefit plan," as defined in
Section 3(2) of ERISA (as defined in Section 4.17.5(b)), including, but
not limited to, any excess benefit plan, top hat plan or deferred
compensation plan or arrangement, nonqualified retirement plan or
arrangement, qualified defined contribution or defined benefit
arrangement; or (iii) any other benefit plan, policy, program,
arrangement or agreement, including, but not limited to, any material
fringe benefit plan or program, personnel policy, bonus or incentive
plan, stock option, restricted stock, stock bonus, holiday pay,
vacation pay, sick pay, bonus program, service award, moving expense,
reimbursement program, tool allowance, safety equipment allowance,
deferred bonus plan, salary reduction agreement, change-of-control
agreement, employment agreement or consulting agreement.
4.17.2 A complete copy of each written Employee Plan (as
defined in Section 4.17.5(a)) as amended to the Closing, together with
audited financial statements, if any, for the three (3) most recent
plan years; a copy of each trust agreement or other funding vehicle
with respect to each such plan; a copy of any and all determination
letters, rulings or notices issued by a Governmental Authority with
respect to such plan; a copy of the Form 5500 Annual Report for the
three (3) most recent plan years; and a copy of each and any general
explanation or communication which was required to be distributed or
otherwise provided to participants in such plan and which describes all
or any relevant aspect of each plan, including summary plan
descriptions and/or summary of material modifications, have been
delivered to Centerprise. A description of each unwritten Employee
Plan, including a description of eligibility, participation, benefits,
funding arrangements and assets or other relevant aspects of the
obligation, is set forth in Schedule 4.17.2.
4.17.3 Except as is not reasonably expected to give rise to
any liability (including contingent liability), whether direct or
indirect, to the Company or any Company Subsidiary, each Employee Plan
(i) has been and is operated and administered in compliance with its
terms; (ii) has been and is operated, administered, maintained and
funded in compliance with the applicable requirements of the Code in
such a manner as to qualify, where appropriate and intended, for both
Federal and state purposes, for income tax exclusions, tax-exempt
status, and the allowance of deductions and credits with respect to
contributions thereto; (iii) where appropriate, has received a
favorable determination letter from the Internal Revenue Service upon
which the sponsor of the plan may currently rely; (iv) has been and
currently complies in form and in operation in all respects with all
applicable requirements of ERISA and the Code and any applicable
reporting and disclosure requirements of Federal and state laws,
including but not limited to the requirement of Part 6 of subtitle B of
Title I of ERISA and Section 4980B of the Code. With respect to each
Employee Plan, no Person has: (i) entered into any nonexempt
"prohibited transaction," as such terms are defined in ERISA or the
Code; (ii) breached a fiduciary obligation or (iii) any liability for
any failure to act or comply in connection with the administration or
investment of the assets of such plan; and no Employee Plan has any
liability and there is no liability in connection with any Employee
Plan, other than a liability (i) which is expressly and adequately
reflected in the Latest Balance Sheets, (ii) which is discretionary or
terminable at will by the Company or one of the Company
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Subsidiaries without incurring any such liability, or (iii) which is
adequately funded under a funding arrangement separate from the assets
of the Company, any Company Subsidiary or a Plan Affiliate (and only to
the extent of such funding). Any contribution made or accrued with
respect to any Employee Plan is fully deductible by the Company, a
Company Subsidiary or a Plan Affiliate.
4.17.4 Neither the Company nor any Company Subsidiary or Plan
Affiliate has ever sponsored, maintained, contributed to or been
required to contribute to, or has any liability, whether direct or
indirect, with respect to any Employee Plan which is or has ever been
(i) a "multiemployer plan" as defined in Section 4001 of ERISA, (ii) a
"multi employer plan" within the meaning of Section 3(37) of ERISA,
(iii) a "multiple employer plan" within the meaning of Code Section
413(c), (iv) a "multiple employer welfare arrangement" within the
meaning of Section 3(40) of ERISA, (v) subject to the funding
requirements of Section 412 of the Code or to Title IV of ERISA, or
(vi) provides for post-retirement medical, life insurance or other
welfare-type benefits.
4.17.5 As used in this Agreement, the following terms shall
have the following respective meanings:
(a) the term "Employee Plan" shall mean any plan,
policy, program, arrangement or agreement described in Section
4.17.1, whether or not scheduled;
(b) the term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended; and
(c) with respect to any Person ("First Person"), the
term "Plan Affiliate" shall mean any other Person with whom
the First Person constitutes or has constituted all or part of
a controlled group, or which would be treated or have been
treated with the First Person as under common control or whose
employees would be or have been treated as employed by the
First Person, under Section 414 of the Code or Section 4001(b)
of ERISA and any regulations, administrative rulings and case
law interpreting the foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no,
and within the last three (3) years neither the Company nor any Company
Subsidiary has experienced any, strike, picketing, boycott, work stoppage or
slowdown or other similar labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor pending or,
to the Knowledge of the Company, threatened against the Company or any Company
Subsidiary, or that is reasonably expected to affect the Company or any Company
Subsidiary; nor, to the Knowledge of the Company, is there any basis for any
such allegation, charge, or complaint. There is no request for representation
pending and, to the Knowledge of the Company, no question concerning
representation has been raised. There is no grievance pending that is reasonably
expected to result in a Company Material Adverse Effect nor any arbitration
proceeding arising out of a union agreement. To the Knowledge of the Company, no
employee who is key to the Business and no group of employees has announced or
otherwise indicated any plans to terminate employment with
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the Company or any Company Subsidiary. Each of the Company and any Company
Subsidiary has complied with all applicable laws relating to the employment of
labor, including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes.
Neither the Company nor any Company Subsidiary is liable for any arrears of
wages or any taxes or penalties for failure to comply with any such laws,
ordinances or regulations.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19,
(i) each of the Company and the Company Subsidiaries is operating and has
operated its business in compliance with all applicable Environmental and Safety
Requirements (as defined later in this Section); (ii) to the actual knowledge of
the Board of Directors of the Company, without any duty to inquire
(notwithstanding the definition of "Knowledge" in Section 15.4), there are no
Hazardous Materials (as defined later in this Section) present at, on or under
any real property currently or formerly owned, leased or used by the Company or
Company Subsidiary (other than those present in office supplies and
cleaning/maintenance materials) for which the Company or a Company Subsidiary is
or is reasonably expected to be responsible, or otherwise have any liability,
for response costs under any Environmental and Safety Requirements; (iii) each
of the Company and the Company Subsidiaries has disposed of all waste materials
generated by the Company or such Company Subsidiary at any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
in compliance with applicable Environmental and Safety Requirements; and (iv)
there are and have been no facts, events, occurrences or conditions at or
related to any real property currently or formerly owned, leased or used by the
Company or Company Subsidiary that is reasonably expected to cause or give rise
to liabilities or response obligations of the Company or any Company Subsidiary
under any Environmental and Safety Requirements. The term "Environmental and
Safety Requirements" means any federal, state and local laws, statutes,
regulations or other requirements relating to the protection, preservation or
conservation of the environment or worker health and safety, all as amended or
reauthorized. The term "Hazardous Materials" means "hazardous substances," as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq., "hazardous wastes," as defined by the
Resource Conservation Recovery Act, 42 U.S.C. Section 6901 et seq., asbestos in
any form or condition, polychlorinated biphenyls and any other material,
substance or waste to which liability or standards of conduct may be imposed
under any Environmental and Safety Requirement.
4.20 Insurance. Each of the Company and the Company Subsidiaries has in
full force and effect commercially reasonable amounts of insurance to protect
the Company's and Company Subsidiaries' ownership or interest in, and operation
of, its assets against the types of liabilities, including professional
malpractice, customarily insured against in connection with operations similar
to the Business, and all premiums due on such policies have been paid. To the
Company's Knowledge, each of the Company and the Company Subsidiaries has
complied with the provisions of all such policies and is not in default under
any of such policies. Schedule 4.20 contains a complete and correct list of all
such insurance policies. None of the Company nor any Company Subsidiary has
received any notice of cancellation or intent to cancel or increase premiums
with respect to such insurance policies. Schedule 4.20 also contains a list of
all claims or asserted claims reported to insurers under such policies relating
to the ownership or interest in the
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Company's and the Company Subsidiaries' assets, or operation of the Business,
including all professional malpractice claims and similar types of claims,
actions or proceedings asserted against the Company or any Company Subsidiary
arising out of the Business at any time within the past three (3) years.
4.21 Interest in Customers and Suppliers; Affiliate Transactions.
Except as described on Schedule 4.21 and except for ownership as an investment
of not more than one percent (1%) of any class of capital stock of any
publicly-traded company, none of Holdings, the Company, any member of Holdings,
any Affiliate of any such member nor any Affiliate of Holdings, the Company or
any Company Subsidiary (i) possesses, directly or indirectly, any financial
interest in, or is a director, officer, employee or affiliate of, any Person
that is a client, supplier, customer, lessor, lessee or competitor of the
Company or any Company Subsidiary, (ii) owns, directly or indirectly, in whole
or in part, or has any interest in any tangible or intangible property used in
the conduct of the Business, or (iii) is a party to an agreement or
relationship, that involves the receipt by such Person of compensation or
property from the Company or any Company Subsidiary other than through a
customary employment relationship or through distributions made with respect to
the Company Stock or equity interests in any Company Subsidiary (provided such
distributions have been made consistent with the Company's or any Company
Subsidiary's, as the case may be, past custom and practices). Schedule 4.21 sets
forth the parties to and the date, nature and amount of each transaction during
the last five years involving the transfer of any cash, property or rights to or
from the Company or any Company Subsidiary from, to or for the benefit of any
Affiliates (other than customary employment relationships or distributions made
with respect to the Company Stock) ("Affiliate Transactions"), and any existing
commitments of the Company or any Company Subsidiary to engage in the future in
any Affiliate Transactions. Except as disclosed, each Affiliate Transaction and
each transaction with former Affiliates of the Company or any Company Subsidiary
was effected on terms equivalent to those that would have been established in an
arm's-length transaction.
4.22 Business Relationships. Schedule 4.22 lists all clients of the
Company and each Company Subsidiary representing one percent (1%) or more of the
Company's consolidated net revenue for the twelve (12) months ended December 31,
1998. Except as set forth on Schedule 4.22, since December 31, 1998, none of
such clients has canceled or substantially reduced its business with the Company
or Company Subsidiary, as applicable, nor are any of such clients threatening to
do so. To the Knowledge of the Company, no client that accounts for one percent
(1%) or more of the Company's consolidated net revenue, or supplier of the
Company or any Company Subsidiary, will cease to do business with, or
substantially reduce its business with, the Company or any Company Subsidiary,
as applicable, after the consummation of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
names and current total compensation, including, without limitation, salary and
bonuses paid to employees and draws or other distributions paid to partners,
members or owners of each Person who earned from the Company or a Company
Subsidiary in 1998 total compensation in excess of $100,000. Except as set forth
in Schedule 4.23, no Person listed thereon has received any bonus or increase in
compensation and there has been no "general increase" in the compensation or
rate of
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compensation payable to any employees, partners, members or owners of the
Company or any Company Subsidiary since the date of the Latest Balance Sheet,
other than in the Company's and Company Subsidiaries' ordinary course of
business, consistent with past custom and practices, nor since that date has
there been any oral or written promise to employees, partners, members or owners
of any bonus or increase in compensation, other than in the Company's and
Company Subsidiaries' ordinary course of business, consistent with past custom
and practices. The term "general increase" as used herein means any increase
generally applicable to a class or group, but does not include increases granted
to individuals for merit, length of service or change in position or
responsibility made on the basis of the custom and past practices of the Company
or any Company Subsidiary. Schedule 4.23 includes the date and amount of the
last bonus or similar distribution or increase in compensation for each listed
individual.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each
bank in which the Company or any Company Subsidiary has an account or safe
deposit box, the number of each such account or box, and the names of all
Persons authorized to draw thereon or to have access thereto.
4.25 Professional Credentials. Each Member is a Certified Public
Accountant in good standing in one of the States of the United States or the
District of Columbia, and entitled to practice in one of the jurisdictions in
which the Company or any Company Subsidiary maintains an office, and there are
no disciplinary proceedings pending or threatened against the Company, any
Company Subsidiary or any of the Members by any Governmental Authority or
self-regulatory organization regulating, licensing or permitting the practice of
public accountancy.
4.26 Disclosure; No Misrepresentation. No representation or warranty of
the Company contained in this Agreement or in any of the certification,
schedules, lists, documents, exhibits, or other instruments delivered or to be
delivered to Centerprise as contemplated by any provision hereof contains any
untrue statement regarding a material fact or omits to state a material fact
necessary in order to make the statements made herein or therein not misleading.
To the Knowledge of the Company, there is no fact or circumstance that has not
been disclosed to Centerprise herein that has or is reasonably expected to have
a Company Material Adverse Effect.
ARTICLE V
[RESERVED]
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE
Centerprise represents and warrants to the Company as of March 31, 1999
and, subject to Section 7.3, as of the date on which Centerprise and the lead
Underwriter execute and deliver the Underwriting Agreement related to the IPO
and as of the Closing Date as follows:
6.1 Organization And Qualification. Each of Centerprise and Mergersub
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. True, accurate and complete copies of each of
Centerprise's and Mergersub's Certificate of Incorporation and By-laws, as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to the Company.
6.2 Capitalization.
6.2.1 The authorized capital stock of Centerprise consists of
20,000 shares of Centerprise Common Stock, of which 17,500 shares are
outstanding as of the date hereof. All of the issued and outstanding
shares of Centerprise Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights. Immediately prior to
the Closing Date, the authorized capital stock of Centerprise will
consist of 50,000,000 shares of Centerprise Common Stock, of which the
number of shares set forth in the Form S-1 will be issued and
outstanding, and 10,000,000 shares of Preferred Stock, par value $0.01
per share, none of which will be issued and outstanding. Other than (i)
shares of Centerprise Common Stock issued pursuant to a split of the
shares outstanding as of the date of this Agreement, (ii) shares of
Centerprise Common Stock issued in accordance with the Acquisition and
the Other Acquisitions, and (iii) shares of Centerprise Common Stock
that may be issued to new members of management in lieu of shares
previously issued to current members of management, but which will not
increase the number of shares of outstanding Centerprise Common Stock,
no shares of Centerprise Common Stock will be issued prior to the
consummation of the IPO. Mergersub's authorized capital stock consists
solely of 1,000 shares of common stock, par value $.01 per share (the
"Mergersub Stock"), all of which are issued and outstanding, are owned
free and clear of any Liens by Centerprise, and are fully paid,
nonassessable and free of preemptive rights.
6.2.2 Except as set forth on Schedule 6.2, as of the date
hereof, there are no outstanding subscriptions, options, calls,
contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under
any outstanding security, instrument or other agreement obligating
Centerprise to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock of Centerprise or
obligating Centerprise to grant, extend or enter into any such
agreement or commitment. There are no voting trusts, proxies or other
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agreements or understandings to which Centerprise is a party or is
bound with respect to the voting of any shares of capital stock of
Centerprise. The shares of Centerprise Common Stock issued to the
Company's stockholders in the Acquisition will at the Closing Date be
duly authorized, validly issued, fully paid and nonassessable and free
of preemptive rights and issued pursuant to a registration statement as
required by the 1933 Act or an exemption therefrom.
6.3 No Subsidiaries. Except for Centerprise's ownership of 100% of the
capital stock of Professional Service Group, Inc., a Delaware corporation, and
Mergersub (and similar entities created for similar purposes with respect to the
Other Agreements) Centerprise has no subsidiaries and it does not own any
capital stock of any corporation or any equity or other interest of any nature
whatsoever in any Person.
6.4 Authority; Non-Contravention; Approvals.
6.4.1 Each of Centerprise and Mergersub has all requisite
right, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has
been approved by the Boards of Directors of Centerprise and Mergersub,
and no other corporate proceedings on the part of Centerprise or
Mergersub are necessary to authorize the execution and delivery of this
Agreement or the consummation by Centerprise and Mergersub of the
transactions contemplated hereby. This Agreement has been duly executed
and delivered by Centerprise and Mergersub and, assuming the due
authorization, execution and delivery hereof by the Company constitutes
a valid and legally binding agreement of Centerprise and Mergersub,
enforceable against each of them in accordance with its terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and (ii) general
equitable principles.
6.4.2 The execution and delivery of this Agreement by
Centerprise and Mergersub does not violate, conflict with or result in
a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any of
the properties or assets of Centerprise and Mergersub under any of the
terms, conditions or provisions of (i) the Certificate of Incorporation
or By-laws of Centerprise or Mergersub, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or Governmental Authority applicable to
Centerprise or Mergersub or any of their respective properties or
assets, or (iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Centerprise or
Mergersub is now a party or by which Centerprise, Mergersub or any of
their respective properties or assets, may be bound or affected, except
those items described in clause (ii) relating to regulating, licensing
or permitting the practice of public accountancy. The consummation by
Centerprise and Mergersub of the
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transactions contemplated hereby will not result in any violation,
conflict, breach, right of termination or acceleration or creation of
Liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the immediately preceding
sentence, subject, in the case of the terms, conditions or provisions
of the items described in clause (ii) above, to obtaining (prior to the
Closing Date) Centerprise Required Statutory Approvals and except for
those items described in (ii) above relating to regulating, licensing
or permitting the practice of public accountancy.
6.4.3 Except with respect to (i) the declaration of the
effectiveness of the Registration Statements by the SEC and filings, if
required, with various state securities or "blue sky" authorities, (ii)
any filing which may be required under the HSR Act, (iii) any filing
which may be required by any Governmental Authority or self-regulatory
organization regulating, licensing or permitting the practice of public
accountancy (the filings and approvals referred to in clauses (i)
through (iii) are collectively referred to as the "Centerprise Required
Statutory Approvals") no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is necessary for the execution and
delivery of this Agreement by Centerprise or Mergersub or the
consummation by Centerprise or Mergersub of the transactions
contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if
not made or obtained, as the case may be, are not reasonably expected
to, in the aggregate, have a material adverse effect on the business
operations, properties, assets, condition (financial or other), results
of operations or prospects of Centerprise and its subsidiaries, taken
as a whole (a "Centerprise Material Adverse Effect").
6.5 Absence of Undisclosed Liabilities. Except as set forth on Schedule
6.5, neither Centerprise nor Mergersub has incurred any liabilities or
obligations (whether known or unknown, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise) of any nature. Except as set
forth on Schedule 6.5, neither Centerprise nor Mergersub has engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is it bound by any obligation or undertaking.
6.6 Litigation. There are no claims, suits, actions or proceedings
pending or, to the Knowledge of Centerprise, threatened against, relating to or
affecting Centerprise or Mergersub, before any court, Governmental Authority or
any arbitrator that seek to restrain or enjoin the consummation of the
Acquisition or the IPO or which could reasonably be expected, either alone or in
the aggregate with all such claims, actions or proceedings, to have a
Centerprise Material Adverse Effect. Centerprise is not subject to any
unsatisfied or continuing judgment, order or decree of any court or Governmental
Authority. Centerprise is not a party to any legal action to recover monies due
it or for damages sustained by it.
6.7 Compliance with Applicable Laws. Each of Centerprise and Mergersub
has complied in all material respects with all Laws applicable to it, and has
not received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability
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and, to the Knowledge of Centerprise, no event has occurred or circumstances
exist that (with or without notice or lapse of time) may constitute or result in
a violation by Centerprise or Mergersub of any Law or may give rise to any
liability on the part of the Centerprise or Mergersub under any Law.
6.8 No Misrepresentation. None of the representations and warranties of
Centerprise or Mergersub set forth in this Agreement or in any of the
certificates, schedules, lists, documents, exhibits, or other instruments
delivered or to be delivered to the Company as contemplated by any provision
hereof contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. To the Knowledge of Centerprise, there is no fact or circumstance
that has not been disclosed to the Company herein that has or is reasonably
expected to have a Company Material Adverse Effect.
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS
7.1 Conduct of Business by the Company Pending the Acquisition.
7.1.1 Except as otherwise contemplated by this Agreement,
after the date hereof and prior to the Closing Date or earlier
termination of this Agreement, unless Centerprise shall otherwise agree
in writing, the Company shall, and shall cause each Company Subsidiary
to:
(a) in all material respects conduct the Business in
the ordinary and usual course and consistent with past customs
and practices;
(b) not (i) amend its Organizational Documents except
as necessary to complete the Conversion, (ii) split, combine
or reclassify its outstanding capital stock or (iii) declare,
set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise except dividends or distributions
which (A) are consistent with past customs and practices and
(B) do not result in a Company Material Adverse Effect;
(c) not issue, sell, pledge or dispose of, or agree
to issue, sell, pledge or dispose of (i) any additional shares
of, or any options, warrants or rights of any kind to acquire
any shares of, its capital stock or equity interests of any
class, (ii) any debt with voting rights or (iii) any debt or
equity securities convertible into or exchangeable for, or any
rights, warrants, calls, subscriptions, or options to acquire,
any such capital stock, debt with voting rights or convertible
securities;
(d) not (i) incur or become contingently liable with
respect to any indebtedness for borrowed money other than (A)
borrowings in the ordinary course of business in a manner
consistent with past customs and practices or (B)
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borrowings to refinance existing indebtedness on commercially
reasonable terms, (ii) redeem, purchase, acquire or offer to
purchase or acquire any shares of its capital stock or equity
interests or any options, warrants or rights to acquire any of
its capital stock or equity interests or any security
convertible into or exchangeable for its capital stock or
equity interests, (iii) sell, pledge, dispose of or encumber
any assets or businesses other than dispositions in the
ordinary course of business in a manner consistent with past
customs and practices (iv) enter into any contract, agreement,
commitment or arrangement with respect to any of the
foregoing;
(e) use commercially reasonable efforts to (i)
preserve intact its business organizations and goodwill, (ii)
keep available the services of its present officers and key
employees, and (iii) preserve the goodwill and business
relationships with clients and others having business
relationships with it and not engage in any action, directly
or indirectly, with the intent to adversely impact the
transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one
or more representatives of Centerprise to report operational
matters of materiality and the general status of ongoing
operations;
(g) except as contemplated by Schedule 4.9, not (i)
increase in any manner the base compensation of, or enter into
any new bonus or incentive agreement or arrangement with, any
of its employees, partners, members or owners, except in the
ordinary course of business in a manner consistent with past
customs and practices of the Company or any Company
Subsidiary, as applicable, (ii) pay or agree to pay any
additional pension, retirement allowance or other employee
benefit under any Employee Plan to any such Person, whether
past or present, (iii) enter into any new employment,
severance, consulting, or other compensation agreement with
any of its existing employees, partners, members or owners,
(iv) amend or enter into a new Employee Plan (except as
required by Law) or amend or enter into a new collective
bargaining agreement, or (v) engage in any new Affiliate
Transaction;
(h) comply in all material respects with all
applicable Laws;
(i) not make any material investment in, directly or
indirectly, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any
other manner, any businesses or any Person or division thereof
or otherwise acquire or agree to acquire any assets in each
case which are material to it other than in the ordinary
course of business in a manner consistent with past customs
and practices;
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(j) not sell, lease, license, encumber or otherwise
dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of its assets other than in the
ordinary course of business, consistent with past customs and
practices;
(k) maintain with financially responsible insurance
companies insurance on its tangible assets and its businesses
in such amounts and against such risks and losses in a manner
consistent with past customs and practices in all material
respects; and
(l) collect and bill receivables in the ordinary and
usual course and consistent with past custom and practices.
7.1.2 [Reserved]
7.1.3 Notwithstanding the fact that such action might
otherwise be permitted pursuant to this Article, the Company shall not
take, or permit any Company Subsidiary to take, any action that would
or is reasonably likely to result in any of the representations or
warranties of the Company set forth in this Agreement being untrue or
in any of the conditions to the consummation of the transactions
contemplated hereunder set forth in Article X (other than Section
10.1(i)) not being satisfied.
7.1.4 Prior to the Closing, (i) the Company shall terminate,
without any liability to the Company or the Company Subsidiaries, all
agreements relating to the voting of the Company's capital stock, and
all agreements and obligations of the Company and the Company
Subsidiaries relating to borrowed money and/or involving payments to or
for the benefit of a present or former stockholder of the Company, or
an Affiliate or family member of a Member or present or former
stockholder of the Company, including without limitation those set
forth on Schedule 7.1.4(i), but excluding (A) debt reflected on
Schedule 2.1 as Debt Assumed By Centerprise, (B) items reflected on
Schedule 2.6, (C) agreements and obligations to the extent such
agreements and obligations result in Indirect Costs under the Incentive
Compensation Agreement, (D) that certain Second Amended and Restated
Shareholders' and Non-Shareholder Officers' Agreement dated as of
December 31, 1998, a true and complete copy of which has been delivered
to Centerprise (the "Company Shareholders' Agreement"), and which
Company Shareholders' Agreement shall not be amended further, and (E)
items approved by Centerprise in writing; and (ii) notwithstanding
anything contained in this Section 7.1 to the contrary, the Company
will transfer and distribute the assets listed on Schedule 7.1.4(ii)
(the "Excluded Assets") to the Persons listed on Schedule 7.1.4(ii),
subject to all liabilities and obligations of any nature (whether known
or unknown, accrued, absolute, contingent, direct, indirect, perfected,
inchoate, unliquidated or otherwise) relating to the Excluded Assets
(collectively, the "Excluded Liabilities"); provided, however, that
prior to the Closing, the Company shall obtain novations or other
releases or agreements discharging the Company from all Excluded
Liabilities (so that the respective Excluded Liabilities will become
direct liabilities and obligations, of the assignee), and provide
copies thereof to Centerprise.
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7.2 No-Shop.
(a) After the date hereof and prior to the Closing Date or
earlier termination of this Agreement, the Company shall (i) not, and
the Company shall use its diligent efforts to cause the Company
Subsidiaries and any officer, director or employee of, or any attorney,
accountant, investment banker, financial advisor or other agent
retained by the Company or any Company Subsidiary not to, initiate,
solicit, negotiate, encourage, or provide non-public or confidential
information to facilitate, any proposal or offer to acquire all or any
substantial part of the business and properties of the Company or any
Company Subsidiary, or any capital stock or other equity interests the
Company or any Company Subsidiary, whether by merger, purchase of
assets or otherwise, whether for cash, securities or any other
consideration or combination thereof, or enter into any joint venture
or partnership or similar arrangement, and (ii) promptly advise
Centerprise of the terms of any communications the Company may receive
or become aware of relating to any bid for part or all of the Company
or any Company Subsidiary. Notwithstanding the foregoing, if the
underwriters' internal sales force presentation or "road show" for the
IPO has not started by October 15, 1999, then from and after such date,
the Company may (through its authorized agents) conduct limited
discussions with potential acquirers of the Company for the sole
purpose of assessing the potential terms and conditions of an
acquisition proposal involving the Company. Notwithstanding the
preceding sentence, the Company shall not (i) disclose any non-public
or confidential information regarding the Company to any such third
party or (ii) enter into any agreement (including a letter of intent or
term sheet) with such third party unless this Agreement has been
terminated pursuant to Article XI.
(b) The Company (i) acknowledges that a breach of any of its
covenants contained in this Section 7.2 will result in irreparable harm
to Centerprise which will not be compensable in money damages; and (ii)
agrees that such covenant shall be specifically enforceable and that
specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
7.3 Schedules. Each party hereto agrees that with respect to the
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement or amend and deliver to the other parties all the schedules to this
Agreement (the "Schedules") to correct any matter which would constitute a
breach of any such party's representations and warranties herein; provided,
however, that no amendment or supplement to a Schedule that constitutes or
reflects a Company Material Adverse Effect or affects Schedule 4.2, Schedule 4.4
or Schedule 8.8 may be made unless Centerprise and a majority of the Founding
Companies consent to such amendment or supplement. No amendment of or supplement
to a Schedule shall be made later than three (3) business days prior to the
anticipated effectiveness of the Form S-1. For all purposes of this Agreement,
including, without limitation, for purposes of determining whether the
conditions set forth in Sections 10.2 and 10.3 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 7.3. In the event that (i) one of the other Founding
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Companies seeks to amend or supplement a Schedule pursuant to Section 7.3 of one
of the Other Agreements, (ii) such amendment or supplement constitutes or
reflects a Company Material Adverse Effect (as defined in such Other Agreement)
or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8 of such Other Agreement,
and (iii) Centerprise and a majority of the Founding Companies consent to such
amendment or supplement, but the Company does not, the Company may terminate
this Agreement at any time prior to the Closing Date. In the event that (i) the
Company seeks to amend or supplement a Schedule pursuant to this Section 7.3,
(ii) such amendment or supplement constitutes or reflects a Company Material
Adverse Effect or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8, and (iii)
Centerprise and a majority of the Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section 7.3,
unless this Agreement is so terminated in connection with an amendment of or
supplement to a Schedule relating to the Company's breach of a representation or
warranty as of March 31, 1999 in which case the Company shall pay to
Centerprise, as Centerprise's exclusive remedy (notwithstanding anything to the
contrary) and as liquidated damages, and not as a penalty, an amount equal to
$2,000,000 (the "Liquidated Damages Amount"). The Company agrees that in the
case of such termination Centerprise and the Founding Companies (excluding the
Company) will sustain immediate and irreparable economic harm and loss of
goodwill and that actual losses suffered by such parties will be difficult, if
not impossible, to ascertain, but the Liquidated Damages Amount set forth herein
is reasonable and has been arrived at after a good faith effort to estimate such
losses. Payment of the Liquidated Damages Amount shall be made in cash to
Centerprise within thirty (30) days of a termination pursuant to this Section
7.3 in connection with an amendment of or supplement to a Schedule relating to a
breach of a representation or warranty as of the date of this Agreement.
7.4 Company Stockholders Meeting. The Company shall take all action in
accordance with applicable Laws and its Organizational Documents necessary to
duly call, give notice of, convene and hold a meeting of the Company's
stockholders to be held on the earliest practicable date determined in
consultation with Centerprise to consider and vote upon approval of the Merger,
this Agreement and the transactions contemplated hereby. The Company shall
solicit the approval of the Merger, this Agreement and the transactions
contemplated hereby by Company's stockholders, and the Company's Board of
Directors shall recommend approval of the Merger, this Agreement and the
transactions contemplated hereby by the Company's stockholders. If the Merger,
this Agreement and the transactions contemplated hereby are approved by the
Company's stockholders, the Company shall not call, give notice of, convene or
hold any other meeting of its stockholders to rescind or modify such approval or
to consider any other transaction.
7.5 Conversion. Prior to the Closing but effective only if, as and when
the Closing occurs, the Company shall complete the Conversion pursuant to
applicable law and present such evidence of the Conversion at the Closing, as
Centerprise or its counsel may require.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Access to Information.
8.1.1 The Company shall and shall cause the Company
Subsidiaries to afford to Centerprise and its accountants, counsel,
financial advisors and other representatives, including without
limitation the underwriters engaged in connection with the IPO (each an
"Underwriter" and collectively, the "Underwriters") and their counsel
(collectively, the "Centerprise Representatives"), and to the other
Founding Companies and their accountants, counsel, financial advisors
and other representatives, and Centerprise shall afford to the Company
and their accountants, counsel, financial advisors and other
representatives (the "Company Representatives"), upon reasonable
notice, full access during normal business hours throughout the period
prior to the Closing Date to all of its respective properties, books,
contracts, commitments and records (including, but not limited to,
financial statements and Tax Returns) and, during such period, shall
furnish promptly to one another all due diligence information requested
by the other party. Centerprise shall hold and shall use its best
efforts to cause the Centerprise Representatives to hold, and the
Company shall hold and shall use their best efforts to cause the
Company Representatives to hold, in strict confidence all non-public
information furnished to it in connection with the transactions
contemplated by this Agreement, except that each of Centerprise, the
Company may disclose any information that it is required by law or
judicial or administrative order to disclose. In addition, Centerprise
will cause each of the other Founding Companies and their members and
stockholders to enter into a provision similar to this Section 8.1
requiring each such Founding Company to keep confidential any
information obtained by such Founding Company in connection with the
transactions contemplated by this Agreement.
8.1.2 In the event that this Agreement is terminated in
accordance with its terms, each party shall promptly return to the
disclosing party all non-public written material provided pursuant to
this Section 8.1 or pursuant to the Other Agreements and shall not
retain any copies, extracts or other reproductions of such written
material. In the event of such termination, all documents, memoranda,
notes and other writings prepared by Centerprise or the Company based
on the information in such material shall be destroyed (and Centerprise
and the Company shall use their respective reasonable best efforts to
cause their advisors and representatives to similarly destroy such
documents, memoranda and notes), and such destruction (and reasonable
best efforts) shall be certified in writing by an authorized officer
supervising such destruction.
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8.2 Registration Statements.
8.2.1 Centerprise has filed the Registration Statements with
the SEC and shall use all reasonable efforts to have the Registration
Statements declared effective by the SEC as promptly as practicable.
Centerprise shall also take any action required to be taken under
applicable state "blue sky" or securities laws in connection with the
issuance of Centerprise Common Stock. Centerprise and the Company shall
promptly furnish to each other all information, and take such other
actions, as may reasonably be requested in connection with making such
filings. All information provided and to be provided by Centerprise and
the Company, respectively, for use in the Registration Statements shall
be true and correct in all material respects without omission of any
material fact which is required to make such information not false or
misleading as of the date thereof and in light of the circumstances
under which given or made. The Company agrees promptly to advise
Centerprise if at any time during the period in which a prospectus
relating to the offering or the Merger is required to be delivered
under the Securities Act, any information contained in the prospectus
concerning the Company or the Company Subsidiaries becomes incorrect or
incomplete in any material respect, and to provide the information
needed to correct such inaccuracy or remedy such incompletion.
8.2.2 Centerprise agrees that it will provide to the Company
and its counsel copies of drafts of the Registration Statements (and
any amendments thereto) containing material changes to the information
therein as they are prepared and will not (i) file with the SEC, (ii)
request the acceleration of the effectiveness of or (iii) circulate any
prospectus forming a part of, the Registration Statements (or any
amendment thereto) unless the Company and its counsel (x) have had at
least two days to review the revised information contained therein
(which changes shall be highlighted by computer generated marks
indicating the additions and deletions made from the prior draft
reviewed by the Company's counsel) and (y) have not objected to the
substance of the information contained therein. Any objections posed by
the Company or its counsel shall be in writing and state with
specificity the material in question, the reason for the objection, and
the Company's proposed alternative. If the objection is founded upon a
rule promulgated under the Securities Act, the objection shall cite the
rule. Notwithstanding the foregoing, during the five (5) business days
immediately preceding the date scheduled for the filing of the
Registration Statements and any amendment thereto, the Company and its
counsel shall be obligated to respond to proposed changes
electronically transmitted to them within two (2) hours from the time
the proposed changes (in the case of the initial filing of the
Registration Statements, from the last circulated draft of the
Registration Statements; and, in the case of any subsequent filing of
the Registration Statements or any amendment thereof, from the most
recently filed Registration Statements or amendment thereof) are
transmitted to the Company's counsel; provided, that, Centerprise has
provided to the Company or its counsel reasonable advance notice of
such proposed changes; provided, further, that such changes are
highlighted by computer generated marks indicating the additions and
deletions made from the prior draft reviewed by the Company's counsel.
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8.2.3 Centerprise will advise the Member Representative of the
effectiveness of the Registration Statements, advise the Member
Representative of the entry of any stop order suspending the
effectiveness of the Registration Statements or the initiation of any
proceeding for that purpose, and, if such stop order shall be entered,
use its best efforts promptly to obtain the lifting or removal thereof.
Upon the written request of the Company Centerprise will furnish to the
Company a reasonable number of copies of the final prospectus
associated with the IPO.
8.3 Expenses and Fees. Centerprise shall pay the fees and expenses of
the independent public accountants and legal counsel to Centerprise and all
filing, printing and other reasonable, documented fees and expenses associated
with the IPO and Form S-4. The Company will not be liable for any portion of the
above expenses in the event the IPO is not completed. Centerprise shall also pay
the underwriting discounts and commissions payable in connection with the sale
of Centerprise Common Stock in the IPO. All other costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses.
8.4 Agreement to Cooperate. Subject to the terms and conditions herein
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
8.5 Public Statements. Except as may be required by law, no party
hereto nor any Affiliate of any party hereto shall issue any press release or
any written public statement with respect to this Agreement or the transactions
contemplated by this Agreement or the Other Agreements without the prior written
consent of Centerprise and the Company.
8.6 [Reserved]
8.7 Centerprise Covenants. After the date hereof and prior to the
Closing Date or earlier termination of this Agreement in accordance with its
terms, Centerprise shall comply in all material respects with all applicable
Laws. Centerprise shall not take any action that would or is reasonably likely
to result in any of the representations or warranties of Centerprise set forth
in this Agreement being untrue or in any of the conditions to the consummation
of the transactions contemplated hereunder set forth in Article X not being
satisfied.
8.8 Release of Guarantees. Centerprise shall use all commercially
reasonable efforts and good faith to have the Company's stockholders released
from any and all guarantees on any indebtedness and leases that they personally
guaranteed for the benefit of the Company as set forth on Schedule 8.8, with all
such guarantees on indebtedness and leases being assumed by Centerprise, if
necessary to achieve such releases. If any guaranteed indebtedness is repaid in
full with proceeds from the IPO and the Company's stockholders' guarantees
thereafter shall have no further force or effect, then Centerprise shall not be
obligated to use any efforts to obtain a release of such guarantee. In the event
that Centerprise cannot obtain such releases from the lenders of any such
guaranteed indebtedness or lessors of any guaranteed leases, Centerprise agrees
to
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indemnify, defend and hold harmless the Company's stockholders against any and
all claims made by lenders or landlords under such guarantees.
8.9 [Reserved]
8.10 Preparation and Filing of Tax Returns.
8.10.1 The Company shall be responsible for causing the timely
filing of the final pre-Closing Returns for the Company and the Company
Subsidiaries; provided, however, that Centerprise and its advisors
shall have the right to review and approve such returns prior to
filing, which approval shall not be unreasonably withheld. Centerprise
shall, and shall cause its Affiliates to, provide to the Company such
cooperation and information reasonably requested in filing any return,
amended return or claim for refund, determining a liability for Taxes
or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. The Company shall bear all costs of
filing such returns.
8.10.2 Each of the Company and Centerprise shall comply with
the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction
as subject to the provisions of Section 351 of the Code.
8.11 Maintenance of Insurance. The Company covenants and agrees that
all insurance policies listed, or required to be listed, on Schedule 4.20 will
be maintained in full force and effect through the Closing Date.
8.12 Administration. After the Closing, at the request of the Member
Representative, Centerprise shall, directly or through one or more of its
subsidiaries, administer and manage the collection of amounts referred to on
Schedule 7.1.4(ii) using reasonable care and in accordance with the Company's
policies in effect at Closing.
8.13 Member Representative. The Company appoints Jeffrey D. Barsky (the
"Member Representative") as its agent and representative with full power and
authority to agree, contest or settle any claim or dispute affecting the Company
made under Article II and to otherwise act on behalf of the Company and its
stockholders in accordance with the terms of this Agreement.
ARTICLE IX
[RESERVED]
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ARTICLE X
CLOSING CONDITIONS
10.1 Conditions to Each Party's Obligation to Effect the Acquisition.
The respective obligations of each party to effect the Acquisition shall be
subject to the fulfillment at or prior to the Closing of the following
conditions:
(a) the Underwriting Agreement related to the IPO shall have
been executed and the closing of the sale of Centerprise Common Stock
to the Underwriters pursuant thereto shall have occurred simultaneously
with the Closing hereunder;
(b) the closings of the transactions contemplated under each
of the Other Agreements shall have occurred simultaneously with the
Closing hereunder, unless terminated in accordance with Section 7.3 of
the applicable Other Agreement;
(c) the Registration Statements shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in
effect and no proceeding for that purpose shall have been instituted by
the SEC or any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or
decree shall be pending before or issued by any federal or state court
which seeks to prevent or prevents the consummation of the IPO, the
Acquisition or any of the Other Acquisitions shall have been issued and
remain in effect;
(e) the minimum price condition set forth on Schedule 2.1
shall have been satisfied;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government
or governmental agency in the United States which would prevent the
consummation of the Acquisition or any of the Other Acquisitions or
make the consummation of the Acquisition or any of the Other
Acquisitions illegal;
(g) all material governmental and third party waivers,
consents and approvals required for the consummation of the Acquisition
or any of the Other Acquisitions and the transactions contemplated
hereby and by the Other Agreements (including, without limitation, any
consents listed on Schedules 4.3.2 or 4.12) shall have been obtained
and be in effect;
(h) no action, suit or proceeding with respect to the
Acquisition has been filed or threatened by a third party and remains
threatened or remains pending before any court, Governmental Authority
or regulatory Person;
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(i) this Agreement, the Merger and the transactions
contemplated hereby shall have been approved and adopted by the
Company's stockholders in the manner required by any applicable Law and
the Company's Organizational Documents and such approval shall remain
in full force and effect;
(j) Centerprise shall have entered into one or more credit
facilities providing for aggregate commitments of not less than $75
million;
(k) Reznick Fedder & Silverman, C.P.A.s, L.L.C. ("Holdings")
shall have entered an agreement with the Company pursuant to which
Holdings shall purchase from the Company all AR ("Purchased AR") for
$16,898,500, less any collections of AR from date of Closing to the
date of such purchase, which purchase shall occur on or after the
second business day after the Closing, but no later than within five
business days after the Closing; and
(l) the members of Holdings shall have secured all licenses,
permits, approvals and authorizations necessary to conduct the
Attestation Practice in accordance with applicable laws and
regulations.
10.2 Conditions to Obligation of the Company to Effect the Acquisition.
Unless waived by the Company, the obligation of the Company to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing of
the following additional conditions:
(a) Centerprise, Mergersub and each of the Other Founding
Companies shall have performed in all material respects their
respective agreements contained in this Agreement and each Other
Agreement required to be performed on or prior to the Closing Date and
the representations and warranties of Centerprise contained in this
Agreement and each Other Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and the Company shall
have received a certificate of the Chief Executive Officer or President
of Centerprise to that effect;
(b) no Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy
shall have promulgated or formally proposed any statute, rule or
regulation which, when taken together with all such promulgations,
would materially impair the value to the Company of the Acquisition;
(c) the Company shall have received an opinion from Katten
Muchin & Zavis, dated as of the Closing Date, containing the
substantive opinions set forth in Exhibit 10.2(c), the final form of
such opinion to be in form and substance reasonably acceptable to the
Company;
(d) each of the members of Holdings shall have been afforded
the opportunity to enter into an incentive compensation agreement (the
"Incentive Compensation Agreement") with Centerprise substantially in
the form attached hereto as Exhibit 10.2(d);
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(e) Centerprise shall have delivered to the Company a
certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State, showing
that Centerprise is in good standing;
(f) each of the members of Holdings, the partners, members and
stockholders of the other Founding Companies who are to receive shares
of Centerprise Common Stock pursuant to the Other Agreements, and the
other stockholders of Centerprise other than those acquiring stock in
the IPO shall have entered into an agreement (the "Stockholders
Agreement") substantially in the form attached hereto as Exhibit
10.2(f);
(g) all conditions to the Acquisitions of the other Founding
Companies, on substantially the same terms as provided herein, shall
have been satisfied or waived by the applicable party and the Company;
(h) the Company shall have been afforded the opportunity to
review the executed employment agreement by and between Centerprise and
Robert C. Basten; and
(i) the Company shall have received an opinion of Katten
Muchin & Zavis, dated as of the Closing Date and based upon certain
factual representations and assumptions, that for federal income tax
purposes there will be no gain or loss recognized with respect to the
Centerprise Common Stock received in exchange for Company Stock in the
Merger pursuant to Section 351 of the Code, the final form of such
opinion to be in form and substance reasonably acceptable to the
Company.
10.3 Conditions to Obligation of Centerprise to Effect the Acquisition.
Unless waived by Centerprise, the obligation of Centerprise and Mergersub to
effect the Acquisition shall be subject to the fulfillment at or prior to the
Closing of the additional following conditions:
(a) the Company shall have performed in all material respects
its agreements contained in this Agreement required to be performed on
or prior to the Closing Date and the representations and warranties of
the Company contained in this Agreement shall be true and correct in
all material respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and Centerprise and the
Underwriters shall have received a Certificate of the Chief Executive
Officer or President of the Company to that effect;
(b) [Reserved];
(c) Centerprise and the Underwriters shall have received an
opinion from Long Alridge & Norman, counsel to the Company, dated the
Closing Date, in the form attached hereto as Exhibit 10.3(c), the final
form of such opinion to be in form and substance reasonably acceptable
to the Underwriters and Centerprise;
40
<PAGE>
(d) the Company and the other parties thereto, as applicable,
shall have executed and delivered the Separate Practice Agreement
substantially in the form attached hereto as Exhibit 10.3(d)(A) and the
Services Agreement substantially in the form attached hereto as Exhibit
10.3(d)(B);
(e) each member of Holdings shall have executed and delivered
the Incentive Compensation Agreement substantially in the form attached
hereto as Exhibit 10.2(d);
(f) Centerprise and the Underwriters shall have received
"Comfort" letters in customary form from the Company's independent
public accountants, dated the effective date of the Form S-1 and the
Closing Date (or such other date reasonably acceptable to Centerprise),
with respect to certain financial statements and other financial
information included in the Form S-1 and any subsequent changes in
specified balance sheet and income statement items, including total
assets, working capital, total stockholders' equity, total revenues and
the total and per share amounts of net income;
(g) the Company shall have delivered to Centerprise and the
Underwriters a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the appropriate Governmental
Authority in the state of organization of Seller, the Company and each
Company Subsidiary and, unless waived by Centerprise, in each state in
which the Company or any Company Subsidiary is authorized to do
business, showing the Company or Company Subsidiary (as applicable) is
in good standing;
(h) no Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy
shall have promulgated or formally proposed any statute, rule or
regulation which, when taken together with all such promulgations,
would materially impair the value to Centerprise of the Acquisition;
(i) the members of Holdings shall have executed the
Stockholders Agreement;
(j) the Company's stockholders and the members of Holdings
shall have delivered to Centerprise an instrument in the form attached
hereto as Exhibit 10.3(j), dated the Closing Date, releasing the
Company (and the Company Subsidiaries) from any and all claims of such
persons against the Company (and the Company Subsidiaries) and
obligations of the Company (and the Company Subsidiaries) to such
persons;
(k) the Company's interest in RF&S Realty, Inc. and all
Excluded Liabilities related thereto shall have been distributed,
transferred, assigned and novated, as applicable on terms and
conditions in form and substance satisfactory to Centerprise;
(l) the Company shall have presented evidence satisfactory to
Centerprise of its compliance with the provisions of Section 7.1.4
hereof including, without limitation, that as of the Closing the amount
of debt of the Company and the Company Subsidiaries shall not exceed
the amount reflected on Schedule 2.1 as Debt Assumed By Centerprise;
41
<PAGE>
(m) the Company shall have terminated or have caused the
termination of any voting trusts, proxies or other agreements or
understandings to which the Company is a party or is bound with respect
to any shares of capital stock or other equity interests of the Company
and the Company Subsidiaries and shall have provided Centerprise
evidence of such termination that is acceptable to Centerprise's
counsel;
(n) the Company shall have completed the Conversion and have
presented evidence of such conversion in accordance with Section 7.5;
(o) the Company shall have delivered payoff letters including
a statement of per diem interest amounts and other applicable release
documents from all institutional lenders and creditors of the Company
and the Company Subsidiaries regarding the payment in full of
indebtedness at Closing, in each case in form and substance
satisfactory to Centerprise (including, without limitation, applicable
UCC-3 termination statements);
(p) the secretary of the Company shall have delivered
certified copies of the resolutions of the board of directors and
shareholders of the Company approving execution and delivery of this
Agreement, the Conversion, the Merger and the other actions, agreements
and documents, necessary or desirable to complete the transactions
contemplated herein;
(q) the Company Shareholders' Agreement shall not have been
amended; and
(r) the Company's stockholders (including the members of
Holdings) shall have executed and delivered the Company Stockholder
letter substantially in the form of Exhibit 10.3(r) attached hereto.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) pursuant to Section 7.3;
(b) by the Company,
(i) if the Acquisition is not completed by November
15, 1999 other than on account of delay or default on the part
of the Company or any of its affiliates or associates;
42
<PAGE>
(ii) if the Acquisition is enjoined by a final,
unappealable court order not entered at the request or with
the support of the Company or any of its affiliates or
associates;
(iii) if Centerprise (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
respects within thirty (30) days after written notice of such
default is given to Centerprise; or
(c) by Centerprise,
(i) if the Acquisition is not completed by November
15, 1999 other than on account of delay or default on the part
of Centerprise or any of its stockholders or any of their
affiliates or associates;
(ii) if the Acquisition is enjoined by a final,
unappealable court order not entered at the request or with
the support of Centerprise or any of its stockholders or any
of their affiliates or associates;
(iii) if the Company (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
respects within thirty (30) days after written notice of such
default is given the Company by Centerprise; or
(d) by mutual consent of the Company and the Board of
Directors of Centerprise.
11.2 Effect of Termination. In the event of termination of this
Agreement by either Centerprise or the Company, as provided in Section 11.1,
this Agreement shall forthwith become void and there shall be no further
obligation on the part of the Company, Centerprise, Mergersub or their
respective officers or directors (except the obligations set forth in this
Section 11.2 and in Sections 8.1, 8.3, and 8.5, all of which shall survive the
termination). Nothing in this Section 11.2 shall relieve any party from
liability for any breach of this Agreement.
11.3 Amendment. This Agreement may not be amended except by action
taken by the Boards of Directors of Centerprise and the Company or duly
authorized committees thereof and then only by an instrument in writing signed
on behalf of each of the parties hereto and in compliance with applicable law.
Centerprise covenants and agrees that it shall not amend, modify or supplement
the material terms of any Other Agreement following the Closing without the
prior written consent of at least two thirds (2/3rds) of the members of
Centerprise's Board of Directors; provided that no waiver of any restriction set
forth in Article XII shall be of any effect unless consented to by a majority of
the members of Centerprise's Board of Directors who do not at the time of such
proposed waiver hold Restricted Shares within the meaning of this Agreement, any
Other Agreement or the Stockholders Agreement.
43
<PAGE>
11.4 Waiver. At any time prior to the Closing Date, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE XII
[RESERVED]
ARTICLE XIII
[RESERVED]
ARTICLE XIV
[RESERVED]
ARTICLE XV
GENERAL PROVISIONS
15.1 Brokers. The Company represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
(except for any fee described in Schedule 15.1) or commission in connection with
the Acquisition or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. Centerprise represents and
warrants that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
Acquisition or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Centerprise or its stockholders (other than
underwriting discounts and commission to be paid in connection with the IPO).
15.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
given in accordance with this Section):
44
<PAGE>
15.2.1 If to Centerprise or Mergersub, to:
Centerprise Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert Basten
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
15.2.2 If to the Company, to:
Reznick Fedder & Silverman, Certified
Public Accountants,
A Professional Corporation
4250 East West Highway
Suite 300
Bethesda, MD 20814-3319
Attn: Jonathan R. Rutenberg
Facsimile No: (301) 652-1848
with a copy to:
Long Aldridge & Norman
1 Peachtree Center
303 Peachtree Street
Suite 5300
Atlanta, GA 30308
Attn: Jeff Haidet, Esq.
Facsimile No: (404) 527-4198
15.3 Interpretation. The table of contents and headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
45
<PAGE>
15.4 Certain Definitions. As used in this Agreement, (i) the term
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated association, corporation, entity, firm,
association, organization or other business in any form whatsoever or government
(whether Federal, state, county, city or otherwise, including, without
limitation, any instrumentality, division, agency or department thereof), (ii)
the term "Affiliate" shall have the meaning given for that term in Rule 405
under the Securities Act, and shall include each past and present Affiliate of a
Person and the members of such Affiliate's immediate family or their spouses or
children and any trust the beneficiaries of which are such individuals or
relatives, and (iii) an individual will be deemed to have "Knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or matter, or (b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the existence of
such fact or other matter and a prudent individual would conduct such
investigation; a Person, other than an individual, will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is a
partner, member or shareholder of such Person or who is otherwise serving, or
who has served, as a director, officer or trustee (or any capacity) of such
Person has, or at any time had, Knowledge of such fact or other matter.
15.5 Entire Agreement; Assignment. This Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof and (b) shall not be assigned by operation of law or otherwise,
except that Centerprise may assign this Agreement to any wholly-owned subsidiary
of Centerprise.
15.6 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Illinois applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
15.7 Counterparts. This Agreement may be executed via facsimile or
otherwise in two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
15.8 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and their respective
successors, permitted assigns, heirs, legal representatives and executors and
except as expressly set forth in herein, nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
* * *
[remainder of page intentionally left blank]
46
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
as of the date first written above.
CENTERPRISE ADVISORS, INC.
By: /s/ Robert C. Basten
--------------------------------
Name:
------------------------------
Its:
-------------------------------
REZNICK MERGERSUB INC.
By: /s/ Robert C. Basten
--------------------------------
Name:
------------------------------
Its:
-------------------------------
REZNICK FEDDER & SILVERMAN,
CERTIFIED PUBLIC ACCOUNTANTS,
A PROFESSIONAL CORPORATION
By: /s/ David Reznick
--------------------------------
Name:
------------------------------
Its:
-------------------------------
<PAGE>
Exhibit 2.36
------------------------------
AMENDED AND RESTATED
MERGER AGREEMENT
by and among
CENTERPRISE ADVISORS, INC.,
RFD MERGERSUB INC.,
and
ROBERT F. DRIVER CO., INC.
September 24, 1999
------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
THE MERGER..........................................................2
1.1 Merger.....................................................2
1.2 Effects of the Merger......................................2
1.3 Directors and Officers of the Surviving Corporation........2
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT.................................3
2.1 Merger Consideration.......................................3
2.1.1 Basic Purchase Consideration......................3
2.1.2 Cancellation of Company Stock.....................3
2.1.3 Dissenting Shares.................................3
2.1.4 Conversion of Mergersub Stock.....................3
2.1.5 Exchange of Certificates for Consideration........4
2.1.6 The Stockholder Representative....................4
2.1.7 Escrow Instructions...............................5
2.2 Contingent Payment.........................................5
2.2.1 Financial Statements and Contingent Payment
Report............................................5
2.2.2 Dispute Notice....................................6
2.2.3 Dispute Resolution................................6
2.2.4 Definitions.......................................6
2.2.5 Example...........................................7
ARTICLE III
THE CLOSING AND CONSUMMATION DATE...................................7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................8
4.1 Organization and Qualification.............................8
4.2 Company Subsidiaries.......................................8
4.3 Authority; Non-Contravention; Approvals....................8
4.4 Capitalization............................................10
4.5 Year 2000.................................................10
4.6 Financial Statements......................................11
4.7 Absence of Undisclosed Liabilities........................11
4.8 Accounts and Notes Receivable.............................11
4.9 Absence of Certain Changes or Events......................11
4.10 Litigation................................................14
4.11 Compliance with Applicable Laws...........................15
4.12 Licenses..................................................15
4.13 Material Contracts........................................16
4.14 Properties................................................18
4.15 Intellectual Property.....................................20
(i)
<PAGE>
4.16 Taxes.....................................................21
4.17 Employee Benefit Plans; ERISA.............................22
4.18 Labor Matters.............................................24
4.19 Environmental Matters.....................................24
4.20 Insurance.................................................25
4.21 Interest in Customers and Suppliers; Affiliate
Transactions..............................................25
4.22 Business Relationships....................................26
4.23 Compensation..............................................26
4.24 Bank Accounts.............................................26
4.25 Disclosure; No Misrepresentation..........................27
4.26 Title to and Transfer of Insurance Expirations............27
ARTICLE V
[RESERVED].........................................................27
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE......................27
6.1 Organization And Qualification............................27
6.2 Capitalization............................................28
6.3 No Subsidiaries...........................................28
6.4 Authority; Non-Contravention; Approvals...................29
6.5 Absence of Undisclosed Liabilities........................30
6.6 Litigation................................................30
6.7 Compliance with Applicable Laws...........................30
6.8 No Misrepresentation......................................30
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS..................................31
7.1 Conduct of Business by the Company Prior to the
Effective Time............................................31
7.2 No-Shop...................................................33
7.3 Schedules.................................................34
7.4 Company Stockholder Meeting...............................35
ARTICLE VIII
ADDITIONAL AGREEMENTS..............................................35
8.1 Access to Information.....................................35
8.2 Registration Statements...................................36
8.3 Expenses and Fees.........................................37
8.4 Agreement to Cooperate....................................37
8.5 Public Statements.........................................38
8.6 [Reserved]................................................38
8.7 Centerprise Covenants.....................................38
8.8 Release of Guarantees.....................................38
8.9 [Reserved]................................................38
8.10 Preparation and Filing of Tax Returns.....................38
8.11 Maintenance of Insurance..................................39
(ii)
<PAGE>
ARTICLE IX
[RESERVED].........................................................39
ARTICLE X
CLOSING CONDITIONS.................................................39
10.1 Conditions to Each Party's Obligation to Effect
the Merger................................................39
10.2 Conditions to Obligation of the Company to Effect
the Merger................................................40
10.3 Conditions to Obligation of Centerprise to Effect
the Merger................................................42
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER..................................44
11.1 Termination...............................................44
11.2 Effect of Termination.....................................45
11.3 Amendment.................................................45
11.4 Waiver....................................................46
ARTICLE XII
[RESERVED].........................................................46
ARTICLE XIII
[RESERVED].........................................................46
ARTICLE XIV
[RESERVED].........................................................46
ARTICLE XV
GENERAL PROVISIONS.................................................46
15.1 Brokers...................................................46
15.2 Notices...................................................46
15.3 Interpretation............................................47
15.4 Certain Definitions.......................................48
15.5 Entire Agreement; Assignment..............................48
15.6 Applicable Law............................................48
15.7 Counterparts..............................................48
15.8 Parties in Interest.......................................48
(iii)
<PAGE>
LIST OF SCHEDULES
-----------------
Schedule 2.1 Consideration
Schedule 4.2 Company Subsidiaries
Schedule 4.3.2 Required Consents
Schedule 4.4 Capitalization
Schedule 4.5 Year 2000
Schedule 4.7 Liabilities
Schedule 4.9 Certain Changes and Events
Schedule 4.10 Litigation
Schedule 4.11 Noncompliance with Applicable Laws
Schedule 4.12 Licenses and Permits
Schedule 4.13 Material Contracts
Schedule 4.14.1-1 Real Property
Schedule 4.14.1-2(a) Exceptions Regarding Owned Property
Schedule 4.14.1-2(b) Exceptions Regarding Leased Property
Schedule 4.14.2 Tangible Personal Property; Liens
Schedule 4.15 Intellectual Property
Schedule 4.16.1-1 Taxes
Schedule 4.16.1-2 Tax Audits
Schedule 4.17.1 Employee Plans
Schedule 4.17.2 Unwritten Employee Plans
(iv)
<PAGE>
Schedule 4.18 Labor Matters
Schedule 4.19 Environmental Matters
Schedule 4.20 Insurance
Schedule 4.21 Affiliate Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 6.2 Centerprise's Capitalization
Schedule 6.5 Liabilities
Schedule 7.1.3 Terminated Agreements
Schedule 8.8 Stockholders' Guarantees
Schedule 15.1 Brokers
Schedule 15.2.3 Stockholders and Their Counsel
(v)
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit 2.1.7(a) Form of Escrow Agreement
Exhibit 10.2(c) Form of Opinion of Centerprise's Counsel
Exhibit 10.2(d)(i) Form of Employment Agreement - Thomas W. Corbett
Exhibit 10.2(d)(ii) Form of Employment Agreement - Jerold D. Hall
Exhibit 10.2(d)(iii) Form of Employment Agreement - P. Gregory Zimmer
Exhibit 10.2(f) Form of Stockholders Agreement
Exhibit 10.3(c) Form of Opinion of Counsel to Company and
Stockholders
Exhibit 10.3(j) Form of Stockholders' Release
Exhibit 10.3(t) Form of Company Stockholder Agreement
(vi)
<PAGE>
DEFINED TERMS
-------------
Actions.......................................................Section 4.10.1
Acquisition.................................................Section 2.2.4(a)
Affiliate.......................................................Section 15.4
Affiliate Transactions..........................................Section 4.21
Agreement.......................................................Introduction
Aggregate Basic Purchase Consideration...........................Section 2.1
Base EBITDA.................................................Section 2.2.4(b)
Business........................................................Introduction
Centerprise.....................................................Introduction
Centerprise Common Stock.........................................Section 2.1
Centerprise Material Adverse Effect............................Section 6.4.3
Centerprise Representatives....................................Section 8.1.1
Centerprise Required Statutory Approvals.......................Section 6.4.3
Closing..........................................................Article III
Closing Date.....................................................Article III
Code............................................................Introduction
Company.........................................................Introduction
Company Material Adverse Effect................................Section 4.3.3
Company Representatives........................................Section 8.1.1
Company Stock....................................................Section 2.1
(vii)
<PAGE>
Company Stockholder Agreement................................Section 10.3(t)
Company Subsidiaries.............................................Section 4.2
Contracts.......................................................Section 4.13
Copyrights......................................................Section 4.15
Debt........................................................Section 2.2.4(c)
DGCL.............................................................Section 1.1
Dissenting Shares..............................................Section 2.1.3
EBITDA......................................................Section 2.2.4(d)
Effective Time...................................................Section 1.1
Employee Plan..............................................Section 4.17.5(a)
Environmental and Safety Requirements...........................Section 4.19
ERISA......................................................Section 4.17.5(b)
Escrow.........................................................Section 2.1.5
Escrow Agreement...............................................Section 2.1.7
Escrow Holder..................................................Section 2.1.5
Escrowed Shares................................................Section 2.1.5
Excess Cash....................................................Section 2.1.7
Financial Statements.............................................Section 4.6
First Person...............................................Section 4.17.5(c)
Form S-1.......................................................Section 4.3.3
Form S-4.......................................................Section 4.3.3
(ix)
<PAGE>
Founding Companies..............................................Introduction
GAAP...........................................................Section 4.6.1
general increase................................................Section 4.23
Governmental Authority.........................................Section 4.3.2
Hazardous Materials.............................................Section 4.19
HSR Act........................................................Section 4.3.3
Intellectual Property...........................................Section 4.15
Intellectual Property Licenses..................................Section 4.15
IPO.............................................................Introduction
Knowledge.......................................................Section 15.4
Latest Balance Sheet.............................................Section 4.6
Laws............................................................Section 4.11
Leased Property...............................................Section 4.14.1
Licenses........................................................Section 4.12
Liens..........................................................Section 4.3.2
Liquidated Damages Amount........................................Section 7.3
Marks...........................................................Section 4.15
Material Contracts..............................................Section 4.13
Merger..........................................................Introduction
Mergersub.......................................................Introduction
Mergersub Stock................................................Section 6.2.1
(ix)
<PAGE>
Merger Documents.................................................Section 1.1
1933 Act.......................................................Section 4.3.3
Organizational Documents.........................................Section 4.1
Other Agreements................................................Introduction
Other Mergers...................................................Introduction
Owned Property................................................Section 4.14.1
Patents.........................................................Section 4.15
Person..........................................................Section 15.4
Plan Affiliate.............................................Section 4.17.5(c)
Purchase Multiple...........................................Section 2.2.4(f)
Real Property.................................................Section 4.14.1
Registration Statements........................................Section 4.3.3
Returns.......................................................Section 4.16.1
Schedules........................................................Section 7.3
SEC............................................................Section 4.3.3
Securities Act.................................................Section 4.3.3
Stockholders Agreement.......................................Section 10.2(f)
Surviving Corporation............................................Section 1.2
Taxes.........................................................Section 4.16.2
Trade Secrets...................................................Section 4.15
2000 EBITDA.................................................Section 2.2.4(g)
(x)
<PAGE>
Underwriters...................................................Section 8.1.1
Warrants.......................................................Section 2.1.1
(xi)
<PAGE>
AMENDED AND RESTATED
MERGER AGREEMENT
THIS AMENDED AND RESTATED MERGER AGREEMENT (this "Agreement") is made
as of September 24, 1999, by and among Centerprise Advisors, Inc., a Delaware
corporation ("Centerprise"), RFD Mergersub Inc., a Delaware corporation and
wholly-owned subsidiary of Centerprise ("Mergersub") and Robert F. Driver Co.,
Inc., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Company engages directly, and indirectly through the
Company Subsidiaries in the business of (i) placing, soliciting, selling and
servicing insurance coverage as a licensed insurance agent/broker and (ii)
forming, administering and/or marketing policies of insurance to bona-fide
groups and associations and forming and administering risk retention groups
and/or purchasing groups as contemplated and defined in 65 U.S.C. 3901 et seq.,
as amended (such business provided by the Company is referred to as the
"Business");
WHEREAS, the Boards of Directors of the Company, Centerprise and
Mergersub deem it advisable and in the best interests of their respective
shareholders to approve and consummate the business combination transaction
provided for herein in which Mergersub would merge with the Company, with the
Company being the surviving corporation in the merger (the "Merger");
WHEREAS, Centerprise is entering into other agreements (the "Other
Agreements") substantially similar to this Agreement with each of Reznick Fedder
& Silverman, P.C., Mann Frankfort Stein & Lipp, P.C., The Reppond Company, Inc.,
Reppond Administrators, LLC, Verasource Excess Risk Ltd., Berry, Dunn, McNeil &
Parker, Chartered, Urbach Kahn & Werlin PC, Self Funded Benefits, Inc. d/b/a
Insurance Design Administrators, Grace & Company, P.C., Simione, Scillia, Larrow
& Dowling LLC and Follmer Rudzewicz & Co., P.C. (which companies together with
the Company are collectively referred to herein as the "Founding Companies"),
which agreements provide for the merger of a wholly-owned subsidiary of
Centerprise with each such Founding Company (the "Other Mergers") simultaneously
with the Merger;
WHEREAS, the Voting Agreement, dated as of March 31, 1999, among
Centerprise and the stockholders of the Company, has been terminated and is no
longer in force and effect;
WHEREAS, simultaneously with the consummation of the Merger,
Centerprise will close an initial public offering (the "IPO") of Centerprise
Common Stock (as defined in Section 2.1(a)); and
1
<PAGE>
WHEREAS, the parties intend the acquisition of Centerprise Common Stock
pursuant to the terms hereof be tax-free under the provisions of Section 351 of
the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the
mutual representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 Merger. Upon the terms and subject to the conditions set forth in
this Agreement and in reliance upon the representations and warranties set forth
herein, Mergersub shall be merged with and into the Company, the result of which
will cause the separate corporate existence of Mergersub to cease and the
Company to continue under the laws of the State of Delaware. As promptly as
possible on the Closing Date, the parties shall cause the Merger to be completed
by filing articles of merger and a certificate of merger, as applicable (the
"Merger Documents"), with the Secretary of State of the State of Delaware, as
provided in the General Corporation Law of the State of Delaware, as amended
(the "DGCL"). The Merger shall become effective (the "Effective Time") upon the
filing of the Merger Documents with the Secretary of State of Delaware or at
such later time, contemporaneously with the closing of the IPO, as agreed by
Centerprise and the Company and specified in the Merger Documents.
1.2 Effects of the Merger. At the Effective Time (a) the separate
existence of Mergersub shall cease and Mergersub shall be merged with and into
the Company, with the Company being the surviving corporation in the Merger (the
Company is sometimes referred to herein as the "Surviving Corporation"), (b) the
Certificates of Incorporation and By-laws of the Surviving Corporation shall be
amended in form and substance acceptable to Centerprise and as specified in the
Merger Documents, (c) the Merger shall have all the effects provided by
applicable law, and (d) the Company shall be a wholly-owned subsidiary of
Centerprise.
1.3 Directors and Officers of the Surviving Corporation. From and after
the Effective Time, the directors and officers of Mergersub shall be the
directors and officers of the Surviving Corporation until their successors are
duly elected and qualified.
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ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2.1 Merger Consideration.
2.1.1 Basic Purchase Consideration. At the Closing, by virtue
of the Merger and without any action on the part of the holders thereof, the
outstanding shares of capital stock, consisting of 1,169,222 shares of Class A
common stock, par value $.01 per share, upon exercise of warrants to purchase
123,042 shares of Class A common stock, par value $.01 per share, (the
"Warrants"), and zero (0) shares of Class B common stock, par value $.01 per
share, of the Company (collectively, the "Company Stock") shall be converted
into the right to receive (a) that number of shares of common stock, par value
$.01 per share, of Centerprise ("Centerprise Common Stock") shown on line T of
Schedule 2.1 as "Driver Shares Reserved"; provided, however, that if the initial
public offering price of the Centerprise Common Stock is below $11.90 per share,
the number of shares of Centerprise Common Stock received at Closing shall be
increased such that the value of the shares, using the actual public offering
price, equals the portion of the amount shown on line U of Schedule 2.1
representing the "Driver Shares Reserved" (the "Stock Consideration") and (b)
the amount of cash shown on line S of Schedule 2.1 (the Cash Consideration").
The sum of the Cash Consideration and the Stock Consideration is hereinafter
referred to as the "Aggregate Basic Purchase Consideration".
2.1.2 Cancellation of Company Stock. Each share of capital
stock of the Company held in treasury of the Company shall be canceled and
retired and no payment shall be made in respect thereof.
2.1.3 Dissenting Shares. Each outstanding share of capital
stock of the Company the holder of which has perfected his right to dissent
under applicable law and has not effectively withdrawn or lost such right as of
the Effective Time (the "Dissenting Shares") shall not be converted into the
right to receive Aggregate Basic Purchase Consideration, and the holder thereof
shall be entitled only to such rights as are granted by applicable law. The
Company shall give Centerprise prompt notice upon receipt by the Company of any
such written demands for payment of fair value of shares of capital stock of the
Company and any other instruments provided pursuant to applicable law. Any
payments made in respect of Dissenting Shares shall be made by the Surviving
Corporation.
2.1.4 Conversion of Mergersub Stock. At the Effective Time,
each share of Mergersub Stock issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and become one validly issued, fully
paid and non-assessable share of the Surviving Corporation. Such newly issued
shares shall thereafter constitute all of the issued and outstanding capital
stock of the Surviving Corporation.
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2.1.5 Exchange of Certificates for Consideration. At the
Closing, Centerprise shall receive the original certificates representing the
Company Stock, duly endorsed in blank by the Company's stockholders or
accompanied by blank stock powers. The shares represented by the Company stock
certificates so delivered shall be canceled. Until surrendered as contemplated
by this Section 2.1.5, each certificate representing shares of Company Stock
represents only the right to receive the Aggregate Basic Purchase Consideration,
as adjusted in accordance with this Article II. Centerprise shall (i) issue and
deliver to Imperial Bank as the Escrow Holder (the "Escrow Holder") for deposit
into escrow (the "Escrow") certificates representing the number of shares of
Centerprise Common Stock to which the Company's shareholders who are designated
Signing Stockholders in the Company Stockholder Letter attached hereto as
Exhibit 10.3(t) are entitled and (ii) issue and deliver to Escrow Holder for
deposit into a separate escrow (the "Stockholder Escrow" certificates
representing the number of shares of Centerprise Common Stock to which the
remaining shareholders are entitled as determined in accordance with Section 2.1
(collectively, the "Escrowed Shares"). The shares represented by the Company
stock certificates so delivered shall be canceled. Until surrendered as
contemplated by this Section 2.1.5, each certificate representing shares of
Company Stock represents only the right to receive the Aggregate Basic Purchase
Consideration, as adjusted in accordance with this Article II.
2.1.6 The Stockholder Representative. The Company appoints
Jerold D. Hall as the agent and representative of the Company's stockholders
(the "Stockholder Representative"), and, in the event of his inability or
unwillingness prior to the execution of the Escrow Agreement to act as
Stockholder Representative, a substitute Stockholder Representative shall be
similarly selected; provided, that the Stockholder Representative may be removed
and a successor to the Person originally serving as the Stockholder
Representative may be designated in a writing signed by a majority in interest
of the Company's stockholders and delivered to Centerprise in accordance with
Section 15.2. The Stockholder Representative is authorized by this Agreement, as
a specific term and condition of the Merger, to act hereunder and under the
Escrow Agreement with the powers and authority provided for herein and therein,
as representative of each of the Company's stockholders and their successors.
The Stockholder Representative shall also have full power and authority to
agree, contest or settle any claim or dispute affecting the amount and manner of
the payment of Aggregate Basic Purchase Consideration. Approval of this
Agreement and the Merger shall constitute approval on behalf of each of the
Company's stockholders and their successors of the terms and conditions of the
Escrow Agreement and ratification of the selection of the Stockholder
Representative and of his authority to act hereunder and under the Escrow
Agreement on their behalf. Any rights of the Company's stockholders to receive
any Escrowed Shares shall in no circumstances be sold, assigned or otherwise
transferred by them other than by will or pursuant to the laws of descent and
distribution. All certificates representing Escrowed Shares shall be accompanied
by separate stock powers endorsed in blank by the Stockholder Representative on
behalf of the Company's stockholders. Subject to the Escrow Agreement, holders
of Escrowed Shares shall retain their voting rights and shall be entitled to
receive dividends when, and if declared and paid with respect to the Escrowed
Shares deposited with the
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Escrow Holder in accordance with this Section 2.1.6, but shall not otherwise be
entitled to mortgage, pledge, encumber, option, sell, assign or otherwise
transfer all or any interest in any Escrowed Shares.
2.1.7 Escrow Instructions. The parties hereto agree that this
Agreement, together with an escrow agreement the terms of which are attached
hereto as Exhibit 2.1.7 (a) (the "Escrow Agreement"), and (b) a stockholder
escrow agreement (the "Stockholder Escrow Agreement") shall constitute the
escrow instructions for the transfer of the Escrowed Shares, the right of the
Company's stockholders to receive the Contingent Payment, if any, (defined
below) and cash, to the extent $27,631,505 set forth as "Driver Debt Assumed" on
Line "N" of Schedule 2.1 which has been allocated to the payment of the
obligations of the Company set forth on Schedule 2.1.7 and as permitted by
Schedule 8.12 exceeds the amounts actually required to satisfy those obligations
(the "Excess Cash"). For purposes of the preceding sentence, such obligations
shall be deemed to be "satisfied" only upon either: (i) the delivery to
Centerprise of notice reflecting payment in full and release of such
obligations, the forms of such notice to the satisfaction of Centerprise, or
(ii) transfer to Centerprise of cash in an amount equal to the obligation
assumed by Centerprise on the Closing. The Excess Cash shall be transferred to
the Stockholder Escrow established pursuant to the Stockholder Escrow Agreement.
In the event of a conflict between any of the Stockholder Escrow Agreement, the
Escrow Agreement and the terms of this Agreement (exclusive of the applicable
escrow agreement), then the terms of this Agreement (exclusive of the applicable
escrow agreement) shall control for all purposes and under all circumstances.
2.2 Contingent Payment. The Company's stockholders shall be entitled to
receive from Centerprise a contingent payment, if any, based on the formula set
forth below (the "Contingent Payment"). The Contingent Payment, if any, shall be
calculated based upon the following formula:
Purchase Multiple x (2000 EBITDA - Base EBITDA)
The Contingent Payment, if any, shall be paid in cash, freely tradeable
Centerprise Common Stock or any combination thereof, at the sole option of the
Board of Directors of Centerprise, no later than two business days after the
earliest occurrence of one of the following events: (1) the expiration of the
Review Period without the filing of any Dispute Notice; or (2) the resolution of
the Dispute Notice; or (3) the delivery of the Arbitrator Report. If the amount
calculated under Section 2.2 is negative, the payment under such Section shall
be zero and the Company's stockholders shall have no obligation to refund to
Centerprise the amount of such negative calculation expressed as a positive
number and such negative number will not be carried forward into subsequent
periods.
2.2.1 Financial Statements and Contingent Payment Report. As
promptly as practicable, but no later than March 31, 2001, the Company shall
prepare and deliver to
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Stockholder Representative, (i) a copy of the Company's financial statements for
the twelve month period ending December 31, 2000, and (ii) a report calculating
the Company's EBITDA for the twelve month period ending December 31, 2000 (the
"Contingent Payment Report"), together with supporting documentation with
respect thereto, for the purpose of determining the amount of the Contingent
Payment, if any.
2.2.2 Dispute Notice. Centerprise shall have 30 days from the
date on which the Financial Statements and Contingent Payment Report are
delivered to it to review such documents (the "Review Period"). Centerprise,
shall be provided with full access to the work papers of the Company and
reasonable access to the accounting personnel and/or the auditor of the Company
and its subsidiaries in connection with such review. If Centerprise shall have
any objections to the Contingent Payment Report, on or prior to the last day of
the Review Period, it will deliver a written notice to the Stockholder
Representative describing in reasonable detail its objections and the basis for
such objections (the "Dispute Notice"). The Dispute Notice shall set forth
Centerprise's position as to the disputed items on the Contingent Payment
Report. Centerprise may deliver to the Stockholder Representative at any time a
notice accepting the Contingent Payment Report without objection.
2.2.3 Dispute Resolution. The Stockholder' Representative and
Centerprise shall attempt to resolve any objections contained in the Dispute
Notice and upon such resolution will cause the Contingent Payment Report to be
revised to reflect such resolution. Such revised Contingent Payment Report (or
the Contingent Payment Report prepared by Centerprise, if the Stockholder'
Representative does not object thereto) shall constitute the final Contingent
Payment Report and shall be final and binding upon Centerprise, the Company and
the Company's stockholders. If the Stockholder' Representative and Centerprise
are unable to resolve any objection raised in the Dispute Notice within 15 days
after Centerprise has received the Dispute Notice, then a representative from
the office of a nationally recognized accounting firm selected jointly by the
Stockholder' Representative and Centerprise ( the "Arbitrator") will arbitrate
the dispute in Chicago, Illinois. The Stockholder' Representative and
Centerprise will present their respective positions with respect to any
unresolved objection identified in the Dispute Notice to the Arbitrator together
with such materials as the Arbitrator deems appropriate. The Arbitrator shall,
after the submission of the materials, submit a written decision on each
unresolved objection to the Stockholder' Representative and Centerprise and such
determination shall be final and binding on the parties hereto (the "Arbitrator
Report"). The parties agree that the cost of the Arbitrator shall be borne by
the non-prevailing party or as determined by the Arbitrator.
2.2.4 Definitions. For purpose of Section 2.2, the following
terms shall have the following meanings:
(a) "Acquisition" means each entity or portion of
such entity acquired or merged with or into the Company after the Closing.
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(b) "Base EBITDA" shall be equal to $11,633,839.
(c) "Debt" means (a) all indebtedness for borrowed
money, whether or not evidenced by an instrument, (b) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money, (c) any obligation owed for all or part of the
deferred purchase price of property or services (excluding accounts payable
arising in the ordinary course of business) and (d) any guaranty of a Person
with respect to liabilities of a type described in immediately preceding clauses
(a) through (c).
(d) "EBITDA" means the sum of: (a) the net income (or
loss) of the Company excluding extraordinary items, (b) provisions for taxes
based on income, (c) total interest expense of the Company with respect to Debt,
(d) to the extent net income for the Company has been reduced thereby,
depreciation expense, and (e) to the extent net income for the Company has been
reduced thereby, amortization expense less non-cash items increasing net income,
all as determined in accordance with GAAP.
(e) "Purchase Multiple" means 6.75.
(f) "2000 EBITDA" means the Company's EBITDA for the
twelve month period ending December 31, 2000, excluding EBITDA attributable to
any Acquisition.
2.2.5 Example
2000 EBITDA $ 13,442,343
Less: Base EBITDA $ (11,633,839)
----------------
Net EBITDA $ 1,808,505
Purchase Multiple 6.75
Net Value $ 12,207,403
===============
ARTICLE III
THE CLOSING AND CONSUMMATION DATE
The consummation of the Merger and the other transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Katten
Muchin & Zavis, Chicago, Illinois, contemporaneously with the closing of the
IPO, or at such other time and date as the parties hereto may mutually agree
(the "Closing Date").
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Centerprise, as of March 31,
1999 and, subject to Section 7.3, as of the date on which Centerprise and the
lead Underwriter (as defined in Section 8.1.1) execute and deliver the
Underwriting Agreement related to the IPO and as of the Closing Date, as
follows:
4.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each Company Subsidiary (as defined in Section 4.2) is duly organized,
validly existing and in good standing under the laws of the state of its
organization set forth on Schedule 4.2. Each of the Company and the Company
Subsidiaries has the requisite power and authority under state and federal law
to own, lease and operate its assets and properties and to carry on the Business
as it is now being conducted, to do and/or licensed to transact and is qualified
to do business and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensure necessary. True, accurate
and complete copies of the Company's and each Company Subsidiary's
Organizational Documents, in each case as in effect on March 31, 1999, have
heretofore been delivered to Centerprise. "Organizational Documents" means (a)
the articles or certificate of incorporation and the bylaws of a corporation
(professional or otherwise), (b) the partnership agreement and any statement of
partnership of a general partnership, (c) the limited partnership agreement and
the certificate of limited partnership of any limited partnership, (d) the
operating or limited liability company agreement and certificate of formation of
any limited liability company, (e) any charter or similar document adopted and
filed in connection with the creation, formation, organization or governance (as
applicable) of any Person and (f) any amendment to any of the foregoing.
4.2 Company Subsidiaries. Schedule 4.2 sets forth the name (including
any assumed names), jurisdiction of organization and ownership of the issued and
outstanding equity interests of each Person in which the Company owns, directly
or indirectly, securities or other interests having the power to elect a
majority of such Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of such Person
(each a "Company Subsidiary"). Except as set forth on Schedule 4.2, the Company
does not, directly or indirectly, own, of record or beneficially, or control any
capital stock, securities convertible into capital stock or any other equity
interest in any Person.
4.3 Authority; Non-Contravention; Approvals.
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4.3.1 The Company has full right, power and authority to enter
into this Agreement and, subject to the approval of the Merger and the
transactions contemplated hereby by the Company's stockholders, to consummate
the transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company has been duly authorized by all necessary
corporate action on the part of the Company, subject to the approval of the
Merger and the transactions contemplated hereby by the Company's stockholders.
This Agreement has been duly executed and delivered by the Company, and,
assuming the due authorization, execution and delivery hereof by Centerprise,
constitutes a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, except that such enforcement
may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) general equitable principles.
4.3.2 The execution and delivery of this Agreement by the
Company does not violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any claim, lien, privilege,
mortgage, charge, hypothecation, assessment, security interest, pledge or other
encumbrance, conditional sales contract, equity charge, restriction, or adverse
claim of interest of any kind or nature whatsoever (each a "Lien" and
collectively, the "Liens"), upon the Business or any of the properties or assets
of the Company or any Company Subsidiary under, any of the terms, conditions or
provisions of (i) the Organizational Documents of the Company or any Company
Subsidiary, (ii) any statute, law, ordinance, rule, regulation, state or federal
regulatory agency bulletin, state attorney general opinion, judgment, decree,
order, injunction, writ, permit or license of any court or federal, state,
provincial, local or foreign government, or any subdivision, agency or authority
of any thereof, including any state's department of insurance ("Governmental
Authority") applicable to the Company, any Company Subsidiary, the Business, or
properties or assets of the Company or any Company Subsidiary, or (iii) any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which the Company, or any Company Subsidiary is a party or by which the
Company, any Company Subsidiary or any of the properties or assets of the
Company or any Company Subsidiary may be bound or affected. The consummation the
Company of the transactions contemplated hereby will not result in a violation,
conflict, breach, right of termination, creation or acceleration of Liens under
the terms, conditions or provisions of the items described in clauses (i)
through (iii) of the immediately preceding sentence, subject, in the case of the
terms, conditions or provisions of the items described in clauses (ii) or (iii)
above, to obtaining (prior to the Closing Date) such consents required from
third parties set forth on Schedule 4.3.2.
4.3.3 Except for (i) the declaration of effectiveness of a
registration statement on Form S-1 (the "Form S-1") and a post-effective
amendment to the registration statement on Form
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S-4 (the "Form S-4") (Form S-1 and Form S-4 are collectively the "Registration
Statements") with the Securities and Exchange Commission (the "SEC") pursuant to
the Securities Act of 1933, as amended (the "Securities Act"or the "1933 Act"),
and filings, if required, with various state securities or "blue sky"
authorities, and (ii) any filing which may be required under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act"),
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any Governmental Authority is necessary for the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not,
individually or in the aggregate, have a "Company Material Adverse Effect,"
which, for purposes of this Agreement means a material adverse effect on the
operations, assets, condition (financial or other), operating results, employee
or client relations, or prospects of the Company and the Company Subsidiaries,
taken as a whole.
4.4 Capitalization.
4.4.1 The authorized capital stock of the Company consists of
10,000,000 shares of Class A Common Stock, par value $.01 per share, 10,000,000
shares of Class B Common Stock, par value $.01 per share and 5,000,000 shares of
Preferred Stock, par value $.01 per share, of which 1,046,180 shares of Class A
Common Stock, warrants to purchase 123,042 shares of Class A common stock, par
value $.01 per share, and 4,000 shares of Preferred Stock are issued and
outstanding. The authorized capital stock of each of the Company Subsidiaries,
if any, and the number of such shares issued and outstanding is completely and
accurately set forth in Schedule 4.4. All of such issued and outstanding shares
are validly issued and are fully paid, nonassessable and free of preemptive
rights. The Company owns all shares of the Company's Subsidiaries as indicated
on Schedule 4.4, in each case free and clear of all Liens, and the Company has
good and marketable title to such shares of the Company Subsidiaries. All of
such issued and outstanding shares are validly issued and are fully paid,
nonassessable and free of preemptive rights.
4.4.2 Except as set forth on Schedule 4.4, there are no
outstanding subscriptions, options, calls, contracts, commitments, undertakings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of the Company or any Company Subsidiary
or obligating the Company or any Company Subsidiary to grant, extend or enter
into any such agreement or commitment or obligating the Company or any Company
Subsidiary to convey or transfer any Company Stock or Company Subsidiary stock,
as the case may be. As of the Closing Date, there will be no voting trusts,
proxies or other agreements or understandings to which the Company or any
Company Subsidiary is a party or is bound with respect to the voting of any
shares of capital stock or other equity interests of the Company or any Company
Subsidiary.
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4.5 Year 2000. Except as set forth on Schedule 4.5, to the Knowledge of
the Company, all of the computer software, computer firmware, computer hardware
(whether general or special purpose), and other similar or related items of
automated, computerized, and/or software system(s) that are used or relied on by
the Company or any Company Subsidiary in the conduct of the Business will not
malfunction, will not cease to function, will not generate incorrect data, and
will not produce incorrect results when processing, providing, and/or receiving
(i) date-related data into and between the twentieth (20th) and twenty-first
(21st) centuries and (ii) date-related data in connection with any valid date in
the twentieth (20th) and twenty-first (21st) centuries, except for any
malfunctions or generations of incorrect data or results that would not
individually or in the aggregate have a Company Material Adverse Effect. Nothing
in this Section 4.5 is intended or shall be construed as a representation or
warranty with respect to embedded systems.
4.6 Financial Statements. The Company has previously furnished to
Centerprise copies of the audited consolidated balance sheet of the Company as
of July 31 in each of the years 1997 and 1998 (the "Latest Balance Sheet"), and
the related audited consolidated statements of income, Stockholder's equity and
cash flow for each of the years in the three (3) year period ended October 31,
1998, including all notes thereto (collectively, the "Financial Statements").
Each of the Financial Statements is accurate and complete in all material
respects, is consistent with the books and records of the Company and the
Company Subsidiaries (which, in turn, are accurate and complete in all material
respects), and fairly presents in all material respects the financial condition,
assets and liabilities of the Company and the Company Subsidiaries as of its
date and the results of operations and cash flows for the periods related
thereto, in each case in accordance with generally accepted accounting
principles applied on a consistent basis ("GAAP").
4.7 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
4.7, neither the Company nor any Company Subsidiary had, as of the date of the
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent clearly and accurately reflected or accrued or fully
reserved against in the Financial Statements or (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business and consistent with past custom and practices (none of which
is a liability resulting from a breach of contract, breach of warranty, tort,
infringement claim, legal violation or lawsuit).
4.8 Accounts and Notes Receivable. All of the accounts receivable of
the Company and each Company Subsidiary reflected in the Latest Balance Sheet or
arising from the date thereof until the Closing Date have arisen or will arise
in the ordinary course of the Company's Business and each Company Subsidiary's
Business, are not and will not be subject to any defense, counterclaim or
setoff, subject to insureds' rights to cancel insurance coverage, and have been
collected or are and will be collectible in the ordinary course of the Company's
Business using normal collection practices and policies employed by the Company
and each Company Subsidiary
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as of the date of this Agreement, in each case subject to any allowance for
doubtful accounts determined in accordance with the Company's past custom and
practices.
4.9 Absence of Certain Changes or Events. Except as set forth on
Schedule 4.9, since the date of the Latest Balance Sheet, each of the Company
and the Company Subsidiaries has conducted its business only in the ordinary
course consistent with past custom and practices. Except as set forth on
Schedule 4.9, since the date of the Latest Balance Sheet, there has not been
any:
(a) change in the operations, condition (financial or
otherwise), operating results, assets, liabilities, employee, or client
or policyholder relations or prospects of the Company or any Company
Subsidiary except as would not have a Company Material Adverse Effect;
(b) damage, destruction or loss of any property owned by the
Company or any Company Subsidiary, or used in the operation of the
Business, whether or not covered by insurance, having a replacement
cost or fair market value in excess of five percent (5%) of the amount
of net property, plant and equipment shown on the Latest Balance Sheet,
in the aggregate;
(c) voluntary or involuntary sale, transfer, surrender,
cancellation, abandonment, waiver, release or other disposition of any
kind by the Company or any Company Subsidiary of any right, power,
claim or debt, except the collection of accounts in the ordinary course
of business consistent with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination or other labor dispute or similar occurrence that is
reasonably expected to adversely affect the Company, a Company
Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary
to any Person, other than as a result of services performed for, or
expenses properly and reasonably advanced for the benefit of, customers
in the ordinary course of business consistent with past custom and
practices;
(f) notice (formal or otherwise) of any liability, potential
liability or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or
other distribution in respect of the Company's capital stock or other
equity interests or any direct or indirect redemption, purchase, or
other acquisition of the Company's or any Company Subsidiary's capital
stock or other equity interests, or the payment of principal or
interest on any note, bond, debt instrument or debt to any Affiliate
(as defined in Section 15.4) of the Company
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or any Company Subsidiary, except bonuses and distributions to
employees and stockholders disclosed to Centerprise in writing that are
consistent with the Company's past custom and practices or as otherwise
contemplated by this Agreement;
(h) incurrence by the Company or any Company Subsidiary of
debts, liabilities or obligations except (i) current liabilities
incurred in connection with or for services rendered in the ordinary
course of business consistent with past custom and practices, (ii)
liabilities on account of taxes and governmental charges (but not
penalties, interest or fines in respect thereof), and (iii) obligations
or liabilities incurred by virtue of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any
notes, bonds, or other debt securities or any equity securities or
securities convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or
amendment or termination of, any material commitment, contract,
agreement, or transaction, other than in the ordinary course of
business and other than expiration of contracts in accordance with
their terms, except the Company and any Company Subsidiary may amend
any such material commitment, contract, agreement or transaction
necessary to prevent the relevant commitment, contract, agreement or
transaction from terminating due to the transactions contemplated
herein, provided that all material terms of such commitment, contract,
agreement or transaction shall remain the same;
(k) loss or threatened loss of, or any material reduction or
threatened material reduction in revenues from, any client of the
Company or any Company Subsidiary that accounted for revenues during
the last twelve months in excess of one percent (1%) of the
consolidated net revenues of the Company and the Company Subsidiaries,
or change in the relationship of the Company or any Company Subsidiary
with any client or Governmental Authority that is reasonably expected
to adversely affect the Company, any Company Subsidiary or the
Business;
(l) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or
amortization policies or rates) utilized by the Company or any Company
Subsidiary;
(m) discharge or satisfaction by the Company or any Company
Subsidiary of any material liability or encumbrance or payment by the
Company or any Company Subsidiary of any material obligation or
liability, other than current liabilities paid in the ordinary course
of its business consistent with past custom and practices;
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(n) sale, lease or other disposition by the Company or any
Company Subsidiary of any tangible assets having an aggregate
replacement cost or fair market value in excess of five percent (5%) of
the amount of net property, plant and equipment shown on the Latest
Balance Sheet) other than in the ordinary course of business, or the
sale, assignment or transfer by the Company or any Company Subsidiary
of any trademarks, service marks, trade names, corporate names,
copyright registrations, trade secrets, lists of past and present
customers, lists of potential customers, insurance policy expiration
data or rights, research sales data, analyses, sales and marketing
materials, scheduling and service methods, sales and service manuals,
or other intangible assets, or disclosure of any proprietary or
confidential information of the Company or any Company Subsidiary
relating to or used in connection with the Business to any Person other
than an employee, agent, attorney, accountant or other representative
of the Company that has agreed to maintain the confidentiality of any
such proprietary confidential information;
(o) capital expenditures or commitments therefor by the
Company or any Company Subsidiary in excess of $50,000 individually or
$100,000 in the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the
Company or any Company Subsidiary or creation of any easements, Liens
or other interests against or on any of the Real Property (as defined
in Section 4.14.1);
(q) adoption, amendment or termination of any Employee Plan
(as defined in Section 4.17.5(a)) or increase in the benefits provided
under any Employee Plan, or promise or commitment to undertake any of
the foregoing in the future; or
(r) an occurrence or event not included in clauses (a) through
(q) that has resulted or, based on information of which the Company has
Knowledge, is reasonably expected to result in a Company Material
Adverse Effect.
4.10 Litigation. Except as set forth on Schedule 4.10 (which shall
disclose the parties to, nature of and relief sought for each matter to be
disclosed on Schedule 4.10):
4.10.1 There is no suit, action, proceeding, investigation,
claim or order pending or, to the Knowledge of the Company, threatened against
the Company or any Company Subsidiary, or with respect to the Merger, or with
respect to any Employee Plan, or any fiduciary of any such plan (or pending or,
to the Knowledge of the Company, threatened against any of the officers,
directors, members, partners or employees of the Company or any Company
Subsidiary with respect to its business or proposed business activities), or to
which the Company or any Company Subsidiary is otherwise a party, or that is
reasonably expected to have a Company Material Adverse Effect, before any court,
or before any Governmental Authority (each an "Action" and collectively, the
"Actions"); nor, to the Knowledge of the Company, is there any basis for any
such Action.
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4.10.2 Neither the Company nor any Company Subsidiary is
subject to any unsatisfied or continuing judgment, order or decree of any court
or Governmental Authority. Neither the Company nor any Company Subsidiary, to
the Knowledge of the Company, is otherwise exposed, from a legal standpoint, to
any liability or disadvantage that is reasonably expected to result in a Company
Material Adverse Effect, and neither the Company nor any Company Subsidiary is a
party to any legal action to recover monies due it or for damages sustained by
it, other than collection of past due charges for services rendered or expenses
incurred by the Company.
4.10.3 Schedule 4.10 lists the insurer for each Action covered
by insurance or designates such Action, or a portion of such Action, as
uninsured and lists the individual and aggregate policy limits for the insurance
covering each insured Action and the applicable policy deductibles for each
insured Action.
4.10.4 Schedule 4.10 sets forth all material closed litigation
matters to which the Company or any Company Subsidiary was a party during the
five (5) year period preceding the Closing Date, the date such litigation was
commenced and concluded, and the nature of the resolution thereof (including
amounts paid in settlement or judgment).
4.11 Compliance with Applicable Laws. Except as set forth on Schedules
4.11 and 4.19, each of the Company, and the Company Subsidiaries and every
person acting on behalf of the Company or any Company Subsidiary has complied in
all material respects with all laws, rules, regulations, regulatory agency
bulletins, attorney general opinions, writs, injunctions, decrees, and orders
(collectively, "Laws") applicable to the Company, any Company Subsidiary and
every person acting on behalf of the Company or any Company Subsidiary in
relation to the operation of the Business, except where failure to so comply
would not have a Company Material Adverse Effect, and has not received any
notice of any alleged claim or threatened claim, violation of, citation for
non-compliance with, or liability or potential responsibility under, any such
Law which has not heretofore been cured and for which there is no remaining
liability and, to the Knowledge of the Company, no event has occurred or
circumstances exist that (with or without notice or lapse of time) is reasonably
expected to constitute or result in a violation by the Company, any Company
Subsidiary or any person acting on behalf of the Company or any Company
Subsidiary of any Law or that gives rise to any liability on the part of the
Company or any Company Subsidiary under any Law. Neither the Company nor any
Company Subsidiary has received notice of potential claims, allegations,
grievances or complaints against or pertaining to the Business, including any
consumer complaints from any state departments of insurance.
4.12 Licenses. Schedule 4.12 lists all Licenses used by the Company,
the Company Subsidiary and each Licensed Person that are material to the conduct
of the Business. "Licenses" means all notifications, licenses, permits,
franchises, certificates, approvals, exemptions, classifications, registrations,
qualifications and other similar documents and authorizations, and
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applications therefor held by the Company, each Company Subsidiary and each
Person acting on behalf of the Company or a Company Subsidiary whose activities
require Licenses ("Licensed Person") and issued or submitted to the Company, any
Company Subsidiary or any Licensed Persons by any Governmental Authority or
other Person. All such Licenses are valid, binding and in full force and effect.
Except as described on Schedule 4.12, the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby will
not adversely affect any such Licenses. To the Knowledge of the Company, the
Company and the Company Subsidiaries have taken all necessary action to maintain
such Licenses. No loss or expiration of any such License is pending or, to the
Company's Knowledge, threatened or reasonably foreseeable.
4.13 Material Contracts. Except as listed or described on Schedule 4.13
(such contracts, or those which should have been listed on Schedule 4.13, are
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments (each a
"Contract" and collectively, the "Contracts") relating to or in any way
affecting the operation or ownership of the Business that are of a type
described below and no such agreements are currently in negotiation or proposed:
(a) any consulting agreement pursuant to which the Company or
a Company Subsidiary is to receive consulting services (other than
consulting agreements that may be terminated by the Company or a
Company Subsidiary on not more than 30 days notice without penalty),
employment agreement, change-in-control agreement, or collective
bargaining arrangement with any labor union;
(b) any Contract for capital expenditures or the acquisition
or construction of fixed assets in excess of $50,000.
(c) any Contract for the purchase, maintenance or acquisition,
or the sale or furnishing, of materials, supplies, merchandise,
machinery, equipment, parts or other property or services (except if
such Contract is made in the ordinary course of business and requires
aggregate future payments of less than $25,000);
(d) any Contract, other than trade payables in the ordinary
course of business, relating to the borrowing of money, or the guaranty
of another Person's borrowing of money, including, without limitation,
any notes, mortgages, indentures and other obligations, guarantees of
performance, agreements and instruments for or relating to any lending
or borrowing, including assumed indebtedness, other than any contract
with an insurance carrier under which the Company or any Company
Subsidiary is responsible for the payment of insurance premiums whether
or not such premiums are first collected by the Company or any Company
Subsidiary;
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(e) any Contract granting any Person a Lien on all or any part
of the assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions
in connection with Hazardous Materials (as defined in Section 4.19),
the remediation of any existing environmental liabilities or relating
to the performance of any environmental audit or study;
(g) any Contract granting to any Person an option or a first
refusal, first-offer or similar preferential right to purchase or
acquire any material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative
which is not terminable by the Company or a Company Subsidiary upon
ninety (90) calendar days or less notice without penalty;
(i) any Contract under which the Company or any Company
Subsidiary is (A) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property, or (B) a lessor of any
tangible personal property owned by the Company or any Company
Subsidiary, in either case having an original purchase price or
requiring aggregate lease payments in excess of $50,000;
(j) any Contract under which the Company or any Company
Subsidiary has granted or received a license or sublicense or under
which it is obligated to pay or has the right to receive a royalty,
license fee or similar payment, in either case which provides for
payments over the life of such Contract in excess of $25,000, except
such Contracts with insurance companies whereby the Company or a
Company Subsidiary is acting as an insurance producer and has the right
to receive any commission payments;
(k) any Contract concerning an Affiliate Transaction (as
defined in Section 4.21);
(l) any Contract providing for the indemnification or holding
harmless of any officer, director, employee or other Person;
(m) any Contract (A) for purchase or sale by the Company or
any Company Subsidiary of any real property on which the Company or any
Company Subsidiary conducts any aspect of the Business, (B) granting
any options to lease or purchase all or any portion of the Real
Property, or (C) providing for labor, services or materials to the Real
Property (including, without limitation, brokerage or management
services) involving aggregate future payments of more than $25,000;
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(n) any Contract limiting, restricting or prohibiting the
Company or any Company Subsidiary from conducting business anywhere in
the United States or elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to
the Leased Property (as defined in Section 4.14.1);
(q) any Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the
Company or any Company Subsidiary, which, if amended, modified or
terminated as a result of, relating to or in connection with a failure
to provide prior notice, or gain such consent or approval, would result
in a Company Material Adverse Effect; or
(r) any other Contract, whether or not made in the ordinary
course of business, which involves future payments by the Company or
any Company Subsidiary in excess of $25,000.
The Company has provided Centerprise with a true and complete copy of
each written Material Contract and a true and complete summary of each oral
Material Contract, in each case including all amendments or other modifications
thereto. Except as set forth on Schedule 4.13, each Material Contract is a valid
and binding obligation of, and enforceable in accordance with its terms against,
the Company or a Company Subsidiary, as applicable, and, to the Knowledge of the
Company, the other parties thereto, and is in full force and effect, subject
only to bankruptcy, reorganization, receivership and other laws affecting
creditors' rights generally and equitable principles. Except as set forth on
Schedule 4.13, the Company or one of the Company Subsidiaries, as applicable,
has performed in all material respects all obligations required to be performed
by it as of the date hereof and will have performed in all material respects all
obligations required to be performed by it as of the Closing Date under each
Material Contract and neither the Company or Company Subsidiary, as applicable,
nor, to the Knowledge of the Company, any other party to any Material Contract
is in breach or default thereunder, and, to the Knowledge of the Company, there
exists no condition which would, with or without the lapse of time or the giving
of notice, or both, constitute a breach or default thereunder. The Company has
not been notified that any party to any Material Contract intends to cancel,
terminate, not renew, or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
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4.14 Properties.
4.14.1 Schedule 4.14.1-1 is a correct and complete list, and a
brief description of, all real estate in which the Company or any of
the Company Subsidiaries has an ownership interest (the "Owned
Property") and all real property leased by the Company (the "Leased
Property"). Except as lessee of Leased Property, neither the Company
nor any Company Subsidiary is a lessee under or otherwise a party to
any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which another Person has granted to the
Company or any Company Subsidiary the right to use or occupy all or any
portion of any real property.
The Company or one of the Company Subsidiaries has good and
marketable fee simple title to the Owned Property and, assuming good
title in the Landlord, a valid leasehold interest in the Leased
Property (the Owned Property and the Leased Property being sometimes
referred to herein as "Real Property"), in each case free and clear of
all Liens, assessments or restrictions (including, without limitation,
inchoate liens arising out of the provision of labor, services or
materials to any such real estate) other than (a) mortgages shown on
the Financial Statements as securing specified liabilities or
obligations, with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default) exists,
(b) Liens for current taxes not yet due, (c) (i) minor imperfections of
title, including utility and access easements depicted on subdivision
plats for platted lots that do not impair the intended use of the
property, if any, none of which materially impairs the current
operations of the Company or the Business, and (ii) zoning laws and
other land use restrictions or restrictive covenants that do not
materially impair the present use of the property subject thereto, and
(d) Liens, assessments, and restrictions pursuant to and by virtue of
the terms of the lease of the Leased Property. The Real Property
constitutes all real properties reflected on the Financial Statements
or used or occupied by the Company or any Company Subsidiary in
connection with the Business or otherwise.
With respect to the Owned Property, except as reflected on
Schedule 4.14.1-2(a):
(a) the Company or one of the Company Subsidiaries is in
exclusive possession thereof and no easements, licenses or rights are
necessary to conduct the Business thereon in addition to those which
exist as of the date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority
materially adverse to the Owned Property and, to the Knowledge of the
Company, there is no threatened condemnation or proceeding with respect
thereto;
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(c) there is no violation of any covenant, condition,
restriction, easement or agreement of any Governmental Authority that
affects the Owned Property or the ownership, operation, use or
occupancy thereof;
(d) no portion of any parcel of the Owned Property is subject
to any roll-back tax, dual or exempt valuation tax and no portion of
any Owned Property is omitted from the appropriate tax rolls; and
(e) all assessments and taxes currently due and payable on
such Owned Property have been paid.
With respect to the Leased Property, except as reflected on Schedule
4.14.1-2(b):
(i) the Company and/or one of the Company
Subsidiaries is in exclusive, peaceful and undisturbed possession
thereof and, to the Knowledge of the Company, no easements, licenses or
rights are necessary to conduct the Business thereon in addition to
those which exist as of the date hereof; and
(ii) to the Knowledge of the Company, no portion
thereof is subject to any pending condemnation proceeding or proceeding
by any public or quasi-public authority materially adverse to the
Leased Property and there is no threatened condemnation or proceeding
with respect thereto.
4.14.2 The Latest Balance Sheet and/or Schedule 4.14.2 reflect all
material tangible personal property owned by the Company or any Company
Subsidiary, except as sold or otherwise disposed of or acquired in the ordinary
course of business. Except as set forth on Schedule 4.14.2, the Company or one
of the Company Subsidiaries has good and marketable title to, or a valid
leasehold interest in, or valid license of, such personal property (including,
without limitation, machinery, equipment and computers), in each case free and
clear of any Liens (other than Liens that are part of such leasehold or
license), and each such asset is in working order and has been maintained in a
commercially reasonable manner and does not contain, to the Knowledge of the
Company, any material defect. Except as set forth in Schedule 4.14.2, no
personal property (including, without limitation, software and databases
maintained on off-premises computers) used by the Company or any Company
Subsidiary in connection with the Business is held under any lease, security
agreement, conditional sales contract or other title retention or security
arrangement or is located other than on the Real Property.
4.15 Intellectual Property. The (i) patents, patent applications,
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered trademarks, trade names, company names, assumed
business names and service marks (collectively, the "Marks"), (iii) copyrights
(the "Copyrights"), and (iv) know how, trade secrets, confidential information,
software, technical information, data, process technology, plans and
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drawings, lists of past and present customers, lists of potential customers,
insurance expiration data and rights, business plans, performance standards,
catalogues, research sales data, analyses, and programs, sales and marketing
materials, scheduling and service methods, sales and service manuals and all
other proprietary, confidential and other similar information (in whatever form
or medium) relating to or used in connection with the Business (collectively,
the "Trade Secrets"), and the business and goodwill of the Company and the
Company Subsidiaries as a going concern owned, used or licensed by the Company
or any Company Subsidiary (collectively, the "Intellectual Property") are all
those necessary to enable the Company and the Company Subsidiaries to conduct
and to continue to conduct the Business substantially as it is currently
conducted. Schedule 4.15 contains a complete and accurate list of all material
Patents, Marks and Copyrights and a brief description of all material Trade
Secrets owned, used by or directly licensed to the Company or any Company
Subsidiary, and a list of all material license agreements and arrangements with
respect to any of the Intellectual Property to which the Company or any Company
Subsidiary is a party, whether as licensee, licensor or otherwise (collectively,
the "Intellectual Property Licenses"). Except as set forth on Schedule 4.15, (i)
all of the Intellectual Property is owned, or to the Knowledge of the Company
used under a valid Intellectual Property License, by the Company or one of the
Company Subsidiaries, and is free and clear of all Liens and other adverse
claims; (ii) neither the Company nor any Company Subsidiary has received any
written notice that it is or has infringed on, misappropriated or otherwise
conflicted with, or otherwise has Knowledge that it is infringing on,
misappropriating, or otherwise conflicting with the intellectual property rights
of any third parties; (iii) there is no claim pending or, to the Knowledge of
the Company threatened against the Company or any Company Subsidiary with
respect to the alleged infringement or misappropriation by the Company or
Company Subsidiary, or a conflict with, any intellectual property rights of
others; (iv) the operation of any aspect of the Business in the manner in which
it has heretofore been operated or is presently operated does not give rise to
any such infringement or misappropriation; and (v) there is no infringement or
misappropriation of the Intellectual Property by a third party or claim, pending
or, to the Knowledge of the Company, threatened, against any third party with
respect to the alleged infringement or misappropriation of the Intellectual
Property.
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4.16 Taxes.
4.16.1 Except as set forth on Schedule 4.16.1-1, each of the
Company and the Company Subsidiaries has timely and accurately prepared and
filed or will timely and accurately prepare and file all federal, state
(including any state premium filings), local and foreign returns, declarations
and reports, information returns and statements (collectively, the "Returns")
for Taxes (as defined in Section 4.16.2) required to be filed by or with respect
to the Company or the Company Subsidiaries before the Closing Date, and has paid
or caused to be paid, or has made adequate provision or set up an adequate
accrual or reserve for the payment of, all Taxes required to be paid in respect
of the periods for which Returns are due on or prior to the Closing Date, and
will establish an adequate accrual or reserve for the payment of all Taxes
payable in respect of the period, including portions thereof, subsequent to the
last of said periods required to be so accrued or reserved, in each case in
accordance with GAAP up to and including the Closing Date. All such Returns are
or will be true and correct in all material respects. The Company has delivered
to Centerprise true and complete copies of all Returns referred to in the first
sentence of this Section 4.16.1 (including any amendments thereof) for the five
(5) most recent taxable years. Neither the Company nor any Company Subsidiary is
delinquent in the payment of any Tax, and no material deficiencies for any Tax,
assessment or governmental charge have been threatened, claimed, proposed or
assessed. No waiver or extension of time to assess any Taxes has been given or
requested. No written claim, or any other claim, by any taxing authority in any
jurisdiction where the Company or any Company Subsidiary does not file Tax
returns is pending pursuant to which the Company or Company Subsidiary, as
applicable, is or may be subject to taxation by that jurisdiction. The Company's
and the Company Subsidiaries' Returns were last audited by the Internal Revenue
Service or comparable state, local or foreign agencies on the dates set forth on
Schedule 4.16.1-2.
4.16.2 For purposes of this Agreement, the term "Taxes" shall
mean all taxes, charges, withholdings, fees, levies, penalties, additions,
interest or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, employment, withholding, social security,
occupation, use, service, service use, license, payroll, franchise, transfer and
recording taxes, fees and charges, windfall profits, severance, customs, import,
export, employment or similar taxes, charges, fees, levies or other assessments,
imposed by the United States, or any state (including any state premium tax
filings), local, foreign or provincial government or subdivision or any agency
thereof, whether computed on a separate, consolidated, unitary, combined or any
other basis.
4.17 Employee Benefit Plans; ERISA.
4.17.1 Except as described in Schedule 4.17.1, neither the
Company nor any Company Subsidiary has or is reasonably expected to have any
liability (including contingent liability) whether direct or indirect (and
regardless of whether it would be derived from a current or former Plan
Affiliate as defined in Section 4.17.5(c)) with respect to any of the following
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(whether written, unwritten or terminated): (i) any employee welfare benefit
plan, as defined in Section 3(1) of "ERISA," including, but not limited to, any
medical plan, life insurance plan, short-term or long-term disability plan or
dental plan; (ii) any "employee pension benefit plan," as defined in Section
3(2) of ERISA (as defined in Section 4.17.5(b)), including, but not limited to,
any excess benefit plan, top hat plan or deferred compensation plan or
arrangement, nonqualified retirement plan or arrangement, qualified defined
contribution or defined benefit arrangement; or (iii) any other benefit plan,
policy, program, arrangement or agreement, including, but not limited to, any
material fringe benefit plan or program, personnel policy, bonus or incentive
plan, stock option, restricted stock, stock bonus, holiday pay, vacation pay,
sick pay, bonus program, service award, moving expense, reimbursement program,
tool allowance, safety equipment allowance, deferred bonus plan, salary
reduction agreement, change-of-control agreement, employment agreement or
consulting agreement.
4.17.2 A complete copy of each written Employee Plan (as
defined in Section 4.17.5(a)) as amended to the Closing, together with audited
financial statements, if any, for the three (3) most recent plan years; a copy
of each trust agreement or other funding vehicle with respect to each such plan;
a copy of any and all determination letters, rulings or notices issued by a
Governmental Authority with respect to such plan; a copy of the Form 5500 Annual
Report for the three (3) most recent plan years; and a copy of each and any
general explanation or communication which was required to be distributed or
otherwise provided to participants in such plan and which describes all or any
relevant aspect of each plan, including summary plan descriptions and/or summary
of material modifications, have been delivered to Centerprise. A description of
each unwritten Employee Plan, including a description of eligibility,
participation, benefits, funding arrangements and assets or other relevant
aspects of the obligation, is set forth in Schedule 4.17.2.
4.17.3 Except as is not reasonably expected to give rise to
any liability (including contingent liability), whether direct or indirect, to
the Company or any Company Subsidiary, each Employee Plan (i) has been and is
operated and administered in compliance with its terms; (ii) has been and is
operated, administered, maintained and funded in compliance with the applicable
requirements of the Code in such a manner as to qualify, where appropriate and
intended, for both Federal and state purposes, for income tax exclusions,
tax-exempt status, and the allowance of deductions and credits with respect to
contributions thereto; (iii) where appropriate, has received
a favorable determination letter from the Internal Revenue Service upon which
the sponsor of the plan may currently rely; (iv) has been and currently complies
in form and in operation in all respects with all applicable requirements of
ERISA and the Code and any applicable reporting and disclosure requirements of
Federal and state laws, including but not limited to the requirement of Part 6
of subtitle B of Title I of ERISA and Section 4980B of the Code. With respect to
each Employee Plan, no Person has: (i) entered into any nonexempt "prohibited
transaction," as such terms are defined in ERISA or the Code; (ii) breached a
fiduciary obligation or (iii) any liability for any failure to act or comply in
connection with the administration or investment of the assets of such plan; and
no Employee Plan has any liability and there is no liability in connection with
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any Employee Plan, other than a liability (i) which is expressly and adequately
reflected in the Latest Balance Sheets, (ii) which is discretionary or
terminable at will by the Company or one of the Company Subsidiaries without
incurring any such liability, or (iii) which is adequately funded under a
funding arrangement separate from the assets of the Company, any Company
Subsidiary or a Plan Affiliate (and only to the extent of such funding). Any
contribution made or accrued with respect to any Employee Plan is fully
deductible by the Company, a Company Subsidiary or a Plan Affiliate.
4.17.4 Neither the Company nor any Company Subsidiary or Plan
Affiliate has ever sponsored, maintained, contributed to or been required to
contribute to, or has any liability, whether direct or indirect, with respect to
any Employee Plan which is or has ever been (i) a "multiemployer plan" as
defined in Section 4001 of ERISA, (ii) a "multiemployer plan" within the meaning
of Section 3(37) of ERISA, (iii) a "multiple employer plan" within the meaning
of Code Section 413(c), (iv) a "multiple employer welfare arrangement" within
the meaning of Section 3(40) of ERISA, (v) subject to the funding requirements
of Section 412 of the Code or to Title IV of ERISA, or (vi) provides for
post-retirement medical, life insurance or other welfare-type benefits.
4.17.5 As used in this Agreement, the following terms shall
have the following respective meanings:
(a) the term "Employee Plan" shall mean any plan,
policy, program, arrangement or agreement described in Section
4.17.1, whether or not scheduled;
(b) the term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended; and
(c) with respect to any Person ("First Person"), the
term "Plan Affiliate" shall mean any other Person with whom
the First Person constitutes or has constituted all or part of
a controlled group, or which would be treated or have been
treated with the First Person as under common control or whose
employees would be or have been treated as employed by the
First Person, under Section 414 of the Code or Section 4001(b)
of ERISA and any regulations, administrative rulings and case
law interpreting the foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no,
and within the last three (3) years neither the Company nor any Company
Subsidiary has experienced any, strike, picketing, boycott, work stoppage or
slowdown or other similar labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor pending or,
to the Knowledge of the Company, threatened against the Company or any Company
Subsidiary, or which might affect the Company or any Company Subsidiary; nor, to
the Knowledge of the Company, is there any basis for any such allegation,
charge, or complaint. There is no request for representation
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pending and, to the Knowledge of the Company, no question concerning
representation has been raised. There is no grievance pending that is reasonably
expected to result in a Company Material Adverse Effect nor any arbitration
proceeding arising out of a union agreement. To the Knowledge of the Company, no
key employee and no group of employees has announced or otherwise indicated any
plans to terminate employment with the Company or any Company Subsidiary. Each
of the Company and any Company Subsidiary has complied with all applicable laws
relating to the employment of labor, including provisions thereof relating to
wages, hours, equal opportunity, collective bargaining and the payment of social
security and other taxes. Neither the Company nor any Company Subsidiary is
liable for any arrears of wages or any taxes or penalties for failure to comply
with any such laws, ordinances or regulations.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19,
(i) each of the Company and the Company Subsidiaries is operating and has
operated its business in compliance with all applicable Environmental and Safety
Requirements (as defined later in this Section); (ii) to the actual knowledge of
the officers of the Company, without any duty to inquire (notwithstanding the
definition of "Knowledge" in Section 15.4), there are no Hazardous Materials (as
defined later in this Section) present at, on or under any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
(other than those present in office supplies and cleaning/maintenance materials)
for which the Company or a Company Subsidiary is or is reasonably expected to be
responsible, or otherwise have any liability, for response costs under any
Environmental and Safety Requirements; (iii) each of the Company and the Company
Subsidiaries has disposed of all waste materials generated by the Company or
such Company Subsidiary at any real property currently or formerly owned, leased
or used by the Company or Company Subsidiary in compliance with applicable
Environmental and Safety Requirements; and (iv) there are and have been no
facts, events, occurrences or conditions at or related to any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
that is reasonably expected to cause or give rise to liabilities or response
obligations of the Company or any Company Subsidiary under any Environmental and
Safety Requirements. The term "Environmental and Safety Requirements" means any
federal, state and local laws, statutes, regulations or other requirements
relating to the protection, preservation or conservation of the environment or
worker health and safety, all as amended or reauthorized. The term "Hazardous
Materials" means "hazardous substances," as defined by the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq., "hazardous wastes," as defined by the Resource Conservation Recovery
Act, 42 U.S.C. Section 6901 et seq., asbestos in any form or condition,
polychlorinated biphenyls and any other material, substance or waste to which
liability or standards of conduct may be imposed under any Environmental and
Safety Requirement.
4.20 Insurance. Each of the Company and the Company Subsidiaries has in
full force and effect commercially reasonable amounts of insurance (including,
but not limited to, errors and omissions insurance up to $10,000,000 per
occurrence and $10,000,000 aggregate) to protect the Company's and the Company
Subsidiaries' ownership or interest in, and operation of, its assets
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against the types of liabilities, customarily insured against in connection with
operations similar to the Business, and all premiums due on such policies have
been paid. To the Company's Knowledge, each of the Company and the Company
Subsidiaries has complied with the provisions of all such policies and is not in
default under any of such policies. Schedule 4.20 contains a complete and
correct list of all such insurance policies. Neither the Company nor any Company
Subsidiary has received any notice of cancellation or non-renewal or intent to
cancel or non-renew or increase premiums with respect to such insurance
policies. Schedule 4.20 also contains a list of all claims or asserted claims
reported to insurers under such policies relating to the ownership or interest
in the Company's and the Company Subsidiaries' assets, or operation of the
Business, including all errors and omissions claims and similar types of claims,
actions or proceedings asserted against the Company or any Company Subsidiary
arising out of the Business at any time within the past three (3) years.
4.21 Interest in Customers and Suppliers; Affiliate Transactions.
Except as described on Schedule 4.21 and except for ownership as an investment
of not more than one percent (1%) of any class of capital stock of any
publicly-traded company, no Company's stockholder, any Affiliate of a Company's
stockholder or Affiliate of the Company or any Company Subsidiary (i) possesses,
directly or indirectly, any financial interest in, or is a director, officer,
employee or affiliate of any Person that is a client, supplier, customer,
lessor, lessee or competitor of the Company or any Company Subsidiary, (ii)
owns, directly or indirectly, in whole or in part, or has any interest in any
tangible or intangible property used in the conduct of the Business, or (iii) is
a party to an agreement or relationship, that involves the receipt by such
Person of compensation or property from the Company or any Company Subsidiary
other than through a written employment relationship or through distributions
made with respect to the Company Stock or equity interests in any Company
Subsidiary (provided such distributions have been made consistent with the
Company's or any Company Subsidiary's, as the case may be, past custom and
practices). Schedule 4.21 sets forth the parties to and the date, nature and
amount of each transaction during the last five years involving the transfer of
any cash, property or rights to or from the Company or any Company Subsidiary
from, to or for the benefit of any Affiliates (other than customary employment
relationships or distributions made with respect to the Company Stock)
("Affiliate Transactions"), and any existing commitments of the Company or any
Company Subsidiary to engage in the future in any Affiliate Transactions. Except
as disclosed, each Affiliate Transaction and each transaction with former
Affiliates of the Company or any Company Subsidiary was effected on terms
equivalent to those that would have been established in an arm's-length
transaction.
4.22 Business Relationships. Schedule 4.22 lists all clients of the
Company and each Company Subsidiary representing one percent (1%) or more of the
Company's revenues for the twelve (12) months ended December 31, 1998. Except as
set forth on Schedule 4.22, since December 31, 1998, none of such clients has
canceled or substantially reduced its business with the Company or Company
Subsidiary, as applicable, nor are any of such clients threatening to do so. To
the Knowledge of the Company, no policyholders, retail producers, licensed
agents and
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brokers, bona-fide associations and/or groups and risk retention groups or risk
purchasing groups, or insurance carriers that accounts for one percent (1%) or
more of the Company's consolidated net revenue or supplier of the Company or any
Company Subsidiary, will cease to do business with, or substantially reduce its
business with, the Company or Company Subsidiary, as applicable, after the
consummation of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
names and current total compensation, including, without limitation, salary and
bonuses paid to employees and draws or other distributions paid to partners,
members or owners of each Person who earned from the Company or a Company
Subsidiary in 1998 total compensation in excess of $100,000. Except as set forth
in Schedule 4.23, no Person listed thereon has received any bonus or increase in
compensation and there has been no "general increase" in the compensation or
rate of compensation payable to any employees, partners, members or owners of
the Company or any Company Subsidiary since the date of the Latest Balance
Sheet, other than in the Company's and Company Subsidiaries' ordinary course of
business, consistent with past custom and practices, nor since that date has
there been any oral or written promise to employees, partners, members or owners
of any bonus or increase in compensation, other than in the Company's ordinary
course of business, consistent with past custom and practices. The term "general
increase" as used herein means any increase generally applicable to a class or
group, but does not include increases granted to individuals for merit, length
of service or change in position or responsibility made on the basis of the
custom and past practices of the Company or any Company Subsidiary. Schedule
4.23 includes the date and amount of the last bonus or similar distribution or
increase in compensation for each listed individual.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each
bank in which the Company or any Company Subsidiary has an account or safe
deposit box, the number of each such account or box, and the names of all
Persons authorized to draw thereon or to have access thereto. Without limiting
the generality of Section 4.11 herein, the Company and each Company Subsidiary
has complied with all laws, regulations, bulletins promulgated by the California
Department of Insurance and all other state departments of insurance where
clients of the Company or a Company Subsidiary reside, and all written policies
of the California Department of Insurance and all other state departments of
insurance where clients of the Company or a Company Subsidiary reside pertaining
to the handling and maintenance of premium fund trust accounts and premiums held
by the Company and the Company Subsidiaries generally ("Premium Fund Insurance
Regulations"). The premium fund trust accounts of the Company and each Company
Subsidiary have the proper amount of funds in such accounts in accordance with
all Premium Fund Insurance Regulations, and the Company and each Company
Subsidiary have not or are not currently using such funds for their own use. The
Company and each Company Subsidiary have never been found to violate any Premium
Fund Insurance Regulations.
4.25 Disclosure; No Misrepresentation. No representation or warranty of
the Company contained in this Agreement or in any of the certification,
schedules, lists, documents, exhibits,
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or other instruments delivered or to be delivered to Centerprise as contemplated
by any provision hereof contains any untrue statement regarding a material fact
or omits to state a material fact necessary in order to make the statements made
herein or therein not misleading. To the Knowledge of the Company, there is no
fact or circumstance that has not been disclosed to Centerprise herein that has
or is reasonably expected to have a Company Material Adverse Effect.
4.26 Title to and Transfer of Insurance Expirations. The Company or the
Company Subsidiaries have good and valid title or rights, free and clear of any
Liens, liabilities, encumbrances, obligations or other restrictions whatsoever,
to the Insurance Expirations (as hereinafter defined). For the purpose of this
Section 4.26, "Insurance Expirations" is defined as the right to service,
continue and renew, and collect all commissions and other amounts on, all
insurance policies of every type and description placed by or through the
Company or a Company Subsidiary, including all of (i) the expiration data
relating to such policies of insurance placed by or through the Company or a
Company Subsidiary, (ii) all books, records and files pertaining to all
insurance policies, including, without limitation, all computerized data records
and all other records and files regardless of the media in or on which such
data, records or files are maintains, and (iii) the customer and prospective
customer lists used by the Company or a Company Subsidiary.
ARTICLE V
[RESERVED]
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE
Centerprise represents and warrants to the Company as of March 31, 1999
and, subject to Section 7.3, as of the date on which Centerprise and the lead
Underwriter execute and deliver the Underwriting Agreement related to the IPO
and as of the Closing Date as follows:
6.1 Organization And Qualification. Each of Centerprise and Mergersub
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. True, accurate and complete copies of each of
Centerprise's and Mergersub's Certificate of Incorporation and By-laws, as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to the Company.
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6.2 Capitalization.
6.2.1 The authorized capital stock of Centerprise consists of
20,000 shares of Centerprise Common Stock, of which 17,500 shares are
outstanding as of the date hereof. All of the issued and outstanding shares of
Centerprise Common Stock are validly issued and are fully paid, nonassessable
and free of preemptive rights. Immediately prior to the Closing Date, the
authorized capital stock of Centerprise will consist of 50,000,000 shares of
Centerprise Common Stock, of which the number of shares set forth in the Form
S-1 will be issued and outstanding, and 10,000 shares of Preferred Stock, par
value $0.01 per share, none of which will be issued and outstanding. Other than
(i) shares of Centerprise Common Stock issued pursuant to a split of the shares
outstanding as of the date of this Agreement, (ii) shares of Centerprise Common
Stock issued in accordance with the Merger and the Other Mergers, and (iii)
shares of Centerprise Common Stock that may be issued to new members of
management in lieu of shares previously issued to current members of management,
but which will not increase the number of shares of outstanding Centerprise
Common Stock, no shares of Centerprise Common Stock will be issued prior to the
consummation of the IPO. Mergersub's authorized capital stock consists solely of
100 shares of common stock, par value $.01 per share (the "Mergersub Stock"),
all of which are issued and outstanding, are owned free and clear of any Liens
by Centerprise, and are fully paid, nonassessable and free of pre-emptive
rights.
6.2.2 Except as set forth on Schedule 6.2, as of the date
hereof, there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement obligating Centerprise to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of the capital stock
of Centerprise or obligating Centerprise to grant, extend or enter into any such
agreement or commitment. There are no voting trusts, proxies or other agreements
or understandings to which Centerprise is a party or is bound with respect to
the voting of any shares of capital stock of Centerprise. The shares of
Centerprise Common Stock issued to Stockholder of the Company in the Merger will
at the Closing Date be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights and issued pursuant to a
registration statement as required by the 1933 Act or an exemption thereof.
6.3 No Subsidiaries. Except for Centerprise's ownership of 100% of the
capital stock of Professional Service Group, Inc., a Delaware corporation
("PSG") and Mergersub (and similar entities created for similar purposes with
respect to Other Agreements), Centerprise has no subsidiaries and it does not
own any capital stock of any corporation or any equity or other interest of any
nature whatsoever in any Person.
6.4 Authority; Non-Contravention; Approvals.
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6.4.1 Each of Centerprise and Mergersub has all requisite
right, power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been approved by the Board
of Directors of Centerprise and Mergersub, and no other corporate proceedings on
the part of Centerprise or Mergersub are necessary to authorize the execution
and delivery of this Agreement or the consummation by Centerprise and Mergersub
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by Centerprise and Mergersub and, assuming the due authorization,
execution and delivery hereof by the Company and the Company's stockholders,
constitutes a valid and legally binding agreement of Centerprise and Mergersub,
enforceable against each of them in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles.
6.4.2 The execution and delivery of this Agreement by
Centerprise and Mergersub does not violate, conflict with or result in a breach
of any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration under, or result in the creation of any Lien upon
any of the properties or assets of Centerprise or Mergersub under any of the
terms, conditions or provisions of (i) the Certificate of Incorporation or
By-laws of Centerprise or Mergersub, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or Governmental Authority applicable to Centerprise or Mergersub or any of
their respective properties or assets, or (iii) any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which
Centerprise or Mergersub is now a party or by which Centerprise, Mergersub or
any of their respective properties or assets, may be bound or affected. The
consummation by Centerprise or Mergersub of the transactions contemplated hereby
will not result in any violation, conflict, breach, right of termination or
acceleration or creation of Liens under any of the terms, conditions or
provisions of the items described in clauses (i) through (iii) of the
immediately preceding sentence, subject, in the case of the terms, conditions or
provisions of the items described in clause (ii) above, to obtaining (prior to
the Closing Date) Centerprise Required Statutory Approvals (as defined in
Section 6.4.3) and, in the case of the terms, conditions or provisions of the
items described in clause (iii) above, to obtaining (prior to the Closing Date)
consents required from commercial lenders, lessors or other third parties.
6.4.3 Except with respect to (i) the declaration of the
effectiveness of the Registration Statements by the SEC and filings, if
required, with various state securities or blue sky authorities, and (ii) any
filing which may be required under the HSR Act (the filings and approvals
referred to in clauses (i) through (iii) are collectively referred to as the
"Centerprise Required Statutory Approvals") no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by Centerprise or
Mergersub or the
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consummation by Centerprise or Mergersub of the transactions contemplated
hereby, other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as the
case may be, are not reasonably expected to, in the aggregate, have a material
adverse effect on the business operations, properties, assets, condition
(financial or other), results of operations or prospects of Centerprise and its
subsidiaries, taken as a whole (a "Centerprise Material Adverse Effect").
6.5 Absence of Undisclosed Liabilities. Except as set forth on Schedule
6.5, neither Centerprise nor Mergersub has incurred any liabilities or
obligations (whether known or unknown, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise) of any nature. Except as set
forth on Schedule 6.5, neither Centerprise nor Mergersub has engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is it bound by any obligation or undertaking.
6.6 Litigation. There are no claims, suits, actions or proceedings
pending or, to the Knowledge of Centerprise, threatened against, relating to or
affecting Centerprise or Mergersub, before any court, Governmental Authority or
any arbitrator that seek to restrain or enjoin the consummation of the Merger or
the IPO or which could reasonably be expected, either alone or in the aggregate
with all such claims, actions or proceedings, to have a Centerprise Material
Adverse Effect. Centerprise is not subject to any unsatisfied or continuing
judgment, order or decree of any court or Governmental Authority. Centerprise is
not a party to any legal action to recover monies due it for damages sustained
by it.
6.7 Compliance with Applicable Laws. Each of Centerprise and Mergersub
has complied in all material respects with all Laws applicable to it, and has
not received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of Centerprise, no event has occurred or circumstances exist that
(with or without notice or lapse of time) may constitute or result in a
violation by Centerprise or Mergersub of any Law or may give rise to any
liability on the part of the Centerprise or Mergersub under any Law.
6.8 No Misrepresentation. None of the representations and warranties of
Centerprise set forth in this Agreement or in any of the certificates,
schedules, lists, documents, exhibits, or other instruments delivered or to be
delivered to the Company as contemplated by any provision hereof contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein not misleading. To the
Knowledge of Centerprise, there is no fact or circumstance that has not been
disclosed to the Company herein that has or is reasonably expected to have a
Company Material Adverse Effect.
ARTICLE VII
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CERTAIN COVENANTS AND OTHER TERMS
7.1 Conduct of Business by the Company Prior to the Effective Time.
7.1.1 Except as otherwise contemplated by this Agreement,
after the date hereof and prior to the Closing Date or earlier termination of
this Agreement, unless Centerprise shall otherwise agree in writing, the Company
shall, and shall cause each Company Subsidiary to:
(a) in all material respects conduct its businesses
in the ordinary and usual course and consistent with past
customs and practices;
(b) not (i) amend its Organizational Documents, (ii)
split, combine or reclassify its outstanding capital stock or
(iii) (subject to the adjustment of the Company's working
capital pursuant to Section 7.1(l)) declare, set aside or pay
any dividend or distribution payable in cash, stock, property
or otherwise, except dividends or distributions which (A) are
consistent with past customs and practices, and (B) do not
result in a Company Material Adverse Effect;
(c) not issue, sell, pledge or dispose of, or agree
to issue, sell, pledge or dispose of (i) any additional shares
of, or any options, warrants or rights of any kind to acquire
any shares of, its capital stock or equity interests of any
class, (ii) any debt with voting rights or (iii) any debt or
equity securities convertible into or exchangeable for, or any
rights, warrants, calls, subscriptions, or options to acquire,
any such capital stock, debt with voting rights or convertible
securities;
(d) not (i) incur or become contingently liable with
respect to any indebtedness for borrowed money other than (A)
borrowings in the ordinary course of business in a manner
consistent with past customs and practices, (B) borrowings to
refinance existing indebtedness on commercially reasonable
terms, or (C) liability related to placing insurance with
insurance companies and collecting premiums therefor in the
ordinary course of business, (ii) redeem, purchase, acquire or
offer to purchase or acquire any shares of its capital stock
or equity interests or any options, warrants or rights to
acquire any of its capital stock or equity interests or any
security convertible into or exchangeable for its capital
stock or equity interests, (iii) sell, pledge, dispose of or
encumber any assets or businesses other than dispositions in
the ordinary course of business in a manner consistent with
past customs and practices or (iv) enter into any contract,
agreement, commitment or arrangement with respect to any of
the foregoing;
(e) use commercially reasonable efforts to (i)
preserve intact its business organizations and goodwill, (ii)
keep available the services of its present officers
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and key employees, and (iii) preserve the goodwill and
business relationships with clients and others having business
relationships with it and not engage in any action, directly
or indirectly, with the intent to adversely impact the
transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one
or more representatives of Centerprise to report operational
matters of materiality and the general status of ongoing
operations;
(g) not (i) increase in any manner the base
compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of its employees, partners,
members or owners, except in the ordinary course of business
in a manner consistent with past customs and practices of the
Company or any Company Subsidiary, as applicable, (ii) pay or
agree to pay any additional pension, retirement allowance or
other employee benefit under any Employee Plan to any such
Person, whether past or present, (iii) enter into any new
employment, severance, consulting, or other compensation
agreement with any of its existing employees, partners,
members or owners, (iv) amend or enter into a new Employee
Plan (except as required by Law) or amend or enter into a new
collective bargaining agreement, or (v) engage in any new
Affiliate Transaction;
(h) comply in all material respects with all
applicable Laws;
(i) not make any material investment in, directly or
indirectly, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any
other manner, any businesses or any Person or division thereof
or otherwise acquire or agree to acquire any assets in each
case which are material to it other than in the ordinary
course of business in a manner consistent with past customs
and practices; provided that the Company or any Company
Subsidiary may enter into discussions and/or negotiations
regarding a potential acquisition of or merger with or into
(i) Summit Risk Management & Insurance Services, (ii) MGU of
the West, (iii) Superior Access Insurance Services, Inc.
(SAI), (iv) Barry Miller & Associates, and/or (v) Innovative
Cost Management (ICM) (the entities referred to in items (i)
through (v) collectively, the "Targets"); provided further,
that the consummation of any such merger or acquisition shall
be subject to Centerprise's consent which may be withheld in
its sole and absolute discretion, and that any such
discussions and/or negotiations with any Target shall be
subject to such Target first entering into a confidentiality
agreement restricting the disclosure of the terms or existence
of the contemplated transaction, the Merger and the Other
Mergers in a form and substance reasonably satisfactory to
Centerprise;
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(j) not sell, lease, license, encumber or otherwise
dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of its assets;
(k) maintain with financially responsible insurance
companies insurance on its tangible assets and its businesses
in such amounts and against such risks and losses in a manner
consistent with past customs and practices in all material
respects;
(l) except as may be permitted by Section 7.1.1(b),
maintain a level of working capital equal to thirty days' cash
operating expenses (excluding commissions), as determined
based upon the December 31, 1998 pro forma income statement;
provided, that, that Company shall be entitled to transfer to
its working capital account its litigation reserves existing
as of the Closing Date; and
(m) collect and bill receivables in the ordinary and
usual course and consistent with past custom and practices.
7.1.2 Notwithstanding the fact that such action might
otherwise be permitted pursuant to this Article, the Company shall not take, or
permit any Company Subsidiary to take, any action that would or is reasonably
likely to result in any of the representations or warranties of the Company set
forth in this Agreement being untrue or in any of the conditions to the
consummation of the transactions contemplated hereunder set forth in Article X
not being satisfied.
7.1.3 At or prior to the Closing, the Company, as applicable,
shall terminate, without any liability to the Company or the Company
Subsidiaries, all agreements relating to the voting of the Company's capital
stock, and all agreements and obligations of the Company and the Company
Subsidiaries relating to borrowed money and/or involving payments to or for the
benefit of a present or former stockholder of the Company, or an Affiliate or
family member of a present or former stockholder of the Company, including
without limitation those set forth on Schedule 7.1.3, but excluding matters
shown as excluded on Schedule 7.1.3 and (B) items approved by Centerprise in
writing.
7.2 No-Shop.
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(a) After the date hereof and prior to the Closing Date or
earlier termination of this Agreement, the Company shall (i) not, and
the Company shall use its diligent efforts to cause the Company
Subsidiaries and any officer, director or employee of, or any attorney,
accountant, investment banker, financial advisor or other agent
retained by the Company or any Company Subsidiary not to, initiate,
solicit, negotiate, encourage, or provide non-public or confidential
information to facilitate, any proposal or offer to acquire all or any
substantial part of the business and properties of the Company or any
Company Subsidiary, or any capital stock of the Company or any Company
Subsidiary, whether by merger, purchase of assets or otherwise, whether
for cash, securities or any other consideration or combination thereof,
or enter into any joint venture or partnership or similar arrangement,
and (ii) promptly advise Centerprise of the terms of any communications
the Company may receive or become aware of relating to any bid for part
or all of the Company or any Company Subsidiary. Notwithstanding the
foregoing, if the underwriters' internal sales force presentation or
"road show" for the IPO has not started by October 15, 1999, then from
and after such date, the Company may (through its authorized agents)
conduct limited discussions with potential acquirers of the Company for
the sole purpose of assessing the potential terms and conditions of an
acquisition proposal involving the Company. Notwithstanding the
preceding sentence, the Company shall not (i) disclose any non-public
or confidential information regarding the Company to any such third
party or (ii) enter into any agreement (including a letter of intent or
term sheet) with such third party unless this Agreement has been
terminated pursuant to Article XI.
(b) The Company (i) acknowledges that a breach of any of their
covenants contained in this Section 7.2 will result in irreparable harm
to Centerprise which will not be compensable in money damages; and (ii)
agrees that such covenant shall be specifically enforceable and that
specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
7.3 Schedules. Each party hereto agrees that with respect to the
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement or amend and deliver to the other parties all the schedules to this
Agreement (the "Schedules") to correct any matter which would constitute a
breach of any such party's representations and warranties herein; provided,
however, that no amendment or supplement to a Schedule that constitutes or
reflects a Company Material Adverse Effect or affects Schedule 4.2, Schedule 4.4
or Schedule 8.8 may be made unless Centerprise and a majority of the Founding
Companies consent to such amendment or supplement. No amendment or supplement to
a Schedule shall be made later than three (3) business days prior to the
anticipated effectiveness of the Form S-1. For all purposes of this Agreement,
including, without limitation, for purposes of determining (x) whether the
conditions set forth in Sections 10.2 and 10.3 have been fulfilled, and (y) the
rights of a party to indemnification, the Schedules hereto shall be deemed to be
the Schedules as amended or supplemented pursuant to this Section 7.3. In the
event that (i) one of the other Founding Companies seeks to amend or supplement
a Schedule
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pursuant to Section 7.3 of one of the Other Agreements, (ii) such amendment or
supplement constitutes or reflects a Company Material Adverse Effect (as defined
in such Other Agreement) or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8
of such Other Agreement, and (iii) Centerprise and a majority of the Founding
Companies consent to such amendment or supplement, but the Company does not, the
Company may terminate this Agreement at any time prior to the Closing Date. In
the event that (i) the Company seeks to amend or supplement a Schedule pursuant
to this Section 7.3, (ii) such amendment or supplement constitutes or reflects a
Company Material Adverse Effect or affects Schedule 4.2, Schedule 4.4 or
Schedule 8.8, and (iii) Centerprise and a majority of the Founding Companies do
not consent to such amendment or supplement, this Agreement shall be deemed
terminated.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section 7.3,
unless this Agreement is so terminated pursuant to the last sentence of the
preceding paragraph in connection with an amendment of or supplement to a
Schedule relating to a breach of a representation or warranty as of March 31,
1999 in which case the Company shall pay to Centerprise, as Centerprise's
exclusive remedy (notwithstanding anything to the contrary) and as liquidated
damages, and not as a penalty, an amount equal to $2,000,000 (the "Liquidated
Damages Amount"). The Company agrees that in the case of such termination,
Centerprise and the Founding Companies (excluding the Company) will sustain
immediate and irreparable economic harm and loss of goodwill and that actual
losses suffered by such parties will be difficult, if not impossible, to
ascertain, but the Liquidated Damages Amount set forth herein is reasonable and
has been arrived at after a good faith effort to estimate such losses. Payment
of the Liquidated Damages Amount shall be made in cash to Centerprise within
thirty (30) days of a termination pursuant to the last sentence of the preceding
paragraph in connection with an amendment of or supplement to a Schedule
relating to a breach of a representation or warranty as of the date of this
Agreement.
7.4 Company Stockholder Meeting. The Company shall take all action in
accordance with applicable Laws and its Organizational Documents necessary to
duly call, give notice of, convene and hold a meeting of its stockholders to be
held on the earliest practicable date determined in consultation with
Centerprise to consider and vote upon approval of the Merger, this Agreement and
the transactions contemplated hereby by the Company's stockholders, and the
Company's Board of Directors shall recommend approval of the Merger, this
Agreement and the transactions contemplated hereby by the Company's
stockholders. If the Merger, this Agreement and the transactions contemplated
hereby are approved by the Company's stockholders, the Company shall not call,
give notice of, convene or hold any other meeting of its stockholders to rescind
or modify such approval or to consider any other transaction.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Access to Information.
8.1.1 The Company shall and shall cause the Company
Subsidiaries to afford to Centerprise and its accountants, counsel, financial
advisors and other representatives, including without limitation the
underwriters engaged in connection with the IPO (each an "Underwriter" and
collectively, the "Underwriters") and their counsel (collectively, the
"Centerprise Representatives"), and to the other Founding Companies and their
accountants, counsel, financial advisors and other representatives, and
Centerprise shall afford to the Company and its accountants, counsel, financial
advisors and other representatives (the "Company Representatives"), upon
reasonable notice, full access during normal business hours throughout the
period prior to the Closing Date to all of its respective properties, books,
contracts, commitments and records (including, but not limited to, financial
statements and Tax Returns) and, during such period, shall furnish promptly to
one another all due diligence information requested by the other party.
Centerprise shall hold and shall use its best efforts to cause the Centerprise
Representatives to hold, and the Company shall hold and shall use their best
efforts to cause the Company Representatives to hold, in strict confidence all
non-public information furnished to it in connection with the transactions
contemplated by this Agreement, except that each of Centerprise and the Company
may disclose any information that it is required by law or judicial or
administrative order to disclose. In addition, Centerprise will cause each of
the other Founding Companies and their members and stockholders to enter into a
provision similar to this Section 8.1 requiring each such Founding Company to
keep confidential any information obtained by such Founding Company in
connection with the transactions contemplated by this Agreement.
8.1.2 In the event that this Agreement is terminated in
accordance with its terms, each party shall promptly return to the disclosing
party all non-public written material provided pursuant to this Section 8.1 or
pursuant to the Other Agreements and shall not retain any copies, extracts or
other reproductions of such written material. In the event of such termination,
all documents, memoranda, notes and other writings prepared by Centerprise or
the Company based on the information in such material shall be destroyed (and
Centerprise and the Company shall use their respective reasonable best efforts
to cause their advisors and representatives to similarly destroy such documents,
memoranda and notes), and such destruction (and reasonable best efforts) shall
be certified in writing by an authorized officer supervising such destruction.
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8.2 Registration Statements.
8.2.1 Centerprise has filed the Registration Statements with
the SEC and shall use all reasonable efforts to have the Registration Statements
declared effective by the SEC as promptly as practicable. Centerprise shall also
take any action required to be taken under applicable state "blue sky" or
securities laws in connection with the issuance of Centerprise Common Stock.
Centerprise and the Company shall promptly furnish to each other all
information, and take such other actions, as may reasonably be requested in
connection with making such filings. All information provided and to be provided
by Centerprise and the Company, respectively, for use in the Registration
Statements shall be true and correct in all material respects without omission
of any material fact which is required to make such information not false or
misleading as of the date thereof and in light of the circumstances under which
given or made. The Company agrees promptly to advise Centerprise if at any time
during the period in which a prospectus relating to the offering of the Merger
is required to be delivered under the Securities Act any information contained
in the prospectus concerning the Company or the Company Subsidiaries becomes
incorrect or incomplete in any material respect, and to provide the information
needed to correct such inaccuracy or remedy such incompletion.
8.2.2 Centerprise agrees that it will provide to the Company
and its counsel copies of drafts of the Registration Statements (and any
amendments thereto) containing material changes to the information therein as
they are prepared and will not (i) file with the SEC, (ii) request the
acceleration of the effectiveness of or (iii) circulate any prospectus forming a
part of, the Registration Statements (or any amendment thereto) unless the
Company and its counsel (x) have had at least two days to review the revised
information contained therein (which changes shall be highlighted by computer
generated marks indicating the additions and deletions made from the prior draft
reviewed by the Company's counsel) and (y) have not objected to the substance of
the information contained therein. Any objections posed by the Company or its
counsel shall be in writing and state with specificity the material in question,
the reason for the objection, and the Company's proposed alternative. If the
objection is founded upon a rule promulgated under the Securities Act, the
objection shall cite the rule. Notwithstanding the foregoing, during the five
(5) business days immediately preceding the date scheduled for the filing of the
Registration Statements and any amendment thereto, the Company and its counsel
shall be obligated to respond to proposed changes electronically transmitted to
them within two (2) hours from the time the proposed changes (in the case of the
initial filing of the Registration Statements, from the last circulated draft of
the Registration Statements; and, in the case of any subsequent filing of the
Registration Statements or any amendment thereof, from the most recently filed
Registration Statements or amendment thereof) are transmitted to the Company's
counsel; provided, that, Centerprise has provided to the Company or its counsel
reasonable advance notice of such proposed changes; provided, further, that such
changes are highlighted by computer generated marks indicating the additions and
deletions made from the prior draft reviewed by the Company's counsel.
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8.2.3 Centerprise will advise each Stockholder Representative
of the effectiveness of the Registration Statements, advise each Stockholder
Representative of the entry of any stop order suspending the effectiveness of
the Registration Statements or the initiation of any proceeding for that
purpose, and, if such stop order shall be entered, use its best efforts promptly
to obtain the lifting or removal thereof. Upon the written request of the
Company, Centerprise will furnish to the Company a reasonable number of copies
of the final prospectus associated with the IPO.
8.3 Expenses and Fees. Centerprise shall pay the fees and expenses of
the independent public accountants and legal counsel to Centerprise and all
filing, printing and other reasonable, documented fees and expenses associated
with the IPO and Form S-4. The Company and its shareholders will not be liable
for any portion of the above expenses in the event the IPO is not completed.
Centerprise shall also pay the underwriting discounts and commissions payable in
connection with the sale of Centerprise Common Stock in the IPO. All other costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
8.4 Agreement to Cooperate. Subject to the terms and conditions herein
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
8.5 Public Statements. Except as may be required by law, no party
hereto nor any Affiliate of any party hereto shall issue any press release or
any written public statement with respect to this Agreement or the transactions
contemplated by this Agreement or the Other Agreements without the prior written
consent of Centerprise and the Company.
8.6 [Reserved].
8.7 Centerprise Covenants. After the date hereof and prior to the
Closing Date or earlier termination of this Agreement in accordance with its
terms, Centerprise shall comply in all material requests with all applicable
laws. Centerprise shall not take any action that would or is reasonably likely
to result in any of the representations or warranties of Centerprise set forth
in this Agreement being untrue or in any of the conditions to the consummation
of the transactions contemplated hereunder set forth in Article X not being
satisfied.
8.8 Release of Guarantees. Centerprise shall use all commercially
reasonable efforts and good faith to have the Company's stockholders released
from any and all guarantees on any indebtedness and leases that they personally
guaranteed for the benefit of the Company as set forth on Schedule 8.8, with all
such guarantees on indebtedness and leases being assumed by Centerprise, if
necessary to achieve such releases. If any guaranteed indebtedness is repaid in
full with proceeds from the IPO and the Company's stockholders' guarantees
thereafter shall have no
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further force and effect, then Centerprise shall not be obligated to use any
efforts to obtain release of such guarantee. In the event that Centerprise
cannot obtain such releases from the lenders of any such guaranteed indebtedness
or lessors of any guaranteed leases, Centerprise agrees to indemnify, defend and
hold harmless the Company's stockholders against any and all claims made by
lenders or landlords under such guarantees.
8.9 [Reserved].
8.10 Preparation and Filing of Tax Returns.
8.10.1 The Company shall be responsible for causing the timely
filing of the final pre-Closing Returns for the Company and the Company
Subsidiaries; provided, however, that Centerprise and its advisors shall have
the right to review and approve such returns prior to filing, which approval
shall not be unreasonably withheld. Centerprise shall, and shall cause its
Affiliates to, provide to the Company such cooperation and information
reasonably requested in filing any return, amended return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in conducting
any audit or other proceeding in respect of Taxes. The Company shall bear all
costs of filing such returns. As of the Closing Date, the Company hereby assigns
to its stockholders the right to receive any and all refunds, if any, from the
Internal Revenue Service which have been or will be payable in connection with
the Company's filing of the final pre-Closing Returns. To the extent any refund
is received by the Company, Centerprise shall cause the Company to direct such
funds to the Stockholder Representative for the benefit of the stockholders.
8.10.2 Each of the Company and Centerprise shall comply with
the tax reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and shall treat the transaction as subject to the
provisions of Section 351 of the Code.
8.11 Maintenance of Insurance. The Company covenants and agrees that
all insurance policies listed, or required to be listed, on Schedule 4.20 will
be maintained in full force and effect through the Closing Date.
8.12 Payment of Indebtedness; Cancellation of Preferred Stock.
Centerprise will cause all indebtedness (including accrued and unpaid interest,
if any, and prepayment penalties) owing to Imperial Bank and The 1818 Mezzanine
Fund, L.P. and any other obligation set forth on Schedule 2.1.7(a) to be paid in
full on the Closing Date. At the Closing, Centerprise shall also directly pay,
if directed by the Company in writing, certain obligations of the Company out of
funds available after payment of the obligation set forth on Schedule 2.1.7(a)
and satisfaction of items set forth on Section 2.1.7(b). On the Closing Date,
the Company shall cause the redemption and retirement of the Preferred Stock.
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ARTICLE IX
[RESERVED]
ARTICLE X
CLOSING CONDITIONS
10.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have
been executed and the closing of the sale of Centerprise Common Stock
to the Underwriters pursuant thereto shall have occurred simultaneously
with the Closing hereunder;
(b) the closings of the transactions contemplated under each
of the Other Agreements shall have occurred simultaneously with the
Closing hereunder, unless terminated in accordance with Section 7.3 of
the applicable Other Agreement;
(c) the Registration Statements shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in
effect and no proceeding for that purpose shall have been instituted by
the SEC or any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or
decree shall be pending or issued by any federal or state court which
seeks to prevent or prevents the consummation of the IPO, the Merger or
any of the Other Mergers shall have been issued and remain in effect;
(e) the minimum condition set forth in line X on Schedule 2.1
shall have been satisfied;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government
or governmental agency in the United States which would prevent the
consummation of the Merger or any of the Other Mergers or make the
consummation of the Merger or any of the Other Mergers illegal;
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(g) all material governmental and third party waivers,
consents and approvals required for the consummation of the Merger or
any of the Other Mergers and the transactions contemplated hereby and
by the Other Agreements (including, without limitation, any consents
listed on Schedules 4.3.2 or 4.12) shall have been obtained and be in
effect;
(h) no action, suit or proceeding with respect to the Merger
has been filed or threatened by a third party and remains threatened or
remains pending before any court, Governmental Authority or regulatory
Person;
(i) this Agreement, the Merger and the transactions
contemplated hereby shall have been approved and adopted by the
Company's stockholder in the manner required by any applicable Law and
the Company's Organizational Documents and such approval shall remain
in full force and effect; and
(j) Centerprise shall have entered into one or more credit
facilities providing for aggregate commitments of not less than $75
million.
10.2 Conditions to Obligation of the Company to Effect the Merger.
Unless waived by the Company, the obligation of the Company to effect the Merger
shall be subject to the fulfillment at or prior to the Closing of the following
additional conditions:
(a) Centerprise, Mergersub and each of the Other Founding
Companies shall have performed in all material respects their
agreements contained in this Agreement and each Other Agreement
required to be performed on or prior to the Closing Date (including,
without limitation, the obligations set forth in Section 8.12) and the
representations and warranties of Centerprise contained in this
Agreement and each Other Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and the Company shall
have received a certificate of the Chief Executive Officer or President
of Centerprise to that effect;
(b) no Governmental Authority shall have promulgated or
formally proposed any statute, rule or regulation which, when taken
together with all such promulgations, would materially impair the value
to the Company's stockholders of the Merger;
(c) the Company shall have received an opinion from Katten
Muchin & Zavis, dated as of the Closing Date, containing the
substantive opinions set forth in Exhibit 10.2(c), the final form of
such opinion to be in form and substance reasonably acceptable to the
Company and its stockholders;
(d) Each of Thomas W. Corbett, Jerold D. Hall and P. Gregory
Zimmer shall have been afforded the opportunity to enter into an
employment agreement (the "Employment Agreements") with the Company
substantially in the form attached hereto
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as Exhibit 10.2(d)(i), with respect to Thomas W. Corbett, Exhibit
10.2(d)(ii) with respect to Jerold D. Hall, and Exhibit 10.2(d)(iii)
with respect to P. Gregory Zimmer;
(e) Centerprise shall have delivered to the Company a
certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State, showing
that Centerprise is in good standing;
(f) each of the Company's stockholders, the partners, the
members and the stockholders of the other Founding Companies who are to
receive shares of Centerprise Common Stock pursuant to the Other
Agreements, and the other stockholders of Centerprise other than those
acquiring stock in the IPO shall have entered into an agreement (the
"Stockholder Agreement") substantially in the form attached hereto as
Exhibit 10.2(f);
(g) all conditions to the Other Mergers of the other Founding
Companies, on substantially the same terms as provided herein, shall
have been satisfied or waived by the applicable party and the Company;
(h) the Company shall have received an opinion of Katten
Muchin & Zavis, dated as of the Closing Date and based upon certain
factual representations and assumptions that for federal income tax
purposes there will be no gain or loss recognized with respect to the
Centerprise Common Stock received for their Company Stock in the Merger
pursuant to Section 351 of the Code, as amended , the final form of
such opinion to be in form and substance reasonably acceptable to the
Company and its stockholders;
10.3 Conditions to Obligation of Centerprise to Effect the Merger.
Unless waived by Centerprise, the obligation of Centerprise and Mergersub to
effect the Merger shall be subject to the fulfillment at or prior to the Closing
of the additional following conditions:
(a) the Company shall have performed in all material respects
its agreements contained in this Agreement required to be performed on
or prior to the Closing Date and the representations and warranties of
the Company contained in this Agreement shall be true and correct in
all material respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and Centerprise and the
Underwriters shall have received a Certificate of the Chief Executive
Officer or President of the Company to that effect;
(b) Reserved;
(c) Centerprise and the Underwriters shall have received an
opinion from Musick, Peeler & Garrett, counsel to the Company, dated
the Closing Date, in substantially the form attached hereto as Exhibit
10.3(c);
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(d) Thomas W. Corbett, Jerold D. Hall and P. Gregory Zimmer
shall have executed and delivered their respective Employment Agreement
referred to in Section 10.2(d);
(e) Centerprise and the Underwriters shall have received
"Comfort" letters in customary form from the Company's independent
public accountants, dated the effective date of the Form S-1 and the
Closing Date (or such other date reasonably acceptable to Centerprise),
with respect to certain financial statements and other financial
information included in the Form S-1 and any subsequent changes in
specified balance sheet and income statement items, including total
assets, working capital, total Stockholder' equity, total revenues and
the total and per share amounts of net income;
(f) the Company shall have delivered to Centerprise and the
Underwriters a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the appropriate Governmental
Authority in the state of organization of the Company and each Company
Subsidiary and, unless waived by Centerprise, in each state in which
the Company or any Company Subsidiary is authorized to do business,
showing the Company or Company Subsidiary (as applicable) is in good
standing, authorized to do business and/or in compliance with all laws
and regulations, whichever is applicable;
(g) no Governmental Authority shall have promulgated or
formally proposed any statute, rule, regulation or bulletin, or
otherwise promulgated a policy pursuant to its authority under any
statute, which, when taken together with all such promulgations, would
materially impair the value to Centerprise of the Merger;
(h) Reserved;
(i) Reserved;
(j) the Company's stockholders shall have delivered to
Centerprise an instrument in the form attached hereto as Exhibit
10.3(j), dated the Closing Date, releasing the Company and the Company
Subsidiaries from any and all claims of such persons against the
Company and the Company Subsidiaries and obligations of the Company and
the Company Subsidiaries to such persons;
(k) Reserved;
(l) the Company shall have terminated or have caused the
termination of any voting trusts, proxies or other agreements or
understandings to which the Company is a party or is bound with respect
to any shares of capital stock or other equity interests of the
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Company shall have provided Centerprise evidence of such termination
that is acceptable to Centerprise's counsel;
(m) to the extent the Company's and each Company Subsidiary's
contracts and agreements with insurance carriers, insurance producers,
risk retention groups and purchasing groups (as defined under 65 U.S.C.
3901 et seq.) bonafide associations and group programs (collectively
referred to as "Insurance Entities") will be terminated as a result of
this Agreement or the transactions contemplated herein, the Company and
each Company Subsidiary shall have: (i) entered into new contracts with
each of the Insurance Entities under the same material terms and
conditions as the previous contracts and agreements terminated as a
result of this Agreement or the transactions contemplated herein; or
(ii) obtained amendments or waivers of the contracts and agreement with
each of Insurance Entities such that the contracts and agreements will
not terminate as a result of this Agreement or the transactions
contemplated herein, provided that such amendments or waivers do not
modify the material terms of such contracts or agreements;
(n) the Company has provided to Centerprise certified copies
of all Licenses necessary for the Company and each Company Subsidiary
to conduct their Business, and the Company and each Company Subsidiary
has modified or amended the information given the relevant Government
Authorities in obtaining such licenses and registrations necessary to
prevent this Agreement or the transactions contemplated herein from
canceling or terminating such licenses and registrations;
(o) the Company shall have presented evidence satisfactory to
Centerprise of its compliance with the provision of Section 7.1.3
hereof;
(p) the Company shall have delivered to Centerprise a payoff
letter including a statement of per diem interest amounts and other
applicable release documents from all lenders or creditors regarding
the payment in full of indebtedness to such lenders and creditors at
Closing, in each case in form and substance satisfactory to Centerprise
(including, without limitation, applicable UCC-3 termination
statements);
(q) Reserved;
(r) Reserved;
(s) the secretary of the Company shall have delivered
certified copies of the resolutions of the board of directors and
shareholders of the Company approving execution and delivery of this
Agreement, the Merger and the other actions, agreements and documents
necessary or desirable to complete the transactions contemplated
herein; and
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(t) all of the Company's stockholders listed on exhibit
10.3(t) shall have executed and delivered an agreement (the "Company
Stockholder Agreement") in the form of Exhibit 10.3(t) attached hereto.
(u) the Company's stockholders shall have executed the Escrow
Agreement in the form of Exhibit 2.1 attached hereto.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) pursuant to Section 7.3;
(b) by the Company,
(i) if the Merger is not completed by November 15,
1999 other than on account of delay or default on the part of
the Company or any of its affiliates or associates;
(ii) if the Merger is enjoined by a final,
unappealable court order not entered at the request or with
the support of the Company or any of its affiliates or
associates;
(iii) if Centerprise (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
respects within thirty (30) days after written notice of such
default is given to Centerprise; or
(c) by Centerprise,
(i) if the Merger is not completed by November 15,
1999 other than on account of delay or default on the part of
Centerprise or any of its stockholders or any of their
affiliates or associates;
(ii) if the Merger is enjoined by a final,
unappealable court order not entered at the request or with
the support of Centerprise or any of its stockholders or any
of their affiliates or associates;
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(iii) if the Company (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
respects within thirty (30) days after written notice of such
default is given to the Company by Centerprise;
(d) by mutual consent of the Company and the Board of
Directors of Centerprise.
11.2 Effect of Termination. In the event of termination of this
Agreement by either Centerprise or the Company, as provided in Section 11.1,
this Agreement shall forthwith become void and there shall be no further
obligation on the part of the Company, Centerprise, Mergersub or their
respective officers or directors (except the obligations set forth in Sections
8.1, 8.3 and 8.5, all of which shall survive the termination). Nothing in this
Section 11.2 shall relieve any party from liability for any willful breach of
this Agreement.
11.3 Amendment. This Agreement may not be amended except by action
taken by the parties' respective Boards of Directors of Centerprise and the
Company or duly authorized committees thereof and then only by an instrument in
writing signed on behalf of each of the parties hereto and in compliance with
applicable law. Centerprise covenants and agrees that it shall not amend, modify
or supplement the material terms of any Other Agreement following the Closing
without the prior written consent of at least two thirds (2/3rds) of the members
of Centerprise's Board of Directors.
11.4 Waiver. At any time prior to the Closing Date, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE XII
[RESERVED]
ARTICLE XIII
[RESERVED]
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ARTICLE XIV
[RESERVED]
ARTICLE XV
GENERAL PROVISIONS
15.1 Brokers. The Company represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
(except for the fee described in Schedule 15.1) or commission in connection with
the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. Centerprise represents and
warrants that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Centerprise or its stockholders (other than underwriting
discounts and commission to be paid in connection with the IPO).
15.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
given in accordance with this Section):
15.2.1 If to Centerprise or Mergersub, to:
Centerprise Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert Basten
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
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15.2.2 If to the Company, to:
Robert F. Driver Co., Inc.
1620 Fifth Avenue
San Diego, California 92101
Attn: Jerold D. Hall
Facsimile No.: (616) 699-1329
with a copy to:
Musick, Peeler & Garrett
624 S. Grand Avenue
Los Angeles, CA 90017
Attn: Leonard E. Castro, Esq.
Facsimile No.: (213) 624-1376
15.2.3 If to the Stockholder Representative addressed to the
addresses set forth on Section 15.2.2 with copies to such counsel as is set
forth on Section 15.2.2.
15.3 Interpretation. The table of contents and headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
15.4 Certain Definitions. As used in this Agreement, (i) the term
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated association, corporation, entity, firm,
association, organization or other business in any form whatsoever or government
(whether Federal, state, county, city or otherwise, including, without
limitation, any instrumentality, division, agency or department thereof) and,
(ii) the term "Affiliate" shall have the meaning given for that term in Rule 405
under the Securities Act, and shall include each past and present Affiliate of a
Person and the members of such Affiliate's immediate family or their spouses or
children and any trust the beneficiaries of which are such individuals or
relatives, and (iii) an individual will be deemed to have "Knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or matter, or (b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the existence of
such fact or other matter and a prudent individual would conduct such
investigation; a Person, other than an individual, will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is a
shareholder of such Person or who is otherwise serving, or who has served,
49
<PAGE>
as a director, officer, partner, member or trustee (or any capacity) of such
Person has, or at any time had, knowledge of such fact or other matter.
15.5 Entire Agreement; Assignment. This Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof and (b) shall not be assigned by operation of law or otherwise,
except that Centerprise may assign this Agreement to any wholly-owned subsidiary
of Centerprise.
15.6 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Illinois applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
15.7 Counterparts. This Agreement may be executed via facsimile or
otherwise in two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
15.8 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and their respective
successors, permitted assigns, heirs, legal representatives and executors and
except as expressly set forth in herein, nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
* * *
[remainder of page intentionally left blank]
50
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
as of the date first written above.
CENTERPRISE ADVISORS, INC.
By: /s/ Robert C. Basten
--------------------------------
Name: Robert C. Basten
------------------------------
Its:
-------------------------------
RFD MERGERSUB INC.
By: /s/ Robert C. Basten
--------------------------------
Name:
------------------------------
Its:
-------------------------------
ROBERT F. DRIVER CO., INC.
By: /s/ Thomas W. Corbett
--------------------------------
Name:
------------------------------
Its:
-------------------------------
<PAGE>
EXHIBIT 10.3(t)
STOCKHOLDERS OF THE COMPANY
The 1818 Mezzanine Fund, L.P., Brown Brothers Harriman & Co., General Partner
Hales Capital Advisors LLC
Roger G. Combe
Thomas W. Corbett
Corbett Family Trust, Thomas W. Corbett, Carolyn Corbett
David R. Cranmer
Robert A. D'Angelo
Ted E. Davidson
R. Joseph De Briyn
Gordon B. DesCombes
Michael E. Driver
Richard B. Gulley
Jerold D. Hall
Ralph S. Hurst
Richard C. Mattingley
Donald H. McClean, Jr.
McLean Family Trust, Donald H. McClean, Jr., Lou Ann McClean
Sharon W. Nash
Richard A. Parrent
<PAGE>
Michael L. Simmons
Ronald J. Stewart
John T. Warnock
Lawrence A. Weitzen
Weitzen Family Trust, Lawrence A. Weitzen, Mary Lynn Weitzen
Paul Gregory Zimmer
<PAGE>
Exhibit 2.37
------------------------------
AMENDED AND RESTATED
MERGER AGREEMENT
by and among
CENTERPRISE ADVISORS, INC.,
FRC MERGERSUB INC.
and
FOLLMER, RUDZEWICZ & COMPANY, P.C.
September 24, 1999
------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I THE MERGER...........................................2
1.1 The Merger...........................................2
1.2 Effects of the Merger................................2
1.3 Directors and Officers of the Surviving
Corporation..........................................2
ARTICLE II CONSIDERATION AND MANNER OF PAYMENT..................3
2.1 Merger Consideration.................................3
2.1.1 Basic Purchase Consideration...................3
2.1.2 Treasury Stock.................................3
2.1.3 Dissenters.....................................3
2.1.4 Conversion of Mergersub Stock..................3
2.1.5 Exchange of Certificates.......................3
2.2 [Reserved]...........................................4
2.3 Post-Closing Adjustments to Basic Purchase
Consideration........................................4
2.3.1 Adjustments for Net Working Capital
Shortfall/Excess...............................4
2.3.2 Preliminary Balance Sheet and Adjustment.......4
2.3.3 Interim Adjustment.............................4
2.3.4 Final Adjustment...............................4
2.3.5 Disputes.......................................4
2.3.6 Payment of Adjustments.........................5
2.4 Post-Closing Management of AR........................5
2.5 Assignment of Uncollected AR.........................6
2.6 Definitions..........................................6
ARTICLE III THE CLOSING AND CONSUMMATION DATE....................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY........7
4.1 Organization and Qualification.......................7
4.2 Company Subsidiaries.................................7
4.3 Authority; Non-Contravention; Approvals..............7
4.4 Capitalization.......................................9
4.5 Year 2000............................................9
4.6 Financial Statements................................10
4.7 Absence of Undisclosed Liabilities..................10
4.8 Unbilled Fees and Expenses..........................10
4.9 Absence of Certain Changes or Events................10
4.10 Litigation..........................................13
4.11 Compliance with Applicable Laws.....................14
4.12 Licenses............................................14
4.13 Material Contracts..................................14
4.14 Properties..........................................17
4.15 Intellectual Property...............................18
(i)
<PAGE>
Page
----
4.16 Taxes...............................................19
4.17 Employee Benefit Plans; ERISA.......................20
4.18 Labor Matters.......................................22
4.19 Environmental Matters...............................22
4.20 Insurance...........................................23
4.21 Interest in Customers and Suppliers; Affiliate
Transactions........................................23
4.22 Business Relationships..............................24
4.23 Compensation........................................24
4.24 Bank Accounts.......................................24
4.25 Professional Credentials............................24
4.26 Disclosure; No Misrepresentation....................24
ARTICLE V [RESERVED]..........................................25
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF CENTERPRISE.......25
6.1 Organization And Qualification......................25
6.2 Capitalization......................................25
6.3 No Subsidiaries.....................................26
6.4 Authority; Non-Contravention; Approvals.............26
6.5 Absence of Undisclosed Liabilities..................27
6.6 Litigation..........................................27
6.7 Compliance with Applicable Laws.....................28
6.8 No Misrepresentation................................28
ARTICLE VII CERTAIN COVENANTS AND OTHER TERMS...................28
7.1 Conduct of Business by the Company Pending the
Acquisition.........................................28
7.2 No-Shop.............................................31
7.3 Schedules...........................................31
7.4 Company Stockholders Meeting........................32
7.5 Conversion..........................................33
ARTICLE VIII ADDITIONAL AGREEMENTS...............................33
8.1 Access to Information...............................33
8.2 Registration Statements.............................34
8.3 Expenses and Fees...................................35
8.4 Agreement to Cooperate..............................35
8.5 Public Statements...................................35
8.6 [Reserved]..........................................35
8.7 Centerprise Covenants. ............................35
8.8 Release of Guarantees...............................35
8.9 [Reserved]..........................................36
8.10 Preparation and Filing of Tax Returns...............36
8.11 Maintenance of Insurance............................36
8.12 Administration......................................36
8.13 Member Representative...............................36
(ii)
<PAGE>
Page
----
ARTICLE IX [RESERVED]..........................................36
ARTICLE X CLOSING CONDITIONS..................................37
10.1 Conditions to Each Party's Obligation to Effect
the Acquisition.....................................37
10.2 Conditions to Obligation of the Company to Effect
the Acquisition.....................................38
10.3 Conditions to Obligation of Centerprise to Effect
the Acquisition.....................................39
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER...................41
11.1 Termination.........................................41
11.2 Effect of Termination...............................42
11.3 Amendment...........................................42
11.4 Waiver..............................................43
ARTICLE XII [RESERVED]..........................................43
ARTICLE XIII [RESERVED]..........................................43
ARTICLE XIV [RESERVED]..........................................43
ARTICLE XV GENERAL PROVISIONS..................................43
15.1 Brokers.............................................43
15.2 Notices.............................................43
15.3 Interpretation......................................44
15.4 Certain Definitions.................................45
15.5 Entire Agreement; Assignment........................45
15.6 Applicable Law......................................45
15.7 Counterparts........................................45
15.8 Parties in Interest.................................45
(iii)
<PAGE>
LIST OF SCHEDULES
-----------------
Schedule 2.1 Consideration
Schedule 2.6 Net Working Capital Adjustment Items
Schedule 4.2 Company Subsidiaries
Schedule 4.3.2 Required Consents
Schedule 4.4 Capitalization
Schedule 4.7 Liabilities
Schedule 4.9 Certain Changes and Events
Schedule 4.10 Litigation
Schedule 4.11 Noncompliance with Applicable Laws
Schedule 4.12 Licenses and Permits
Schedule 4.13 Material Contracts
Schedule 4.14.1-1 Real Property
Schedule 4.14.1-2(a) Exceptions Regarding Owned Property
Schedule 4.14.1-2(b) Exceptions Regarding Leased Property
Schedule 4.14.2 Tangible Personal Property; Liens
Schedule 4.15 Intellectual Property
Schedule 4.16.1-1 Taxes
Schedule 4.16.1-2 Tax Audits
Schedule 4.17.1 Employee Plans
Schedule 4.17.2 Unwritten Employee Plans
Schedule 4.18 Labor Matters
Schedule 4.19 Environmental Matters
(iv)
<PAGE>
Schedule 4.20 Insurance
Schedule 4.21 Affiliate Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 6.2 Centerprise's Capitalization
Schedule 6.5 Liabilities
Schedule 7.1.4(i) Terminated Employee Plans and Agreements
Schedule 7.1.4(ii) Excluded Assets
Schedule 8.8 Members' Guarantees
Schedule 8.13 Payees
Schedule 15.1 Brokers
Schedule 15.2.3 Members and Their Counsel
(v)
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit 10.2(c) Form of Opinion of Centerprise's Counsel
Exhibit 10.2(d) Form of Incentive Compensation Agreement
Exhibit 10.2(f) Form of Stockholders Agreement
Exhibit 10.3(c) Form of Opinion of Counsel to Seller, the
Company and Members
Exhibit 10.3(d)(A) Form of Separate Practice Agreement
Exhibit 10.3(d)(B) Form of Services Agreement
Exhibit 10.3(j) Form of Members' Release
Exhibit 10.3(R) Form of Company Stockholder Agreement
(vi)
<PAGE>
DEFINED TERMS
-------------
Accounting Licenses..............................................Section 4.12
Actions........................................................Section 4.10.1
Acquisition......................................................Introduction
Affiliate........................................................Section 15.4
Affiliate Transactions...........................................Section 4.21
Agreement........................................................Introduction
AR................................................................Section 2.6
Arbitrator......................................................Section 2.3.5
Attestation Practice.............................................Introduction
Basic Purchase Consideration....................................Section 2.1.1
Business.........................................................Introduction
Cash Consideration..............................................Section 2.1.1
Centerprise......................................................Introduction
Centerprise Accountants.........................................Section 2.3.2
Centerprise Common Stock........................................Section 2.1.1
Centerprise Material Adverse Effect.............................Section 6.4.3
Centerprise Representatives.....................................Section 8.1.1
Centerprise Required Statutory Approvals........................Section 6.4.3
Closing...........................................................Article III
Closing Balance Sheet...........................................Section 2.3.2
Closing Date......................................................Article III
Code.............................................................Introduction
Company..........................................................Introduction
Company Material Adverse Effect.................................Section 4.3.3
(vii)
<PAGE>
Company Representatives.........................................Section 8.1.1
Company Shareholders' Agreement.................................Section 7.1.4
Company Stock...................................................Section 2.1.1
Company Subsidiary(ies)...........................................Section 4.2
Contracts........................................................Section 4.13
Conversion...................................................... Introduction
Copyrights.......................................................Section 4.15
Disputed Item...................................................Section 2.3.5
Dissenting Shares...............................................Section 2.1.3
Effective Time....................................................Section 1.1
Employee Plan...............................................Section 4.17.5(a)
Environmental and Safety Requirements............................Section 4.19
ERISA.......................................................Section 4.17.5(b)
Excluded Assets.................................................Section 7.1.4
Excluded Liabilities............................................Section 7.1.4
Final Adjustment................................................Section 2.3.4
Financial Statements..............................................Section 4.6
First Person................................................Section 4.17.5(c)
Form S-1........................................................Section 4.3.3
Form S-4........................................................Section 4.3.3
Founding Companies...............................................Introduction
GAAP..............................................................Section 4.6
general increase.................................................Section 4.23
Governmental Authority..........................................Section 4.3.2
Hazardous Materials..............................................Section 4.19
(viii)
<PAGE>
herein...........................................................Section 15.3
hereof...........................................................Section 15.3
hereunder........................................................Section 15.3
HSR Act.........................................................Section 4.3.3
Incentive Compensation Agreement..............................Section 10.2(d)
Intellectual Property............................................Section 4.15
Intellectual Property Licenses...................................Section 4.15
Interim Adjustment..............................................Section 2.3.3
IPO..............................................................Introduction
Knowledge........................................................Section 15.4
Latest Balance Sheet..............................................Section 4.6
Laws.............................................................Section 4.11
Leased Property................................................Section 4.14.1
Licenses.........................................................Section 4.12
Lien(s).........................................................Section 4.3.2
Liquidated Damages Amount.........................................Section 7.3
Marks............................................................Section 4.15
Material Contracts...............................................Section 4.13
MBCA..............................................................Section 1.1
Member(s)........................................................Introduction
Merger...........................................................Introduction
Mergersub........................................................Introduction
Mergersub Stock.................................................Section 6.2.1
Merger Documents..................................................Section 1.1
Net Working Capital...............................................Section 2.6
(ix)
<PAGE>
1933 Act........................................................Section 4.3.3
Organizational Documents..........................................Section 4.1
Other Agreements.................................................Introduction
Other Acquisitions...............................................Introduction
Owned Property.................................................Section 4.14.1
Patents..........................................................Section 4.15
Person...........................................................Section 15.4
Plan Affiliate..............................................Section 4.17.5(c)
Real Property..................................................Section 4.14.1
Registration Statements.........................................Section 4.3.3
Resolution Period...............................................Section 2.3.5
Returns........................................................Section 4.16.1
Schedules.........................................................Section 7.3
SEC.............................................................Section 4.3.3
Securities Act..................................................Section 4.3.3
Seller...........................................................Introduction
Special Bonus Plan .......................................Section 2.6
Stock Consideration.............................................Section 2.1.1
Stockholders Agreement........................................Section 10.2(f)
Surviving Corporation.............................................Section 1.2
Target............................................................Section 2.6
Tax Accrual.......................................................Section 2.6
Taxes..........................................................Section 4.16.2
Territory.....................................................Section 13.1(a)
(x)
<PAGE>
Trade Secrets....................................................Section 4.15
Underwriters....................................................Section 8.1.1
(xi)
<PAGE>
AMENDED AND RESTATED
MERGER AGREEMENT
THIS AMENDED AND RESTATED MERGER AGREEMENT (this "Agreement") is made
as of September 24, 1999, by and among Centerprise Advisors, Inc., a Delaware
corporation ("Centerprise"), FRC Mergersub Inc., a Delaware corporation and
wholly owned subsidiary of Centerprise ("Mergersub") and Follmer, Rudzewicz &
Company, P.C., a Michigan professional corporation (the "Company").
WITNESSETH:
WHEREAS, the Company engages directly, and indirectly through the
Company Subsidiaries, in the business of providing accounting, tax and other
related services (such business provided by the Company is referred to as the
"Business");
WHEREAS, prior to, and in anticipation of, completion of the
transactions contemplated hereby (a) the Company will cease to provide services
related to the practice of accounting that, pursuant to applicable laws and
regulations, may only be conducted by certified public accountants (the
"Attestation Practice", (b) the Company will be converted from a professional
corporation to a business corporation by (x) amending the Company's
Organizational Documents (as defined in Section 4.1) such that it converts to a
business corporation, (y) adopting a plan of liquidation and reincorporating as
a business corporation or (z) merging with a foreign professional corporation,
with the surviving professional corporation amending its Organizational
Documents such that it converts to a business corporation, as applicable (the
actions described in the foregoing (x), (y) and (z), collectively, the
"Conversion");
WHEREAS, the Boards of Directors of the Company, Centerprise and
Mergersub deem it advisable and in the best interests of their respective
shareholders to approve and consummate the business combination transaction
provided for herein in which Mergersub would merge with the Company, with the
Company being the surviving corporation in the merger (the "Acquisition" or
"Merger");
WHEREAS, Centerprise is entering into other agreements (the "Other
Agreements") substantially similar to this Agreement with each of Reznick Fedder
& Silverman, Certified Public Accountants, a Professional Corporation, Robert F.
Driver Company, Inc., Mann Frankfort Stein & Lipp, P.C., The Reppond Company,
Inc., Reppond Administrators, LLC, Verasource Excess Risk Ltd., Berry, Dunn,
McNeil & Parker, Chartered, Urbach Kahn & Werlin PC, Self Funded Benefits, Inc.
d/b/a Insurance Design Administrators, Grace & Company, P.C. and Simione,
Scillia, Larrow & Dowling LLC (which companies together with the Company are
collectively referred to herein as the "Founding Companies"), which agreements
provide for the merger of a wholly owned subsidiary of Centerprise with each
such Founding Company (the "Other Acquisitions") simultaneously with the
Acquisition; Centerprise has provided a side letter to each holder of equity
interests of the Company to such effect;
<PAGE>
WHEREAS, simultaneously with the consummation of the Acquisition,
Centerprise will close an initial public offering (the "IPO") of Centerprise
Common Stock (as defined in Section 2.1);
WHEREAS, the parties intend the acquisition of Centerprise Common Stock
pursuant to the terms hereof to be tax-free under the provisions of Section 351
of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Voting Agreement, dated as of March 31, 1999, among
Centerprise and certain of the stockholders of the Company has been terminated
and is no longer in force and effect.
NOW, THEREFORE, for and in consideration of the premises and of the
mutual representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement and in reliance upon the representations and warranties set
forth herein, Mergersub shall be merged with and into the Company, the result of
which will cause the separate corporate existence of Mergersub to cease and the
Company to continue under the laws of the State of Michigan. As promptly as
possible on the Closing Date, the parties shall cause the Merger to be completed
by filing articles of merger and a certificate of merger, as applicable (the
"Merger Documents"), with the Secretary of State of the State of Michigan, as
provided in the Michigan Business Corporation Act, as amended (the "MBCA"), and
with the Secretary of State of the State of Delaware, as provided in the General
Corporation Law of the State of Delaware (the "DGCL"). The Merger shall become
effective (the "Effective Time") upon the filing of the Merger Documents with
the Secretary of State of the State of Michigan and the Secretary of State of
the State of Delaware or at such later time, contemporaneously with the closing
of the IPO, as agreed by Centerprise and the Company and specified in the Merger
Documents.
1.2 Effects of the Merger. At the Effective Time (i) the separate
existence of Mergersub shall cease and Mergersub shall be merged with and into
the Company, with the Company being the surviving corporation in the Merger (the
Company is sometimes referred to herein as the "Surviving Corporation"), (ii)
the Articles of Incorporation and By-laws of the Surviving Corporation shall be
amended in form and substance acceptable to Centerprise and as specified in the
Merger Documents, (iii) the Merger shall have all the effects provided by
applicable law, and (iv) the Company shall be a wholly-owned subsidiary of
Centerprise.
1.3 Directors and Officers of the Surviving Corporation. From and after
the Effective Time, the directors and officers of Mergersub shall be the
directors and officers of the Surviving Corporation until their successors are
duly elected and qualified.
2
<PAGE>
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2.1 Merger Consideration.
2.1.1 Basic Purchase Consideration. At the Closing, by virtue
of the Merger and without any action on the part of the holder thereof, the
outstanding shares of capital stock, consisting of 10,150 shares of Class A
common stock, par value $1.00 per share and zero (0) shares of Class B common
stock, par value $1.00 per share, of the Company (collectively, the "Company
Stock") shall be converted into the right to receive: (a) that number of shares
of Centerprise common stock, par value $.01 per share (the "Centerprise Common
Stock") shown on line T of Schedule 2.1; provided, however, that if the initial
public offering price of the Centerprise Common Stock is below $11.90 per share,
the number of shares of Centerprise Common Stock received at Closing shall be
increased such that the value of the shares, using the initial public offering
price, equals the amounts shown on line U of Schedule 2.1 (the "Stock
Consideration") and (b) the amount of cash shown on line S of Schedule 2.1 (the
"Cash Consideration"). The sum of the Cash Consideration and the Stock
Consideration is herein referred to as "Basic Purchase Consideration."
2.1.2 Treasury Stock. Each share of capital stock of the
Company held in treasury of the Company shall be canceled and retired and no
payment shall be made in respect thereof.
2.1.3 Dissenters. Each outstanding share of capital stock of
the Company the holder of which has perfected his right to dissent under
applicable law and has not effectively withdrawn or lost such right as of the
Effective Time (the "Dissenting Shares") shall not be converted into the right
to receive Basic Purchase Consideration, and the holder thereof shall be
entitled only to such rights as are granted by applicable law. The Company shall
give Centerprise prompt notice upon receipt by the Company of any such written
demands for payment of fair value of shares of capital stock of the Company and
any other instruments provided pursuant to applicable law. Any payments made in
respect of Dissenting Shares shall be made by the Surviving Corporation.
2.1.4 Conversion of Mergersub Stock. At the Effective Time,
each share of Mergersub Stock issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and become one validly issued, fully
paid and non-assessable share of the Surviving Corporation. Such newly issued
shares shall thereafter constitute all of the issued and outstanding capital
stock of the Surviving Corporation.
2.1.5 Exchange of Certificates. At the Closing, Centerprise
shall receive the original Company Stock certificates, duly endorsed in blank by
the Company's stockholder(s) or accompanied by blank stock powers, in exchange
for the allocated share of (a) Centerprise Common Stock certificates
representing the Stock Consideration and (b) payment of the Cash Consideration
by certified check, cashier's check or wire transfer of immediately available
funds to a bank account or bank accounts in the amounts and manner specified by
the Company in a writing delivered to
3
<PAGE>
Centerprise at least three (3) business days prior to the Closing Date. The
shares represented by the Company Stock certificates so delivered to Centerprise
shall be canceled. Until surrendered as contemplated by this Section 2.1.5, each
certificate representing shares of Company Stock represents only the right to
receive Basic Purchase Consideration, as adjusted in accordance with this
Article II.
2.2 [Reserved]
2.3 Post-Closing Adjustments to Basic Purchase Consideration.
2.3.1 Adjustments for Net Working Capital Shortfall/Excess.
The Basic Purchase Consideration shall be (a) reduced dollar-for-dollar
to the extent Net Working Capital on the Closing Date is less than the
Target or (b) increased dollar-for-dollar to the extent Net Working
Capital on the Closing Date is greater than the Target.
2.3.2 Preliminary Balance Sheet and Adjustment. At or about
the Closing, the Company will prepare, and the firm
PricewaterhouseCoopers LLP (the "Centerprise Accountants") will review,
a balance sheet of the Company, as of the Closing Date, in accordance
with GAAP and consistent with the accounting policies and practices
used in connection with the preparation of the Financial Statements
(the "Closing Balance Sheet") along with a preliminary calculation of
any excess or shortfall of Net Working Capital as compared to the
Target.
2.3.3 Interim Adjustment. As soon as practicable, the Company
will prepare and deliver to Centerprise a revised calculation of Net
Working Capital reflecting all collections of AR up to the date 90 days
from the Closing Date. Within 10 days of receipt of such calculation,
Centerprise will deliver to the Member Representative a written report
indicating the amount and nature of any adjustment to the Basic
Purchase Consideration determined in accordance with Section 2.3.1 (the
"Interim Adjustment").
2.3.4 Final Adjustment. As soon as practicable, the Company
will prepare and deliver to Centerprise a final calculation of Net
Working Capital revised to reflect all collections of AR up to the date
180 days from the Closing Date. Centerprise will review such
calculation and any records, work papers and other documents related
thereto. Within 10 days of receipt of such calculation, Centerprise
will deliver to the Member Representative a written report indicating
the amount and nature of any adjustment to the Basic Purchase
Consideration determined in accordance with Section 2.3.1 (the "Final
Adjustment").
2.3.5 Disputes. The parties hereto shall not object to the
Interim Adjustment which shall be binding on the parties hereto, and
shall withhold all objections until delivery of the Final Adjustment
report. If the Member Representative does not object (or otherwise
respond) in writing to the Final Adjustment report within 30 days after
its delivery, the Final Adjustment shall automatically become final,
binding and conclusive on all parties hereto. Any objection to the
Final Adjustment report shall be in writing and shall specify the item
or items in dispute (each a "Disputed Item").
4
<PAGE>
If the Member Representative and Centerprise are unable to
resolve any Disputed Item within 30 days after notice from the Member
Representative that a dispute exists (the "Resolution Period"), then a
representative from the office of a nationally recognized accounting
firm chosen by the Member Representative and Centerprise (the
"Arbitrator") will arbitrate the dispute. The Member Representative and
Centerprise shall, within 20 days after expiration of the Resolution
Period, present their respective positions with respect to any Disputed
Item to the Arbitrator together with such materials as the Arbitrator
deems appropriate. To the extent any Disputed Item is similar to a
disputed item under the Other Agreements, the Arbitrator shall
arbitrate the Disputed Item based on the submitted materials and
without regard to the disputed item under the Other Agreements. The
Arbitrator shall, after the submission of the materials, submit a
written decision on each Disputed Item to the Member Representative and
Centerprise and such determination shall be final and binding on the
parties hereto. The arbitration shall be conducted in Chicago,
Illinois. The parties hereto agree that the cost of the Arbitrator
shall be borne by the non-prevailing party or as determined by the
Arbitrator.
2.3.6 Payment of Adjustments. In the event Net Working Capital
is less than the Target, the Company's stockholders shall pay the
amount of the shortfall to Centerprise. In the event Net Working
Capital is greater than the Target, Centerprise shall pay the amount of
the excess to the Company's stockholders. Any payment required to be
made pursuant to this paragraph shall be made, within ten days of
delivery of the report indicating any adjustment, by wire transfer of
immediately available funds to an account designated in writing by the
party that is to receive payment of such adjustment. In respect of the
Final Adjustment, the party making a payment required by such
adjustment shall make such payment within ten days after the Final
Adjustment becomes final and shall receive credit for or return of any
amount previously paid in connection with the Interim Adjustment.
2.4 Post-Closing Management of AR. Following the Closing, the billing,
servicing, administering and collection of the AR shall be conducted by the
Company. The Company shall take all such actions as may be necessary or
advisable to collect the AR in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in accordance with the
Company's credit and collection policy in effect at Closing. The Company may
modify, adjust or write-off AR from time to time in accordance with the
Company's credit and collection policy in effect at Closing. Unless otherwise
required by contract or law, payments by an obligor in respect of services
rendered or expenses advanced by the Company shall be applied as follows: in the
event any such payment specifically references the invoice being paid or clearly
relates to an outstanding invoice, the payment will be applied to the
corresponding invoice; and, in any other case, the payment will be applied to
satisfy AR relating to such obligor in the order that such AR arose. Any
adjustment, modification or write-off affecting AR and fees and expenses
receivable and unbilled fees and expenses of the Company incurred after Closing
with respect to the same client engagement shall be allocated ratably to the
pre-Closing and post-Closing periods.
2.5 Assignment of Uncollected AR. If any AR remain uncollected by the
Company as of 180 days after the Closing Date, the Company will assign the
uncollected AR to the Company's
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stockholders. Notwithstanding the foregoing, the Company will retain the sole
right to service, administer and collect the uncollected AR in accordance with
Section 2.4.
2.6 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) "AR" means any fees and expenses receivable and unbilled
fees and expenses of the Company on the Closing Date.
(b) "Net Working Capital" means an amount determined as of the
Closing Date, whenever calculated, equal to difference between: (i) the
sum of any AR, prepaid expenses and other current assets less (ii) the
sum of accounts payable, accrued current liabilities, the items listed
on Schedule 2.6, the Tax Accrual and the portion of employer-paid FICA
attributable to Medicare, payable in connection with deferred
compensation and the Special Bonus Plan. For purposes of this Section
2.6(b), the Special Bonus Plan accrual shall not constitute a current
liability.
(c) "Special Bonus Plan" means the Company's Special Bonus
Plan dated March 1, 1999.
(d) "Target" means an amount equal to 1% of the Company's net
revenues for the four quarter period ending on the last day of the
calendar quarter prior to Closing.
(e) "Tax Accrual" means an amount equal to the product of (i)
Net Working Capital (calculated before deduction of the Tax Accrual)
less an amount equal to any tax deductions realized by Centerprise as a
result of any payments pursuant to the Special Bonus Plan times (ii)
the sum of 34% plus the effective state tax rate on the Company (net of
any federal tax benefit). A negative Tax Accrual shall be treated as a
current asset for purposes of Section 2.5(b)(i). The Tax Accrual shall
be reduced by 34% of the present value of the SERP liability as
calculated by Centerprise's accountants.
ARTICLE III
THE CLOSING AND CONSUMMATION DATE
The consummation of the Merger and the other transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Katten
Muchin & Zavis, Chicago, Illinois, contemporaneously with the closing of the
IPO, or at such other time and date as the parties hereto may mutually agree
(the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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The Company represents and warrants to Centerprise, as of March 31,
1999 and, subject to Section 7.3, as of the date on which Centerprise and the
lead Underwriter (as defined in Section 8.1.1) execute and deliver the
Underwriting Agreement related to the IPO and as of the Closing Date, as
follows:
4.1 Organization and Qualification. The Company is a professional
corporation duly organized, validly existing and in good standing under the laws
of the State of Michigan and, following the Conversion, the Company will be a
business corporation duly organized, validly existing and in good standing under
the laws of the State of Michigan. Each Company Subsidiary (as defined in
Section 4.2) is duly organized, validly existing and in good standing under the
laws of the state of its organization set forth on Schedule 4.2. Each of the
Company and the Company Subsidiaries has the requisite power and authority to
own, lease and operate its assets and properties and to carry on its business as
it is now being conducted, and is qualified to do business and is in good
standing in each jurisdiction in which the properties owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary. True, accurate and complete copies of the Seller's, the Company's and
each Company Subsidiary's Organizational Documents, in each case as in effect on
March 31, 1999 have heretofore been delivered to Centerprise. "Organizational
Documents" means (a) the articles or certificate of incorporation and the bylaws
of a corporation (professional or otherwise), (b) the partnership agreement and
any statement of partnership of a general partnership, (c) the limited
partnership agreement and the certificate of limited partnership of any limited
partnership, (d) the operating or limited liability company agreement and
certificate of formation of any limited liability company, (e) any charter or
similar document adopted and filed in connection with the creation, formation,
organization or governance (as applicable) of any Person and (f) any amendment
to any of the foregoing.
4.2 Company Subsidiaries. Schedule 4.2 sets forth the name (including
any assumed names), jurisdiction of organization and ownership of the issued and
outstanding equity interests of each Person in which the Company owns, directly
or indirectly, securities or other interests having the power to elect a
majority of such Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of such Person
(each a "Company Subsidiary" and collectively, the "Company Subsidiaries").
Except as set forth on Schedule 4.2, the Company does not, directly or
indirectly, own, of record or beneficially, or control any capital stock,
securities convertible into capital stock or any other equity interest in any
Person.
4.3 Authority; Non-Contravention; Approvals.
4.3.1 The Company has full right, power and authority to enter
into this Agreement and, subject to the approval of the Merger and the
transactions contemplated hereby by the Company's stockholders, to
consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by the Company have been
duly authorized by all necessary corporate action on the part of the
Company, subject to the approval of the Merger and the transactions
contemplated hereby by the Company's stockholders. This Agreement has
been duly executed and delivered by the Company, and, assuming the due
authorization, execution and delivery hereof by Centerprise,
constitutes a valid and legally binding agreement of the Company,
enforceable against it in accordance
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with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting or relating to enforcement of creditors' rights
generally and (ii) general equitable principles.
4.3.2 The execution and delivery of this Agreement by the
Company does not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in
the creation of any claim, lien, privilege, mortgage, charge,
hypothecation, assessment, security interest, pledge or other
encumbrance, conditional sales contract, equity charge, restriction, or
adverse claim of interest of any kind or nature whatsoever (each a
"Lien" and collectively, the "Liens"), upon any of the properties or
assets of the Company or any Company Subsidiary under, any of the
terms, conditions or provisions of (i) the Organizational Documents of
the Company or any Company Subsidiary, (ii) following completion of the
Conversion, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or
federal, state, provincial, local or foreign government, or any
subdivision, agency or authority of any thereof ("Governmental
Authority") applicable to the Company, any Company Subsidiary, or the
Business, properties or assets of the Company or any Company
Subsidiary, except for those items discussed in (ii) above relating to
regulating, licensing or permitting the practice of public accountancy,
or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which any of the Company or any
Company Subsidiary is a party or by which any of the Company, any
Company Subsidiary or any of the properties or assets of the Company or
any Company Subsidiary may be bound or affected. The consummation by
the Company of the transactions contemplated hereby will not result in
a violation, conflict, breach, right of termination, creation or
acceleration of Liens under the terms, conditions or provisions of the
items described in clauses (i) through (iii) of the immediately
preceding sentence, subject in the case of the terms, conditions or
provisions of the items described in clause (iii) above, to obtaining
(prior to the Closing Date) such consents required from third parties
set forth on Schedule 4.3.2 and except for those items described in
(ii) and (iii) above, relating to regulating, licensing or permitting
the practice of public accountancy and any filing which may be required
under the HSR Act.
4.3.3 Except for (i) the declaration of effectiveness of a
registration statement on Form S-1 (the "Form S-1") and a
post-effective amendment to the registration statement on Form S-4 (the
"Form S-4") (Form S-1 and Form S-4 are collectively the "Registration
Statements") with the Securities and Exchange Commission (the"SEC")
pursuant to the Securities Act of 1933, as amended (the "Securities
Act"or the "1933 Act"), and filings, if required, with various state
securities or "blue sky" authorities, (ii) any filing which may be
required under the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as amended (the "HSR Act"), and (iii) any filing which may be required
by any Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy,
no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any Governmental Authority is
necessary for the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions
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contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if
not made or obtained, as the case may be, would not, individually or in
the aggregate, have a "Company Material Adverse Effect," which, for
purposes of this Agreement means a material adverse effect on the
operations, assets, condition (financial or other), operating results,
employee or client relations, or prospects of the Company or any
Company Subsidiary.
4.4 Capitalization.
4.4.1 The authorized capital stock of the Company consists of
50,000 shares of Class A Company Stock, of which 10,150 shares are
issued and outstanding, and 50,000 shares of Class B Company Stock, of
which zero shares are issued and outstanding. The authorized capital
stock of each of the Company Subsidiaries, if any, and the number of
such shares issued and outstanding is completely and accurately set
forth in Schedule 4.4. All of such issued and outstanding shares are
validly issued and are fully paid, nonassessable and free of preemptive
rights. The Company owns all shares of the Company Subsidiaries as
indicated on Schedule 4.4, in each case free and clear of all Liens,
and the Company has good and marketable title to such shares of the
Company Subsidiaries. All of such issued and outstanding shares are
validly issued and are fully paid, nonassessable and free of preemptive
rights.
4.4.2 Except as set forth on Schedule 4.4, there are no
outstanding subscriptions, options, calls, contracts, commitments,
undertakings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of the capital stock of
the Company or any Company Subsidiary or obligating the Company or any
Company Subsidiary to grant, extend or enter into any such agreement or
commitment or obligating the Company or any Company Subsidiary to
convey or transfer any Company Stock or Company Subsidiary stock, as
the case may be. As of the Closing Date, there will be no voting
trusts, proxies or other agreements or understandings to which the
Company or any Company Subsidiary is a party or is bound with respect
to the voting of any shares of capital stock or other equity interests
of the Company or any Company Subsidiary.
4.5 Year 2000. To the Knowledge of the Company, all of the computer
software, computer firmware, computer hardware (whether general or special
purpose), and other similar or related items of automated, computerized, and/or
software system(s) that are used or relied on by the Company or any Company
Subsidiary in the conduct of the Business will not malfunction, will not cease
to function, will not generate incorrect data, and will not produce incorrect
results when processing, providing, and/or receiving (i) date-related data into
and between the twentieth (20th) and twenty-first (21st) centuries and (ii)
date-related data in connection with any valid date in the twentieth (20th) and
twenty-first (21st) centuries, except for any malfunctions or generations of
incorrect data or results that would not individually or in the aggregate have a
Company Material Adverse Effect. Nothing in this Section 4.5 is intended or
shall be construed as a representation or warranty with respect to embedded
systems.
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4.6 Financial Statements. The Company has previously furnished to
Centerprise copies of the audited consolidated balance sheets of the Company as
of May 31 in each of the years 1997 and 1998 and an unaudited consolidated
balance sheet of the Company for the three month period ending December 31, 1998
(the "Latest Balance Sheet"), and the related audited consolidated statements of
income, stockholders' equity and cash flow for each of the years in the three
(3) year period ended May 31, 1998, including all notes thereto, and related
unaudited consolidated statements of income, stockholders' equity and cash flow
for the six month period ending December 31, 1998, including all notes thereto
(collectively, the "Financial Statements"). Each of the Financial Statements is
accurate and complete in all material respects, is consistent with the books and
records of the Company and the Company Subsidiaries (which, in turn, are
accurate and complete in all material respects), and fairly presents in all
material respects the financial condition, assets and liabilities of the Company
and the Company Subsidiaries as of its date and the results of operations and
cash flows for the periods related thereto, in each case in accordance with
generally accepted accounting principles, applied on a consistent basis
("GAAP").
4.7 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
4.7, neither the Company nor any Company Subsidiary had, as of the date of the
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent clearly and accurately reflected or accrued or fully
reserved against in the Financial Statements or (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business and consistent with past custom and practices (none of which
is a liability resulting from a breach of contract, breach of warranty, tort,
infringement claim, legal violation or lawsuit).
4.8 Unbilled Fees and Expenses. At the Closing all unbilled fees and
expenses at net realizable value reflected in the records of the Company and the
Company Subsidiaries arose in the ordinary course of business and will be
billable in the ordinary course of business using normal billing practices and
adjustments employed as of the date of this Agreement by the Company and each
Company Subsidiary. Upon such billing any such amounts will be collectible in
the ordinary course of business using normal collection practices and policies
employed by the Company and each Company Subsidiary (net of any allowance for
doubtful accounts determined in accordance with the Company's and the Company
Subsidiaries' past practice and custom).
4.9 Absence of Certain Changes or Events. Except as set forth on
Schedule 4.9, since the date of the Latest Balance Sheet, each of the Company
and the Company Subsidiaries has conducted its business only in the ordinary
course consistent with past custom and practices. Except as set forth on
Schedule 4.9, since the date of the Latest Balance Sheet, there has not been
any:
(a) material adverse change in the operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee or client relations or prospects of the Company or any Company
Subsidiary;
(b) damage, destruction or loss of any property owned by the
Company or any Company Subsidiary, or used in the operation of the
Business, whether or not covered by insurance, having a replacement
cost or fair market value in excess of five percent (5%) of the
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amount of net property, plant and equipment shown on the Latest Balance
Sheet, in the aggregate;
(c) voluntary or involuntary sale, transfer, surrender,
cancellation, abandonment, waiver, release or other disposition of any
kind by the Company or any Company Subsidiary of any right, power,
claim, or debt, except the collection of accounts and billing of
work-in-process, each in the ordinary course of business consistent
with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination or other labor dispute or similar occurrence that is
reasonably expected to adversely affect the Company, a Company
Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary
to any Person, other than as a result of services performed for, or
expenses properly and reasonably advanced for the benefit of, customers
in the ordinary course of business consistent with past custom and
practices;
(f) notice (formal or otherwise) of any liability, potential
liability or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or
other distribution in respect of the Company's capital stock or other
equity interests or any direct or indirect redemption, purchase, or
other acquisition of the Company's or any Company Subsidiary's capital
stock or other equity interests, or the payment of principal or
interest on any note, bond, debt instrument or debt to any Affiliate
(as defined in Section 15.4) of the Company or any Company Subsidiary,
except bonuses and distributions to employees and stockholders of the
Company disclosed to Centerprise in writing that are consistent with
the Company's past custom and practices or as otherwise contemplated by
this Agreement;
(h) incurrence by the Company or any Company Subsidiary of
debts, liabilities or obligations except current liabilities incurred
in connection with or for services rendered or goods supplied in the
ordinary course of business consistent with past custom and practices,
liabilities on account of taxes and governmental charges (but not
penalties, interest or fines in respect thereof), and obligations or
liabilities incurred by virtue of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any
notes, bonds, or other debt securities or any equity securities or
securities convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or
amendment or termination of, any material commitment, contract,
agreement, or transaction, other than in the ordinary course of
business and other than expiration of contracts in accordance with
their terms;
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(k) loss or threatened loss of, or any material reduction or
threatened material reduction in revenues from, any client of the
Company or any Company Subsidiary that accounted for revenues during
the last twelve months in excess of one percent (1%) of the
consolidated net revenues of the Company and the Company Subsidiaries,
or change in the relationship of the Company or any Company Subsidiary
with any client or Governmental Authority that is reasonably expected
to adversely affect the Company, any Company Subsidiary or the
Business;
(l) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or
amortization policies or rates) utilized by the Company or any Company
Subsidiary;
(m) discharge or satisfaction by the Company or any Company
Subsidiary of any material liability or encumbrance or payment by the
Company or any Company Subsidiary of any material obligation or
liability, other than current liabilities paid in the ordinary course
of its business consistent with past custom and practices;
(n) sale, lease or other disposition by the Company or any
Company Subsidiary of any tangible assets (having an aggregate
replacement cost or fair market value in excess of five percent (5%) of
the amount of net property, plant and equipment shown on the Latest
Balance Sheet) other than in the ordinary course of business, or the
sale, assignment or transfer by the Company or any Company Subsidiary
of any trademarks, service marks, trade names, corporate names,
copyright registrations, trade secrets or other intangible assets, or
disclosure of any proprietary confidential information of the Company
or any Company Subsidiary to any Person other than an employee, agent,
attorney, accountant or other representative of the Company that has
agreed to maintain the confidentiality of any such proprietary
confidential information;
(o) capital expenditures or commitments therefor by the
Company or any Company Subsidiary in excess of $50,000 individually or
$100,000 in the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the
Company or any Company Subsidiary or creation of any easements, Liens
or other interests against or on any of the Real Property (as defined
in Section 4.14.1);
(q) adoption, amendment or termination of any Employee Plan
(as defined in Section 4.17.5(a)) or increase in the benefits provided
under any Employee Plan, or promise or commitment to undertake any of
the foregoing in the future; or
(r) an occurrence or event not included in clauses (a) through
(q) that has resulted or, based on information of which the Company has
Knowledge, is reasonably expected to result in a Company Material
Adverse Effect.
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4.10 Litigation. Except as set forth on Schedule 4.10 (which shall
disclose the parties to, nature of and relief sought for each matter to be
disclosed on Schedule 4.10):
4.10.1 There is no suit, action, proceeding, investigation,
claim or order pending or, to the Knowledge of the Company, threatened
against the Company or any Company Subsidiary, or with respect to the
Merger, or with respect to any Employee Plan, or any fiduciary of any
such plan (or pending or, to the Knowledge of the Company, threatened
against any of the officers, directors, members, stockholders, partners
or employees of the Company or any Company Subsidiary with respect to
its business or proposed business activities), or to which the Company
or any Company Subsidiary is otherwise a party, or that is reasonably
expected to have a Company Material Adverse Effect, before any court,
or before any Governmental Authority (each an "Action" and
collectively, the "Actions"); nor, to the Knowledge of the Company, is
there any basis for any such Action.
4.10.2 Neither the Company nor any Company Subsidiary is
subject to any unsatisfied or continuing judgment, order or decree of
any court or Governmental Authority. Neither the Company nor any
Company Subsidiary, to the Knowledge of the Company, is otherwise
exposed, from a legal standpoint, to any liability or disadvantage that
is reasonably expected to result in a Company Material Adverse Effect,
and neither the Company nor any Company Subsidiary is a party to any
legal action to recover monies due it or for damages sustained by it,
other than collection of past due charges for services rendered or
expenses incurred by the Company.
4.10.3 Schedule 4.10 lists the insurer for each Action covered
by insurance or designates such Action, or a portion of such Action, as
uninsured and lists the individual and aggregate policy limits for the
insurance covering each insured Action and the applicable policy
deductibles for each insured Action.
4.10.4 Schedule 4.10 sets forth all material closed litigation
matters to which the Company or any Company Subsidiary was a party
during the five (5) year period preceding the Closing Date, the date
such litigation was commenced and concluded, and the nature of the
resolution thereof (including amounts paid in settlement or judgment).
4.11 Compliance with Applicable Laws. Except as set forth on Schedules
4.11 and 4.19, each of the Company and the Company Subsidiaries has complied in
all material respects with all laws, rules, regulations, writs, injunctions,
decrees, and orders (collectively, the "Laws") applicable to it or to the
operation of the Business, and neither the Company nor any Company Subsidiary
has received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of the Company, no event has occurred or circumstances exist that
(with or without notice or lapse of time) is reasonably expected to constitute
or result in a violation by the Company or any Company Subsidiary of any Law
that gives rise to any liability on the part of the Company or any Company
Subsidiary under any Law.
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4.12 Licenses. Schedule 4.12 lists all Licenses used by the Company and
the Company Subsidiaries that are material to the conduct of the Business.
"Licenses" means all notifications, licenses, permits, franchises, certificates,
approvals, exemptions, classifications, registrations and other similar
documents and authorizations, and applications therefor, held by the Company or
any Company Subsidiary and issued by, or submitted by the Company or any Company
Subsidiary to, any Governmental Authority or other Person, other than those
relating to the practice of public accountancy. Section B of Schedule 4.12 lists
all licenses, certificates, approvals, registrations and other similar documents
and authorizations, and applications therefor, relating to the practice of
public accountancy (the "Accounting Licenses") held by the Company or a Company
Subsidiary and issued by, or submitted by the Company or any Company Subsidiary
to, any Governmental Authority or other Person. All such Licenses and Accounting
Licenses are valid, binding and in full force and effect. Except as described on
Schedule 4.12, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not adversely affect
any such Licenses. To the Knowledge of the Company, the Company and the Company
Subsidiaries have taken all necessary action to maintain such Licenses. No loss
or expiration of any such License is pending or, to the Company's Knowledge,
threatened or reasonably foreseeable.
4.13 Material Contracts. Except as listed or described on Schedule 4.13
(such contracts, or those which should have been listed on Schedule 4.13, are
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments (each a
"Contract" and collectively, the "Contracts") relating to or in any way
affecting the operation or ownership of the Business that are of a type
described below and no such agreements are currently in negotiation or proposed:
(a) any consulting agreement pursuant to which the Company or
a Company Subsidiary is to receive consulting services (other than
consulting agreements that may be terminated by the Company or a
Company Subsidiary on not more than 30 days notice without penalty),
employment agreement, change-in-control agreement, or collective
bargaining arrangement with any labor union;
(b) any Contract for capital expenditures or the acquisition
or construction of fixed assets in excess of $50,000;
(c) any Contract for the purchase, maintenance or acquisition,
or the sale or furnishing, of materials, supplies, merchandise,
machinery, equipment, parts or other property or services (except if
such Contract is made in the ordinary course of business and requires
aggregate future payments of less than $25,000);
(d) any Contract, other than trade payables in the ordinary
course of business, relating to the borrowing of money, or the guaranty
of another Person's borrowing of money, including, without limitation,
any notes, mortgages, indentures and other obligations, guarantees of
performance, agreements and instruments for or relating to any lending
or borrowing, including assumed indebtedness;
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(e) any Contract granting any Person a Lien on all or any part
of the assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions
in connection with Hazardous Materials (as defined in Section 4.19),
the remediation of any existing environmental liabilities or relating
to the performance of any environmental audit or study;
(g) any Contract granting to any Person an option or a first
refusal, first-offer or similar preferential right to purchase or
acquire any material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative
which is not terminable by the Company or a Company Subsidiary upon
ninety (90) calendar days or less notice without penalty;
(i) any Contract under which the Company or any Company
Subsidiary is (A) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property, or (B) a lessor of any
tangible personal property owned by the Company or any Company
Subsidiary, in either case having an original purchase price or
requiring aggregate lease payments in excess of $50,000;
(j) any Contract under which the Company or any Company
Subsidiary has granted or received a license or sublicense or under
which it is obligated to pay or has the right to receive a royalty,
license fee or similar payment, in either case which provides for
payments over the life of such Contract in excess of $25,000;
(k) any Contract concerning an Affiliate Transaction (as
defined in Section 4.21);
(l) any Contract providing for the indemnification or holding
harmless of any officer, director, employee or other Person;
(m) any Contract (A) for purchase or sale by the Company or
any Company Subsidiary of any real property on which the Company or any
Company Subsidiary conducts any aspect of the Business, (B) granting
any options to lease or purchase all or any portion of the Real
Property, or (C) providing for labor, services or materials to the Real
Property (including, without limitation, brokerage or management
services) involving aggregate future payments of more than $25,000;
(n) any Contract limiting, restricting or prohibiting the
Company or any Company Subsidiary from conducting business anywhere in
the United States or elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to
the Leased Property (as defined in Section 4.14.1);
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(q) any Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the
Company or any Company Subsidiary, which, if amended, modified or
terminated as a result of, relating to or in connection with a failure
to provide prior notice, or gain such consent or approval, would result
in a Company Material Adverse Effect; or
(r) any other Contract, whether or not made in the ordinary
course of business, which involves future payments by the Company or
any Company Subsidiary in excess of $25,000.
The Company has provided Centerprise with a true and complete copy of
each written Material Contract and a true and complete summary of each oral
Material Contract, in each case including all amendments or other modifications
thereto. Except as set forth on Schedule 4.13, each Material Contract is a valid
and binding obligation of, and enforceable in accordance with its terms against,
the Company or a Company Subsidiary, as applicable, and, to the Knowledge of the
Company, the other parties thereto, and is in full force and effect, subject
only to bankruptcy, reorganization, receivership and other laws affecting
creditors' rights generally and equitable principles. Except as set forth on
Schedule 4.13, the Company or one of the Company Subsidiaries, as applicable,
has performed in all material respects all obligations required to be performed
by it as of the date hereof and will have performed in all material respects all
obligations required to be performed by it as of the Closing Date under each
Material Contract and neither the Company or Company Subsidiary, as applicable,
nor, to the Knowledge of the Company, any other party to any Material Contract
is in breach or default thereunder, and, to the Knowledge of the Company, there
exists no condition which would, with or without the lapse of time or the giving
of notice, or both, constitute a breach or default thereunder. The Company has
not been notified that any party to any Material Contract intends to cancel,
terminate, not renew, or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
4.14 Properties.
4.14.1 Schedule 4.14.1-1 is a correct and complete list, and a
brief description of, all real estate in which the Company or any of
the Company Subsidiaries has an ownership interest (the "Owned
Property") and all real property leased by the Company (the "Leased
Property"). Except as lessee of Leased Property, neither the Company
nor any Company Subsidiary is a lessee under or otherwise a party to
any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which another Person has granted to the
Company or any Company Subsidiary the right to use or occupy all or any
portion of any real property.
The Company or one or more of the Company Subsidiaries has
good and marketable fee simple title to the Owned Property and,
assuming good title in the landlord, a valid leasehold interest in the
Leased Property (the Owned Property and the Leased Property being
sometimes referred to herein as "Real Property"), in each case free and
clear of all Liens, assessments or restrictions (including, without
limitation, inchoate liens arising out of the
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provision of labor, services or materials to any such real estate)
other than (a) mortgages shown on the Financial Statements as securing
specified liabilities or obligations, with respect to which no default
(or event that, with notice or lapse of time or both, would constitute
a default) exists, (b) Liens for current taxes not yet due, (c) (i)
minor imperfections of title, including utility and access easements
depicted on subdivision plats for platted lots that do not impair the
intended use of the property, if any, none of which materially impairs
the current operations of the Company, any Company Subsidiary or the
Business, and (ii) zoning laws and other land use restrictions or
restrictive covenants that do not materially impair the present use of
the property subject thereto, and (d) Liens, assessments, and
restrictions pursuant to and by virtue of the terms of the lease of the
Leased Property. The Real Property constitutes all real properties
reflected on the Financial Statements or used or occupied by the
Company or any Company Subsidiary in connection with the Business or
otherwise.
With respect to the Owned Property, except as reflected on
Schedule 4.14.1-2(a):
(a) the Company or one of the Company Subsidiaries is in
exclusive possession thereof and no easements, licenses or rights are
necessary to conduct the Business thereon in addition to those which
exist as of the date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority
materially adverse to the Owned Property and, to the Knowledge of the
Company, there is no threatened condemnation or proceeding with respect
thereto;
(c) there is no violation of any covenant, condition,
restriction, easement or agreement of any Governmental Authority that
affects the Owned Property or the ownership, operation, use or
occupancy thereof;
(d) no portion of any parcel of the Owned Property is subject
to any roll-back tax, dual or exempt valuation tax, and no portion of
any Owned Property is omitted from the appropriate tax rolls; and
(e) all assessments and taxes currently due and payable on
such Owned Property have been paid.
With respect to the Leased Property, except as reflected on Schedule
4.14.1-2(b):
(i) the Company and/or one of the Company
Subsidiaries is in exclusive, peaceful and undisturbed possession
thereof and, to the Knowledge of the Company, no easements, licenses or
rights are necessary to conduct the Business thereon in addition to
those which exist as of the date hereof; and
(ii) to the Knowledge of the Company, no portion
thereof is subject to any pending condemnation proceeding or proceeding
by any public or quasi-public authority
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materially adverse to the Leased Property and there is no threatened
condemnation or proceeding with respect thereto.
4.14.2 The Latest Balance Sheet and/or Schedule 4.14.2 reflect
all material tangible personal property owned by the Company or any
Company Subsidiary, except as sold or otherwise disposed of or acquired
in the ordinary course of business. Except as set forth on Schedule
4.14.2, the Company or one of the Company Subsidiaries has good and
marketable title to, or a valid leasehold interest in, or valid license
of, such personal property (including, without limitation, machinery,
equipment and computers), in each case free and clear of any Liens
(other than Liens that are part of such leasehold or license), and each
such asset is in working order and has been maintained in a
commercially reasonable manner and does not contain, to the Knowledge
of the Company, any material defect. Except as set forth in Schedule
4.14.2, no personal property (including, without limitation, software
and databases maintained on off-premises computers) used by the Company
or any Company Subsidiary in connection with the Business is held under
any lease, security agreement, conditional sales contract or other
title retention or security arrangement or is located other than on the
Real Property.
4.15 Intellectual Property. The (i) patents, patent applications,
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered trademarks, trade names, company names, assumed
business names and service marks (collectively, the "Marks"), (iii) copyrights
(the "Copyrights"), and (iv) know how, trade secrets, confidential information,
client lists, software, technical information, data, process technology, plans
and drawings (collectively, the "Trade Secrets") owned, used or licensed by the
Company or any Company Subsidiary (collectively, the "Intellectual Property")
are all those necessary to enable the Company and the Company Subsidiaries to
conduct and to continue to conduct the Business substantially as it is currently
conducted. Schedule 4.15 contains a complete and accurate list of all material
Patents, Marks and Copyrights and a brief description of all material Trade
Secrets owned, used by or directly licensed to the Company or any Company
Subsidiary, and a list of all material license agreements and arrangements with
respect to any of the Intellectual Property to which the Company or any Company
Subsidiary is a party, whether as licensee, licensor or otherwise (collectively,
the "Intellectual Property Licenses"). Except as set forth on Schedule 4.15, (i)
all of the Intellectual Property is owned or, to the Knowledge of the Company,
used under a valid Intellectual Property License, by the Company or one of the
Company Subsidiaries, and is free and clear of all Liens and other adverse
claims; (ii) none of the Seller, the Company nor any Company Subsidiary has
received any written notice that it is or has infringed on, misappropriated or
otherwise conflicted with, or otherwise has Knowledge that it is infringing on,
misappropriating, or otherwise conflicting with the intellectual property rights
of any third parties; (iii) there is no claim pending or, to the Knowledge of
the Company, threatened against the Company or any Company Subsidiary with
respect to the alleged infringement or misappropriation by the Company or
Company Subsidiary, or a conflict with, any intellectual property rights of
others; (iv) the operation of any aspect of the Business in the manner in which
it has heretofore been operated or is presently operated does not give rise to
any such infringement or misappropriation; and (v) there is no infringement or
misappropriation of the Intellectual Property by a third party or claim, pending
or, to the Knowledge of the Company,
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threatened, against any third party with respect to the alleged infringement or
misappropriation of the Intellectual Property.
4.16 Taxes.
4.16.1 Except as set forth on Schedule 4.16.1-1, each of the
Company and the Company Subsidiaries has timely and accurately prepared
and filed or been included in or will timely and accurately prepare and
file or be included in all federal, state, local and foreign returns,
declarations and reports, information returns and statements
(collectively, the "Returns") for Taxes (as defined in Section 4.16.2)
required to be filed by or with respect to the Company or the Company
Subsidiaries before the Closing Date, and has paid or caused to be
paid, or has made adequate provision or set up an adequate accrual or
reserve for the payment of, all Taxes required to be paid in respect of
the periods for which Returns are due on or prior to the Closing Date,
and will establish an adequate accrual or reserve for the payment of
all Taxes payable in respect of the period, including portions thereof,
subsequent to the last of said periods required to be so accrued or
reserved, in each case in accordance with GAAP up to and including the
Closing Date. All such Returns are or will be true and correct in all
material respects. The Company has delivered to Centerprise true and
complete copies of all Returns referred to in the first sentence of
this Section 4.16.1 (including any amendments thereof) for the five (5)
most recent taxable years. Neither the Company nor any Company
Subsidiary is delinquent in the payment of any Tax, and no material
deficiencies for any Tax, assessment or governmental charge have been
threatened, claimed, proposed or assessed. No waiver or extension of
time to assess any Taxes has been given or requested. No written claim,
or any other claim, by any taxing authority in any jurisdiction where
the Company or any Company Subsidiary does not file Tax returns is
pending pursuant to which the Company or Company Subsidiary, as
applicable, is or may be subject to taxation by that jurisdiction. The
Company's and the Company Subsidiaries' Returns were last audited by
the Internal Revenue Service or comparable state, local or foreign
agencies on the dates set forth on Schedule 4.16.1-2.
4.16.2 For purposes of this Agreement, the term "Taxes" shall
mean all taxes, charges, withholdings, fees, levies, penalties,
additions, interest or other assessments, including, without
limitation, income, gross receipts, excise, property, sales,
employment, withholding, social security, occupation, use, service,
service use, license, payroll, franchise, transfer and recording taxes,
fees and charges, windfall profits, severance, customs, import, export,
employment or similar taxes, charges, fees, levies or other
assessments, imposed by the United States, or any state, local, foreign
or provincial government or subdivision or any agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other
basis.
4.17 Employee Benefit Plans; ERISA.
4.17.1 Except as described in Schedule 4.17.1, neither the
Company nor any Company Subsidiary has or is reasonably expected to
have any liability (including contingent liability) whether direct or
indirect (and regardless of whether it would be derived from a
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current or former Plan Affiliate, as defined in Section 4.17.5(c)) with
respect to any of the following (whether written, unwritten or
terminated): (i) any employee welfare benefit plan, as defined in
Section 3(1) of "ERISA," including, but not limited to, any medical
plan, life insurance plan, short-term or long-term disability plan or
dental plan; (ii) any "employee pension benefit plan," as defined in
Section 3(2) of ERISA (as defined in Section 4.17.5(b)), including, but
not limited to, any excess benefit plan, top hat plan or deferred
compensation plan or arrangement, nonqualified retirement plan or
arrangement, qualified defined contribution or defined benefit
arrangement; or (iii) any other benefit plan, policy, program,
arrangement or agreement, including, but not limited to, any material
fringe benefit plan or program, personnel policy, bonus or incentive
plan, stock option, restricted stock, stock bonus, holiday pay,
vacation pay, sick pay, bonus program, service award, moving expense,
reimbursement program, tool allowance, safety equipment allowance,
deferred bonus plan, salary reduction agreement, change-of-control
agreement, employment agreement or consulting agreement.
4.17.2 A complete copy of each written Employee Plan (as
defined in Section 4.17.5(a)) as amended to the Closing, together with
audited financial statements, if any, for the three (3) most recent
plan years; a copy of each trust agreement or other funding vehicle
with respect to each such plan; a copy of any and all determination
letters, rulings or notices issued by a Governmental Authority with
respect to such plan; a copy of the Form 5500 Annual Report for the
three (3) most recent plan years; and a copy of each and any general
explanation or communication which was required to be distributed or
otherwise provided to participants in such plan and which describes all
or any relevant aspect of each plan, including summary plan
descriptions and/or summary of material modifications, have been
delivered to Centerprise. A description of each unwritten Employee
Plan, including a description of eligibility, participation, benefits,
funding arrangements and assets or other relevant aspects of the
obligation, is set forth in Schedule 4.17.2.
4.17.3 Except as is not reasonably expected to give rise to
any liability (including contingent liability), whether direct or
indirect, to the Company or any Company Subsidiary, each Employee Plan
(i) has been and is operated and administered in compliance with its
terms; (ii) has been and is operated, administered, maintained and
funded in compliance with the applicable requirements of the Code in
such a manner as to qualify, where appropriate and intended, for both
Federal and state purposes, for income tax exclusions, tax-exempt
status, and the allowance of deductions and credits with respect to
contributions thereto; (iii) where appropriate, has received a
favorable determination letter from the Internal Revenue Service upon
which the sponsor of the plan may currently rely; (iv) has been and
currently complies in form and in operation in all respects with all
applicable requirements of ERISA and the Code and any applicable
reporting and disclosure requirements of Federal and state laws,
including but not limited to the requirement of Part 6 of subtitle B of
Title I of ERISA and Section 4980B of the Code. With respect to each
Employee Plan, no Person has: (i) entered into any nonexempt
"prohibited transaction," as such terms are defined in ERISA or the
Code; (ii) breached a fiduciary obligation or (iii) any liability for
any failure to act or comply in connection with the administration or
investment of the assets of such plan; and no Employee Plan has any
liability and there is no liability in connection with any Employee
Plan, other
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than a liability (i) which is expressly and adequately reflected in the
Latest Balance Sheets, (ii) which is discretionary or terminable at
will by the Company or one of the Company Subsidiaries without
incurring any such liability, or (iii) which is adequately funded under
a funding arrangement separate from the assets of the Company, any
Company Subsidiary or a Plan Affiliate (and only to the extent of such
funding). Any contribution made or accrued with respect to any Employee
Plan is fully deductible by the Company, a Company Subsidiary or a Plan
Affiliate.
4.17.4 Neither the Company nor any Company Subsidiary or Plan
Affiliate has ever sponsored, maintained, contributed to or been
required to contribute to, or has any liability, whether direct or
indirect, with respect to any Employee Plan which is or has ever been
(i) a "multiemployer plan" as defined in Section 4001 of ERISA, (ii) a
"multiemployer plan" within the meaning of Section 3(37) of ERISA,
(iii) a "multiple employer plan" within the meaning of Code Section
413(c), (iv) a "multiple employer welfare arrangement" within the
meaning of Section 3(40) of ERISA, (v) subject to the funding
requirements of Section 412 of the Code or to Title IV of ERISA, or
(vi) provides for post-retirement medical, life insurance or other
welfare-type benefits.
4.17.5 As used in this Agreement, the following terms shall
have the following respective meanings:
(a) the term "Employee Plan" shall mean any plan,
policy, program, arrangement or agreement described in Section
4.17.1, whether or not scheduled;
(b) the term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended; and
(c) with respect to any Person ("First Person"), the
term "Plan Affiliate" shall mean any other Person with whom
the First Person constitutes or has constituted all or part of
a controlled group, or which would be treated or have been
treated with the First Person as under common control or whose
employees would be or have been treated as employed by the
First Person, under Section 414 of the Code or Section 4001(b)
of ERISA and any regulations, administrative rulings and case
law interpreting the foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no,
and within the last three (3) years neither the Company nor any Company
Subsidiary has experienced any, strike, picketing, boycott, work stoppage or
slowdown or other similar labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor pending or,
to the Knowledge of the Company, threatened against the Company or any Company
Subsidiary, or that is reasonably expected to affect the Company or any Company
Subsidiary; nor, to the Knowledge of the Company, is there any basis for any
such allegation, charge, or complaint. There is no request for representation
pending and, to the Knowledge of the Company, no question concerning
representation has been raised. There is no grievance pending that is reasonably
expected to result in a Company Material Adverse Effect nor
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any arbitration proceeding arising out of a union agreement. To the Knowledge of
the Company, no employee who is key to the Business and no group of employees
has announced or otherwise indicated any plans to terminate employment with the
Company or any Company Subsidiary. Each of the Company and any Company
Subsidiary has complied with all applicable laws relating to the employment of
labor, including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes.
Neither the Company nor any Company Subsidiary is liable for any arrears of
wages or any taxes or penalties for failure to comply with any such laws,
ordinances or regulations.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19,
(i) each of the Company and the Company Subsidiaries is operating and has
operated its business in compliance with all applicable Environmental and Safety
Requirements (as defined later in this Section); (ii) to the actual knowledge of
the Officers of the Company, without any duty to inquire (notwithstanding the
definition of "Knowledge" in Section 15.4), there are no Hazardous Materials (as
defined later in this Section) present at, on or under any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
(other than those present in office supplies and cleaning/maintenance materials)
for which the Company or a Company Subsidiary is or is reasonably expected to be
responsible, or otherwise have any liability, for response costs under any
Environmental and Safety Requirements; (iii) each of the Company and the Company
Subsidiaries has disposed of all waste materials generated by the Company or
such Company Subsidiary at any real property currently or formerly owned, leased
or used by the Company or Company Subsidiary in compliance with applicable
Environmental and Safety Requirements; and (iv) there are and have been no
facts, events, occurrences or conditions at or related to any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
that is reasonably expected to cause or give rise to liabilities or response
obligations of the Company or any Company Subsidiary under any Environmental and
Safety Requirements. The term "Environmental and Safety Requirements" means any
federal, state and local laws, statutes, regulations or other requirements
relating to the protection, preservation or conservation of the environment or
worker health and safety, all as amended or reauthorized. The term "Hazardous
Materials" means "hazardous substances," as defined by the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq., "hazardous wastes," as defined by the Resource Conservation Recovery
Act, 42 U.S.C. Section 6901 et seq., asbestos in any form or condition,
polychlorinated biphenyls and any other material, substance or waste to which
liability or standards of conduct may be imposed under any Environmental and
Safety Requirement.
4.20 Insurance. Each of the Company and the Company Subsidiaries has in
full force and effect commercially reasonable amounts of insurance to protect
the Company's and Company Subsidiaries' ownership or interest in, and operation
of, its assets against the types of liabilities, including professional
malpractice, customarily insured against in connection with operations similar
to the Business, and all premiums due on such policies have been paid. To the
Company's Knowledge, each of the Company and the Company Subsidiaries has
complied with the provisions of all such policies and is not in default under
any of such policies. Schedule 4.20 contains a complete and correct list of all
such insurance policies. None of the Company nor any Company Subsidiary has
received any notice of cancellation or intent to cancel or increase premiums
with respect to such insurance policies. Schedule 4.20 also contains a list of
all claims or asserted claims
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reported to insurers under such policies relating to the ownership or interest
in the Company's and the Company Subsidiaries' assets, or operation of the
Business, including all professional malpractice claims and similar types of
claims, actions or proceedings asserted against the Company or any Company
Subsidiary arising out of the Business at any time within the past three (3)
years.
4.21 Interest in Customers and Suppliers; Affiliate Transactions.
Except as described on Schedule 4.21 and except for ownership as an investment
of not more than one percent (1%) of any class of capital stock of any
publicly-traded company, none of the Company nor any Affiliate of the Company
nor any Company Subsidiary nor any of the Company's stockholders (i) possesses,
directly or indirectly, any financial interest in, or is a director, officer,
employee or affiliate of, any Person that is a client, supplier, customer,
lessor, lessee or competitor of the Company or any Company Subsidiary, (ii)
owns, directly or indirectly, in whole or in part, or has any interest in any
tangible or intangible property used in the conduct of the Business, or (iii) is
a party to an agreement or relationship, that involves the receipt by such
Person of compensation or property from the Company or any Company Subsidiary
other than through a customary employment relationship or through distributions
made with respect to the Company Stock or equity interests in any Company
Subsidiary (provided such distributions have been made consistent with the
Company's or any Company Subsidiary's, as the case may be, past custom and
practices). Schedule 4.21 sets forth the parties to and the date, nature and
amount of each transaction during the last five years involving the transfer of
any cash, property or rights to or from the Company or any Company Subsidiary
from, to or for the benefit of any Affiliates (other than customary employment
relationships or distributions made with respect to the Company Stock)
("Affiliate Transactions"), and any existing commitments of the Company or any
Company Subsidiary to engage in the future in any Affiliate Transactions. Except
as disclosed, each Affiliate Transaction and each transaction with former
Affiliates of the Company or any Company Subsidiary was effected on terms
equivalent to those that would have been established in an arm's-length
transaction.
4.22 Business Relationships. Schedule 4.22 lists all clients of the
Company and each Company Subsidiary representing one percent (1%) or more of the
Company's consolidated net revenue for the twelve (12) months ended December 31,
1998. Except as set forth on Schedule 4.22, since December 31, 1998, none of
such clients has canceled or substantially reduced its business with the Company
or Company Subsidiary, as applicable, nor are any of such clients threatening to
do so. To the Knowledge of the Company, no client that accounts for one percent
(1%) or more of the Company's consolidated net revenue, or supplier of the
Company or any Company Subsidiary, will cease to do business with, or
substantially reduce its business with, the Company or any Company Subsidiary,
as applicable, after the consummation of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
names and current total compensation, including, without limitation, salary and
bonuses paid to employees and draws or other distributions paid to partners,
members or owners of each Person who earned from the Company or a Company
Subsidiary in 1998 total compensation in excess of $100,000. Except as set forth
in Schedule 4.23, no Person listed thereon has received any bonus or increase in
compensation and there has been no "general increase" in the compensation or
rate of compensation payable to any employees, partners, members or owners of
the Company or any Company Subsidiary since the date of the Latest Balance
Sheet, other than in the Company's ordinary course
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of business, consistent with past custom and practices, nor since that date has
there been any oral or written promise to employees, partners, members or owners
of any bonus or increase in compensation, other than in the Company's and
Company Subsidiaries' ordinary course of business, consistent with past custom
and practices. The term "general increase" as used herein means any increase
generally applicable to a class or group, but does not include increases granted
to individuals for merit, length of service or change in position or
responsibility made on the basis of the custom and past practices of the Company
or any Company Subsidiary. Schedule 4.23 includes the date and amount of the
last bonus or similar distribution or increase in compensation for each listed
individual.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each
bank in which the Company or any Company Subsidiary has an account or safe
deposit box, the number of each such account or box, and the names of all
Persons authorized to draw thereon or to have access thereto.
4.25 Professional Credentials. Each Member is a Certified Public
Accountant in good standing in one of the States of the United States or the
District of Columbia, and entitled to practice in one of the jurisdictions in
which the Company or any Company Subsidiary maintains an office, and there are
no disciplinary proceedings pending or threatened against the Company, any
Company Subsidiary or any of the Members by any Governmental Authority or
self-regulatory organization regulating, licensing or permitting the practice of
public accountancy.
4.26 Disclosure; No Misrepresentation. No representation or warranty of
the Company contained in this Agreement or in any of the certification,
schedules, lists, documents, exhibits, or other instruments delivered or to be
delivered to Centerprise as contemplated by any provision hereof contains any
untrue statement regarding a material fact or omits to state a material fact
necessary in order to make the statements made herein or therein not misleading.
To the Knowledge of the Company, there is no fact or circumstance that has not
been disclosed to Centerprise herein that has or is reasonably expected to have
a Company Material Adverse Effect.
ARTICLE V
[RESERVED]
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE
Centerprise represents and warrants to the Company as of March 31, 1999
and, subject to Section 7.3, as of the date on which Centerprise and the lead
Underwriter execute and deliver the Underwriting Agreement related to the IPO
and as of the Closing Date as follows:
6.1 Organization And Qualification. Each of Centerprise and Mergersub
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on
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its business as it is now being conducted. True, accurate and complete copies of
each of Centerprise's and Mergersub's Certificate of Incorporation and By-laws,
as in effect on the date hereof, including all amendments thereto, have
heretofore been delivered to the Company.
6.2 Capitalization.
6.2.1 The authorized capital stock of Centerprise consists of
20,000 shares of Centerprise Common Stock, of which 17,500 shares are
outstanding as of the date hereof. All of the issued and outstanding
shares of Centerprise Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights. Immediately prior to
the Closing Date, the authorized capital stock of Centerprise will
consist of 50,000,000 shares of Centerprise Common Stock, of which the
number of shares set forth in the Form S-1 will be issued and
outstanding, and 10,000,000 shares of Preferred Stock, par value $0.01
per share, none of which will be issued and outstanding. Other than (i)
shares of Centerprise Common Stock issued pursuant to a split of the
shares outstanding as of the date of this Agreement, (ii) shares of
Centerprise Common Stock issued in accordance with the Acquisition and
the Other Acquisitions, and (iii) shares of Centerprise Common Stock
that may be issued to new members of management in lieu of shares
previously issued to current members of management, but which will not
increase the number of shares of outstanding Centerprise Common Stock,
no shares of Centerprise Common Stock will be issued prior to the
consummation of the IPO. Mergersub's authorized capital stock consists
solely of 1,000 shares of common stock, par value $.01 per share (the
"Mergersub Stock"), all of which are issued and outstanding, are owned
free and clear of any Liens by Centerprise, and are fully paid,
nonassessable and free of preemptive rights.
6.2.2 Except as set forth on Schedule 6.2, as of the date
hereof, there are no outstanding subscriptions, options, calls,
contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under
any outstanding security, instrument or other agreement obligating
Centerprise to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock of Centerprise or
obligating Centerprise to grant, extend or enter into any such
agreement or commitment. There are no voting trusts, proxies or other
agreements or understandings to which Centerprise is a party or is
bound with respect to the voting of any shares of capital stock of
Centerprise. The shares of Centerprise Common Stock issued to the
Company's stockholders in the Acquisition will at the Closing Date be
duly authorized, validly issued, fully paid and nonassessable and free
of preemptive rights and issued pursuant to a registration statement as
required by the 1933 Act or an exemption therefrom.
6.3 No Subsidiaries. Except for Centerprise's ownership of 100% of the
capital stock of Professional Service Group, Inc., a Delaware corporation, and
Mergersub (and similar entities created for similar purposes with respect to the
Other Agreements) Centerprise has no subsidiaries and it does not own any
capital stock of any corporation or any equity or other interest of any nature
whatsoever in any Person.
6.4 Authority; Non-Contravention; Approvals.
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6.4.1 Each of Centerprise and Mergersub has all requisite
right, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has
been approved by the Boards of Directors of Centerprise and Mergersub,
and no other corporate proceedings on the part of Centerprise or
Mergersub are necessary to authorize the execution and delivery of this
Agreement or the consummation by Centerprise and Mergersub of the
transactions contemplated hereby. This Agreement has been duly executed
and delivered by Centerprise and Mergersub and, assuming the due
authorization, execution and delivery hereof by the Company constitutes
a valid and legally binding agreement of Centerprise and Mergersub,
enforceable against each of them in accordance with its terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and (ii) general
equitable principles.
6.4.2 The execution and delivery of this Agreement by
Centerprise and Mergersub does not violate, conflict with or result in
a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any of
the properties or assets of Centerprise and Mergersub under any of the
terms, conditions or provisions of (i) the Certificate of Incorporation
or By-laws of Centerprise or Mergersub, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or Governmental Authority applicable to
Centerprise or Mergersub or any of their respective properties or
assets, or (iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Centerprise or
Mergersub is now a party or by which Centerprise, Mergersub or any of
their respective properties or assets, may be bound or affected, except
those items described in clause (ii) relating to regulating, licensing
or permitting the practice of public accountancy. The consummation by
Centerprise and Mergersub of the transactions contemplated hereby will
not result in any violation, conflict, breach, right of termination or
acceleration or creation of Liens under any of the terms, conditions or
provisions of the items described in clauses (i) through (iii) of the
immediately preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (ii) above,
to obtaining (prior to the Closing Date) Centerprise Required Statutory
Approvals and except for those items described in (ii) above relating
to regulating, licensing or permitting the practice of public
accountancy.
6.4.3 Except with respect to (i) the declaration of the
effectiveness of the Registration Statements by the SEC and filings, if
required, with various state securities or "blue sky" authorities, (ii)
any filing which may be required under the HSR Act, (iii) any filing
which may be required by any Governmental Authority or self-regulatory
organization regulating, licensing or permitting the practice of public
accountancy (the filings and approvals referred to in clauses (i)
through (iii) are collectively referred to as the "Centerprise Required
Statutory Approvals") no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is
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necessary for the execution and delivery of this Agreement by
Centerprise or Mergersub or the consummation by Centerprise or
Mergersub of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents
or approvals which, if not made or obtained, as the case may be, are
not reasonably expected to, in the aggregate, have a material adverse
effect on the business operations, properties, assets, condition
(financial or other), results of operations or prospects of Centerprise
and its subsidiaries, taken as a whole (a "Centerprise Material Adverse
Effect").
6.5 Absence of Undisclosed Liabilities. Except as set forth on Schedule
6.5, neither Centerprise nor Mergersub has incurred any liabilities or
obligations (whether known or unknown, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise) of any nature. Except as set
forth on Schedule 6.5, neither Centerprise nor Mergersub has engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is it bound by any obligation or undertaking.
6.6 Litigation. There are no claims, suits, actions or proceedings
pending or, to the Knowledge of Centerprise, threatened against, relating to or
affecting Centerprise or Mergersub, before any court, Governmental Authority or
any arbitrator that seek to restrain or enjoin the consummation of the
Acquisition or the IPO or which could reasonably be expected, either alone or in
the aggregate with all such claims, actions or proceedings, to have a
Centerprise Material Adverse Effect. Centerprise is not subject to any
unsatisfied or continuing judgment, order or decree of any court or Governmental
Authority. Centerprise is not a party to any legal action to recover monies due
it or for damages sustained by it.
6.7 Compliance with Applicable Laws. Each of Centerprise and Mergersub
has complied in all material respects with all Laws applicable to it, and has
not received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of Centerprise, no event has occurred or circumstances exist that
(with or without notice or lapse of time) may constitute or result in a
violation by Centerprise or Mergersub of any Law or may give rise to any
liability on the part of the Centerprise or Mergersub under any Law.
6.8 No Misrepresentation. None of the representations and warranties of
Centerprise or Mergersub set forth in this Agreement or in any of the
certificates, schedules, lists, documents, exhibits, or other instruments
delivered or to be delivered to the Company as contemplated by any provision
hereof contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. To the Knowledge of Centerprise, there is no fact or circumstance
that has not been disclosed to the Company herein that has or is reasonably
expected to have a Company Material Adverse Effect.
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS
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7.1 Conduct of Business by the Company Pending the Acquisition.
7.1.1 Except as otherwise contemplated by this Agreement,
after the date hereof and prior to the Closing Date or earlier
termination of this Agreement, unless Centerprise shall otherwise agree
in writing, the Company shall, and shall cause each Company Subsidiary
to:
(a) in all material respects conduct the Business in
the ordinary and usual course and consistent with past customs
and practices;
(b) not (i) amend its Organizational Documents except
as necessary to complete the Conversion, (ii) split, combine
or reclassify its outstanding capital stock or (iii) declare,
set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise except dividends or distributions
which (A) are consistent with past customs and practices and
(B) do not result in a Company Material Adverse Effect, and
(C) as set forth on Schedule 7.1.4(ii);
(c) not issue, sell, pledge or dispose of, or agree
to issue, sell, pledge or dispose of (i) any additional shares
of, or any options, warrants or rights of any kind to acquire
any shares of, its capital stock or equity interests of any
class, (ii) any debt with voting rights or (iii) any debt or
equity securities convertible into or exchangeable for, or any
rights, warrants, calls, subscriptions, or options to acquire,
any such capital stock, debt with voting rights or convertible
securities;
(d) not (i) incur or become contingently liable with
respect to any indebtedness for borrowed money other than (A)
borrowings in the ordinary course of business in a manner
consistent with past customs and practices or (B) borrowings
to refinance existing indebtedness on commercially reasonable
terms, (ii) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or equity interests or
any options, warrants or rights to acquire any of its capital
stock or equity interests or any security convertible into or
exchangeable for its capital stock or equity interests, (iii)
sell, pledge, dispose of or encumber any assets or businesses
other than dispositions in the ordinary course of business in
a manner consistent with past customs and practices (iv) enter
into any contract, agreement, commitment or arrangement with
respect to any of the foregoing;
(e) use commercially reasonable efforts to (i)
preserve intact its business organizations and goodwill, (ii)
keep available the services of its present officers and key
employees, and (iii) preserve the goodwill and business
relationships with clients and others having business
relationships with it and not engage in any action, directly
or indirectly, with the intent to adversely impact the
transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one
or more representatives of Centerprise to report operational
matters of materiality and the general status of ongoing
operations;
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(g) except as contemplated on Schedule 4.9, not (i)
increase in any manner the base compensation of, or enter into
any new bonus or incentive agreement or arrangement with, any
of its employees, partners, members or owners, except in the
ordinary course of business in a manner consistent with past
customs and practices of the Company or any Company
Subsidiary, as applicable, (ii) pay or agree to pay any
additional pension, retirement allowance or other employee
benefit under any Employee Plan to any such Person, whether
past or present, (iii) enter into any new employment,
severance, consulting, or other compensation agreement with
any of its existing employees, partners, members or owners,
(iv) amend or enter into a new Employee Plan (except as
required by Law) or amend or enter into a new collective
bargaining agreement, or (v) engage in any new Affiliate
Transaction;
(h) comply in all material respects with all
applicable Laws;
(i) not make any material investment in, directly or
indirectly, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any
other manner, any businesses or any Person or division thereof
or otherwise acquire or agree to acquire any assets in each
case which are material to it other than in the ordinary
course of business in a manner consistent with past customs
and practices;
(j) other than as set forth on Schedule 7.1.4(ii)
not sell, lease, license, encumber or otherwise dispose of, or
agree to sell, lease, license, encumber or otherwise dispose
of, any of its assets other than in the ordinary course of
business, consistent with past customs and practices;
(k) maintain with financially responsible insurance
companies insurance on its tangible assets and its businesses
in such amounts and against such risks and losses in a manner
consistent with past customs and practices in all material
respects; and
(l) collect and bill receivables in the ordinary and
usual course and consistent with past custom and practices
in all material respects.
7.1.2 [Reserved]
7.1.3 Notwithstanding the fact that such action might
otherwise be permitted pursuant to this Article, the Company shall not
take, or permit any Company Subsidiary to take, any action that would
or is reasonably likely to result in any of the representations or
warranties of the Company set forth in this Agreement being untrue or
in any of the conditions to the consummation of the transactions
contemplated hereunder set forth in Article X not being satisfied.
7.1.4 Prior to the Closing, (i) the Company shall terminate,
without any liability to the Company or the Company Subsidiaries, all
agreements relating to the voting of the Company's capital stock, and
all agreements and obligations of the Company and the
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Company Subsidiaries relating to borrowed money and/or involving
payments to or for the benefit of a present or former stockholder of
the Company, or an Affiliate or family member of a Member or present or
former stockholder of the Company, including without limitation those
set forth on Schedule 7.1.4(i), but excluding (A) debt reflected on
Schedule 2.1 as Debt Assumed By Centerprise, (B) items reflected on
Schedule 2.6, (C) agreements and obligations to the extent such
agreements and obligations result in Indirect Costs under the Incentive
Compensation Agreement, (D) the Supplemental Executive Retirement Plan
and (E) items approved by Centerprise in writing; and (ii)
notwithstanding anything contained in this Section 7.1 to the contrary,
the Company will transfer and distribute the assets listed on Schedule
7.1.4(ii), including, without limitation, any fees and expenses
receivable not necessary to meet the Target or otherwise satisfy the
obligations of the Company (the "Excluded Assets") to the Persons
listed on Schedule 7.1.4(ii), subject to all liabilities and
obligations of any nature (whether known or unknown, accrued, absolute,
contingent, direct, indirect, perfected, inchoate, unliquidated or
otherwise) relating to the Excluded Assets (collectively, the "Excluded
Liabilities"); provided, however, that prior to the Closing, the
Company shall obtain novations or other releases or agreements
discharging the Company from all Excluded Liabilities (so that the
respective Excluded Liabilities will become direct liabilities and
obligations, of the assignee), and provide copies thereof to
Centerprise.
7.2 No-Shop.
(a) After the date hereof and prior to the Closing Date or
earlier termination of this Agreement, the Company shall (i) not, and
the Company shall use its diligent efforts to cause the Company
Subsidiaries and any officer, director or employee of, or any attorney,
accountant, investment banker, financial advisor or other agent
retained by the Company or any Company Subsidiary not to, initiate,
solicit, negotiate, encourage, or provide non-public or confidential
information to facilitate, any proposal or offer to acquire all or any
substantial part of the business and properties of the Company or any
Company Subsidiary, or any capital stock or other equity interests the
Company or any Company Subsidiary, whether by merger, purchase of
assets or otherwise, whether for cash, securities or any other
consideration or combination thereof, or enter into any joint venture
or partnership or similar arrangement, and (ii) promptly advise
Centerprise of the terms of any communications the Company may receive
or become aware of relating to any bid for part or all of the Company
or any Company Subsidiary. Notwithstanding the foregoing, if the
underwriters' internal sales force presentation or "road show" for the
IPO has not started by October 15, 1999, then from and after such date,
the Company may (through its authorized agents) conduct limited
discussions with potential acquirers of the Company for the sole
purpose of assessing the potential terms and conditions of an
acquisition proposal involving the Company. Notwithstanding the
preceding sentence, the Company shall not (i) disclose any non-public
or confidential information regarding the Company to any such third
party or (ii) enter into any agreement (including a letter of intent or
term sheet) with such third party unless this Agreement has been
terminated pursuant to Article XI.
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(b) The Company (i) acknowledges that a breach of any of its
covenants contained in this Section 7.2 will result in irreparable harm
to Centerprise which will not be compensable in money damages; and (ii)
agrees that such covenant shall be specifically enforceable and that
specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
7.3 Schedules. Each party hereto agrees that with respect to the
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement or amend and deliver to the other parties all the schedules to this
Agreement (the "Schedules") to correct any matter which would constitute a
breach of any such party's representations and warranties herein; provided,
however, that no amendment or supplement to a Schedule that constitutes or
reflects a Company Material Adverse Effect or affects Schedule 4.2, Schedule 4.4
or Schedule 8.8 may be made unless Centerprise and a majority of the Founding
Companies consent to such amendment or supplement. No amendment of or supplement
to a Schedule shall be made later than three (3) business days prior to the
anticipated effectiveness of the Form S-1. For all purposes of this Agreement,
including, without limitation, for purposes of determining whether the
conditions set forth in Sections 10.2 and 10.3 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 7.3. In the event that (i) one of the other Founding
Companies seeks to amend or supplement a Schedule pursuant to Section 7.3 of one
of the Other Agreements, (ii) such amendment or supplement constitutes or
reflects a Company Material Adverse Effect (as defined in such Other Agreement)
or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8 of such Other Agreement,
and (iii) Centerprise and a majority of the Founding Companies consent to such
amendment or supplement, but the Company does not, the Company may terminate
this Agreement at any time prior to the Closing Date. In the event that (i) the
Company seeks to amend or supplement a Schedule pursuant to this Section 7.3,
(ii) such amendment or supplement constitutes or reflects a Company Material
Adverse Effect or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8, and (iii)
Centerprise and a majority of the Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section 7.3,
unless this Agreement is so terminated in connection with an amendment of or
supplement to a Schedule relating to the Company's breach of a representation or
warranty as of March 31, 1999 in which case the Company shall pay to
Centerprise, as Centerprise's exclusive remedy (notwithstanding anything to the
contrary) and as liquidated damages, and not as a penalty, an amount equal to
$2,000,000 (the "Liquidated Damages Amount"). The Company agrees that in the
case of such termination Centerprise and the Founding Companies (excluding the
Company) will sustain immediate and irreparable economic harm and loss of
goodwill and that actual losses suffered by such parties will be difficult, if
not impossible, to ascertain, but the Liquidated Damages Amount set forth herein
is reasonable and has been arrived at after a good faith effort to estimate such
losses. Payment of the Liquidated Damages Amount shall be made in cash to
Centerprise within thirty (30) days of a termination pursuant to this Section
7.3 in connection with an amendment of or supplement to a Schedule relating to a
breach of a representation or warranty as of the date of this Agreement.
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7.4 Company Stockholders Meeting. The Company shall take all action in
accordance with applicable Laws and its Organizational Documents necessary to
duly call, give notice of, convene and hold a meeting of the Company's
stockholders to be held on the earliest practicable date determined in
consultation with Centerprise to consider and vote upon approval of the Merger,
this Agreement and the transactions contemplated hereby. The Company shall
solicit the approval of the Merger, this Agreement and the transactions
contemplated hereby by the Company's stockholders, and the Company's Board of
Directors shall recommend approval of the Merger, this Agreement and the
transactions contemplated hereby by the Company's stockholders. If the Merger,
this Agreement and the transactions contemplated hereby are approved by the
Company's stockholders, the Company shall not call, give notice of, convene or
hold any other meeting of its stockholders to rescind or modify such approval or
to consider any other transaction.
7.5 Conversion. Prior to the Closing but effective only if, as and when
the Closing occurs, the Company shall complete the Conversion pursuant to
applicable law and present such evidence of the Conversion at the Closing, as
Centerprise or its counsel may require.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Access to Information.
8.1.1 The Company shall and shall cause the Company
Subsidiaries to afford to Centerprise and its accountants, counsel,
financial advisors and other representatives, including without
limitation the underwriters engaged in connection with the IPO (each an
"Underwriter" and collectively, the "Underwriters") and their counsel
(collectively, the "Centerprise Representatives"), and to the other
Founding Companies and their accountants, counsel, financial advisors
and other representatives, and Centerprise shall afford to the Company
and their accountants, counsel, financial advisors and other
representatives (the "Company Representatives"), upon reasonable
notice, full access during normal business hours throughout the period
prior to the Closing Date to all of its respective properties, books,
contracts, commitments and records (including, but not limited to,
financial statements and Tax Returns) and, during such period, shall
furnish promptly to one another all due diligence information requested
by the other party. Centerprise shall hold and shall use its best
efforts to cause the Centerprise Representatives to hold, and the
Company shall hold and shall use their best efforts to cause the
Company Representatives to hold, in strict confidence all non-public
information furnished to it in connection with the transactions
contemplated by this Agreement, except that each of Centerprise, the
Company may disclose any information that it is required by law or
judicial or administrative order to disclose. In addition, Centerprise
will cause each of the other Founding Companies and their members and
stockholders to enter into a provision similar to this Section 8.1
requiring each such Founding Company to keep confidential any
information obtained by such Founding Company in connection with the
transactions contemplated by this Agreement.
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8.1.2 In the event that this Agreement is terminated in
accordance with its terms, each party shall promptly return to the
disclosing party all non-public written material provided pursuant to
this Section 8.1 or pursuant to the Other Agreements and shall not
retain any copies, extracts or other reproductions of such written
material. In the event of such termination, all documents, memoranda,
notes and other writings prepared by Centerprise or the Company based
on the information in such material shall be destroyed (and Centerprise
and the Company shall use their respective reasonable best efforts to
cause their advisors and representatives to similarly destroy such
documents, memoranda and notes), and such destruction (and reasonable
best efforts) shall be certified in writing by an authorized officer
supervising such destruction.
8.2 Registration Statements.
8.2.1 Centerprise has filed the Registration Statements with
the SEC and shall use all reasonable efforts to have the Registration
Statements declared effective by the SEC as promptly as practicable.
Centerprise shall also take any action required to be taken under
applicable state "blue sky" or securities laws in connection with the
issuance of Centerprise Common Stock. Centerprise and the Company shall
promptly furnish to each other all information, and take such other
actions, as may reasonably be requested in connection with making such
filings. All information provided and to be provided by Centerprise and
the Company, respectively, for use in the Registration Statements shall
be true and correct in all material respects without omission of any
material fact which is required to make such information not false or
misleading as of the date thereof and in light of the circumstances
under which given or made. The Company agrees promptly to advise
Centerprise if at any time during the period in which a prospectus
relating to the offering or the Merger is required to be delivered
under the Securities Act, any information contained in the prospectus
concerning the Company or the Company Subsidiaries becomes incorrect or
incomplete in any material respect, and to provide the information
needed to correct such inaccuracy or remedy such incompletion.
8.2.2 Centerprise agrees that it will provide to the Company
and its counsel copies of drafts of the Registration Statements (and
any amendments thereto) containing material changes to the information
therein as they are prepared and will not (i) file with the SEC, (ii)
request the acceleration of the effectiveness of or (iii) circulate any
prospectus forming a part of, the Registration Statements (or any
amendment thereto) unless the Company and its counsel (x) have had at
least two days to review the revised information contained therein
(which changes shall be highlighted by computer generated marks
indicating the additions and deletions made from the prior draft
reviewed by the Company's counsel) and (y) have not objected to the
substance of the information contained therein. Any objections posed by
the Company or its counsel shall be in writing and state with
specificity the material in question, the reason for the objection, and
the Company's proposed alternative. If the objection is founded upon a
rule promulgated under the Securities Act, the objection shall cite the
rule. Notwithstanding the foregoing, during the five (5) business days
immediately preceding the date scheduled for the filing of the
Registration Statements and any amendment thereto, the Company and its
counsel shall be obligated to respond to
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proposed changes electronically transmitted to them within two (2)
hours from the time the proposed changes (in the case of the initial
filing of the Registration Statements, from the last circulated draft
of the Registration Statements; and, in the case of any subsequent
filing of the Registration Statements or any amendment thereof, from
the most recently filed Registration Statements or amendment thereof)
are transmitted to the Company's counsel; provided, that, Centerprise
has provided to the Company or its counsel reasonable advance notice of
such proposed changes; provided, further, that such changes are
highlighted by computer generated marks indicating the additions and
deletions made from the prior draft reviewed by the Company's counsel.
8.2.3 Centerprise will advise the Member Representative of the
effectiveness of the Registration Statements, advise the Member
Representative of the entry of any stop order suspending the
effectiveness of the Registration Statements or the initiation of any
proceeding for that purpose, and, if such stop order shall be entered,
use its best efforts promptly to obtain the lifting or removal thereof.
Upon the written request of the Company Centerprise will furnish to the
Company a reasonable number of copies of the final prospectus
associated with the IPO.
8.3 Expenses and Fees. Centerprise shall pay the fees and expenses of
the independent public accountants and legal counsel to Centerprise and all
filing, printing and other reasonable, documented fees and expenses associated
with the IPO and Form S-4. The Company and its stockholders will not be liable
for any portion of the above expenses in the event the IPO is not completed.
Centerprise shall also pay the underwriting discounts and commissions payable in
connection with the sale of Centerprise Common Stock in the IPO. All other costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
8.4 Agreement to Cooperate. Subject to the terms and conditions herein
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
8.5 Public Statements. Except as may be required by law, no party
hereto nor any Affiliate of any party hereto shall issue any press release or
any written public statement with respect to this Agreement or the transactions
contemplated by this Agreement or the Other Agreements without the prior written
consent of Centerprise and the Company.
8.6 [Reserved]
8.7 Centerprise Covenants. After the date hereof and prior to the
Closing Date or earlier termination of this Agreement in accordance with its
terms, Centerprise shall comply in all material respects with all applicable
Laws. Centerprise shall not take any action that would or is reasonably likely
to result in any of the representations or warranties of Centerprise set forth
in this Agreement being untrue or in any of the conditions to the consummation
of the transactions contemplated hereunder set forth in Article X not being
satisfied.
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8.8 Release of Guarantees. Centerprise shall use all commercially
reasonable efforts and good faith to have the Company's stockholders released
from any and all guarantees on any indebtedness and leases that they personally
guaranteed for the benefit of the Company as set forth on Schedule 8.8, with all
such guarantees on indebtedness and leases being assumed by Centerprise, if
necessary to achieve such releases. If any guaranteed indebtedness is repaid in
full with proceeds from the IPO and the Company's stockholders' guarantees
thereafter shall have no further force or effect, then Centerprise shall not be
obligated to use any efforts to obtain a release of such guarantee. In the event
that Centerprise cannot obtain such releases from the lenders of any such
guaranteed indebtedness or lessors of any guaranteed leases, Centerprise agrees
to indemnify, defend and hold harmless the Company's stockholders against any
and all claims made by lenders or landlords under such guarantees.
8.9 [Reserved]
8.10 Preparation and Filing of Tax Returns.
8.10.1 The Company shall be responsible for causing the timely
filing of the final pre-Closing Returns for the Company and the Company
Subsidiaries; provided, however, that Centerprise and its advisors
shall have the right to review and approve such returns prior to
filing, which approval shall not be unreasonably withheld. Centerprise
shall, and shall cause its Affiliates to, provide to the Company such
cooperation and information reasonably requested in filing any return,
amended return or claim for refund, determining a liability for Taxes
or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. The Company shall bear all costs of
filing such returns.
8.10.2 Each of the Company and Centerprise shall comply with
the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction
as subject to the provisions of Section 351 of the Code.
8.11 Maintenance of Insurance. The Company covenants and agrees that
all insurance policies listed, or required to be listed, on Schedule 4.20 will
be maintained in full force and effect through the Closing Date.
8.12 Administration. After the Closing, at the request of the Member
Representative, Centerprise shall, directly or through one or more of its
subsidiaries, administer and manage the collection of amounts referred to on
Schedule 7.1.4(ii) using reasonable care and in accordance with the Company's
policies in effect at Closing.
8.13 Member Representative. The Company appoints Anthony P. Frabotta
(the "Member Representative") as its agent and representative with full power
and authority to agree, contest or settle any claim or dispute affecting the
Company made under Article II and to otherwise act on behalf of the Company and
its stockholders in accordance with the terms of this Agreement.
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ARTICLE IX
[RESERVED]
ARTICLE X
CLOSING CONDITIONS
10.1 Conditions to Each Party's Obligation to Effect the Acquisition.
The respective obligations of each party to effect the Acquisition shall be
subject to the fulfillment at or prior to the Closing of the following
conditions:
(a) the Underwriting Agreement related to the IPO shall have
been executed and the closing of the sale of Centerprise Common Stock
to the Underwriters pursuant thereto shall have occurred simultaneously
with the Closing hereunder;
(b) the closings of the transactions contemplated under each
of the Other Agreements shall have occurred simultaneously with the
Closing hereunder, unless terminated in accordance with Section 7.3 of
the applicable Other Agreement;
(c) the Registration Statements shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in
effect and no proceeding for that purpose shall have been instituted by
the SEC or any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or
decree shall be pending before or issued by any federal or state court
which seeks to prevent or prevents the consummation of the IPO, the
Acquisition or any of the Other Acquisitions shall have been issued and
remain in effect;
(e) the minimum price condition set forth on Schedule 2.1
shall have been satisfied;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government
or governmental agency in the United States which would prevent the
consummation of the Acquisition or any of the Other Acquisitions or
make the consummation of the Acquisition or any of the Other
Acquisitions illegal;
(g) all material governmental and third party waivers,
consents and approvals required for the consummation of the Acquisition
or any of the Other Acquisitions and the transactions contemplated
hereby and by the Other Agreements (including, without limitation, any
consents listed on Schedules 4.3.2 or 4.12) shall have been obtained
and be in effect;
36
<PAGE>
(h) no action, suit or proceeding with respect to the
Acquisition has been filed or threatened by a third party and remains
threatened or remains pending before any court, Governmental Authority
or regulatory Person;
(i) this Agreement, the Merger and the transactions
contemplated hereby shall have been approved and adopted by the
Company's stockholders in the manner required by any applicable Law and
the Company's Organizational Documents and such approval shall remain
in full force and effect;
(j) Centerprise shall have entered into one or more credit
facilities providing for aggregate commitments of not less than $75
million;
(k) the members of Holdings shall have secured all licenses,
permits, approvals and authorizations necessary to conduct the
Attestation Practice in accordance with applicable laws and
regulations.
10.2 Conditions to Obligation of the Company to Effect the Acquisition.
Unless waived by the Company, the obligation of the Company to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing of
the following additional conditions:
(a) Centerprise, Mergersub and each of the Other Founding
Companies shall have performed in all material respects their
respective agreements contained in this Agreement and each Other
Agreement required to be performed on or prior to the Closing Date and
the representations and warranties of Centerprise contained in this
Agreement and each Other Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and the Company shall
have received a certificate of the Chief Executive Officer or President
of Centerprise to that effect;
(b) no Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy
shall have promulgated or formally proposed any statute, rule or
regulation which, when taken together with all such promulgations,
would materially impair the value to the Company of the Acquisition;
(c) the Company shall have received an opinion from Katten
Muchin & Zavis, dated as of the Closing Date, containing the
substantive opinions set forth in Exhibit 10.2(c), the final form of
such opinion to be in form and substance reasonably acceptable to the
Company;
(d) each of the members of Holdings shall have been afforded
the opportunity to enter into an incentive compensation agreement (the
"Incentive Compensation Agreement") with Centerprise substantially in
the form attached hereto as Exhibit 10.2(d);
(e) Centerprise shall have delivered to the Company a
certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State, showing
that Centerprise is in good standing;
37
<PAGE>
(f) each of the members of Holdings, the partners, members and
stockholders of the other Founding Companies who are to receive shares
of Centerprise Common Stock pursuant to the Other Agreements, and the
other stockholders of Centerprise other than those acquiring stock in
the IPO shall have entered into an agreement (the "Stockholders
Agreement") substantially in the form attached hereto as Exhibit
10.2(f);
(g) all conditions to the Other Mergers, on substantially the
same terms as provided herein, shall have been satisfied or waived by
the applicable party and the Company;
(h) the Company shall have been afforded the opportunity to
review the executed employment agreement by and between Centerprise and
Robert C. Basten; and
(i) the Company shall have received an opinion of Katten
Muchin & Zavis, dated as of the Closing Date and based upon certain
factual representations and assumptions, that for federal income tax
purposes there will be no gain or loss recognized with respect to the
Centerprise Common Stock received in exchange for Company Stock in the
Merger pursuant to Section 351 of the Code, the final form of such
opinion to be in form and substance reasonably acceptable to the
Company.
10.3 Conditions to Obligation of Centerprise to Effect the Acquisition.
Unless waived by Centerprise, the obligation of Centerprise and Mergersub to
effect the Acquisition shall be subject to the fulfillment at or prior to the
Closing of the additional following conditions:
(a) the Company shall have performed in all material respects
its agreements contained in this Agreement required to be performed on
or prior to the Closing Date and the representations and warranties of
the Company contained in this Agreement shall be true and correct in
all material respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and Centerprise and the
Underwriters shall have received a Certificate of the Chief Executive
Officer or President of the Company to that effect;
(b) [Reserved];
(c) Centerprise and the Underwriters shall have received an
opinion from Young & Associates, counsel to the Company, dated the
Closing Date, in the form attached hereto as Exhibit 10.3(c), the final
form of such opinion to be in form and substance reasonably acceptable
to the Underwriters and Centerprise;
(d) the Company and the other parties thereto, as applicable,
shall have executed and delivered the Separate Practice Agreement
substantially in the form attached hereto as Exhibit 10.3(d)(A) and the
Services Agreement substantially in the form attached hereto as Exhibit
10.3(d)(B);
38
<PAGE>
(e) each member of Holdings shall have executed and delivered
the Incentive Compensation Agreement substantially in the form attached
hereto as Exhibit 10.2(d);
(f) Centerprise and the Underwriters shall have received
"Comfort" letters in customary form from the Company's independent
public accountants, dated the effective date of the Form S-1 and the
Closing Date (or such other date reasonably acceptable to Centerprise),
with respect to certain financial statements and other financial
information included in the Form S-1 and any subsequent changes in
specified balance sheet and income statement items, including total
assets, working capital, total stockholders' equity, total revenues and
the total and per share amounts of net income;
(g) the Company shall have delivered to Centerprise and the
Underwriters a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the appropriate Governmental
Authority in the state of organization of the Company and each Company
Subsidiary and, unless waived by Centerprise, in each state in which
the Company or any Company Subsidiary is authorized to do business,
showing the Company or Company Subsidiary (as applicable) is in good
standing;
(h) no Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy
shall have promulgated or formally proposed any statute, rule or
regulation which, when taken together with all such promulgations,
would materially impair the value to Centerprise of the Acquisition;
(i) the members of Holdings shall have executed the
Stockholders Agreement;
(j) the Company's stockholders and the members of Holdings
shall have delivered to Centerprise an instrument in the form attached
hereto as Exhibit 10.3(j), dated the Closing Date, releasing the
Company (and the Company Subsidiaries) from any and all claims of such
persons against the Company (and the Company Subsidiaries) and
obligations of the Company (and the Company Subsidiaries) to such
persons;
(k) the Company shall have presented evidence satisfactory to
Centerprise of its compliance with the provisions of Section 7.1.4
hereof including, without limitation, that as of the Closing the amount
of debt of the Company and the Company Subsidiaries shall not exceed
the amount reflected on Schedule 2.1 as Debt Assumed By Centerprise;
(l) the Company shall have terminated or have caused the
termination of any voting trusts, proxies or other agreements or
understandings to which the Company is a party or is bound with respect
to any shares of capital stock or other equity interests of the Company
and the Company Subsidiaries and shall have provided Centerprise
evidence of such termination that is acceptable to Centerprise's
counsel;
(m) the Company shall have completed the Conversion and have
presented evidence of such conversion in accordance with Section 7.5;
39
<PAGE>
(n) the Company shall have paid in full any indebtedness owed
by the Company to any current or former shareholders of the Company,
and shall have provided evidence of same reasonably satisfactory to
Centerprise;
(o) the Company shall have caused all automobile leases to
which the Company is a party (together with all vehicle insurance
policies and maintenance agreements, if any) to be assigned in full to
the individual beneficiary of such lease or terminated, and shall have
provided evidence of same reasonably satisfactory to Centerprise;
(p) the Company shall have delivered payoff letters including
a statement of per diem interest amounts and other applicable release
documents from all institutional lenders and creditors of the Company
and the Company Subsidiaries regarding the payment in full of
indebtedness at Closing, in each case in form and substance
satisfactory to Centerprise (including, without limitation, applicable
UCC-3 termination statements);
(q) the secretary of the Company shall have delivered
certified copies of the resolutions of the board of directors and
shareholders of the Company approving execution and delivery of this
Agreement, the Conversion, the Merger and the other actions, agreements
and documents, necessary or desirable to complete the transactions
contemplated herein; and
(r) the Company's stockholders (including the members of
Holdings) shall have executed and delivered the Company Stockholder
Agreement in the form of Exhibit 10.3(r) attached hereto.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) pursuant to Section 7.3;
(b) by the Company,
(i) if the Acquisition is not completed by November
15, 1999 other than on account of delay or default on the part
of the Company or any of its affiliates or associates;
(ii) if the Acquisition is enjoined by a final,
unappealable court order not entered at the request or with
the support of the Company or any of its affiliates or
associates;
(iii) if Centerprise (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
40
<PAGE>
respects within thirty (30) days after written notice of such
default is given to Centerprise; or
(c) by Centerprise,
(i) if the Acquisition is not completed by November
15, 1999 other than on account of delay or default on the part
of Centerprise or any of its stockholders or any of their
affiliates or associates;
(ii) if the Acquisition is enjoined by a final,
unappealable court order not entered at the request or with
the support of Centerprise or any of its stockholders or any
of their affiliates or associates;
(iii) if the Company (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
respects within thirty (30) days after written notice of such
default is given the Company by Centerprise; or
(d) by mutual consent of the Company and the Board of
Directors of Centerprise.
11.2 Effect of Termination. In the event of termination of this
Agreement by either Centerprise or the Company, as provided in Section 11.1,
this Agreement shall forthwith become void and there shall be no further
obligation on the part of the Company, Centerprise, Mergersub or their
respective officers or directors (except the obligations set forth in this
Section 11.2 and in Sections 8.1, 8.3 and 8.5, all of which shall survive the
termination). Nothing in this Section 11.2 shall relieve any party from
liability for any breach of this Agreement.
11.3 Amendment. This Agreement may not be amended except by action
taken by the Boards of Directors of Centerprise and the Company or duly
authorized committees thereof and then only by an instrument in writing signed
on behalf of each of the parties hereto and in compliance with applicable law.
Centerprise covenants and agrees that it shall not amend, modify or supplement
the material terms of any Other Agreement following the Closing without the
prior written consent of at least two thirds (2/3rds) of the members of
Centerprise's Board of Directors; provided that no waiver of any restriction set
forth in Article XII shall be of any effect unless consented to by a majority of
the members of Centerprise's Board of Directors who do not at the time of such
proposed waiver hold Restricted Shares within the meaning of this Agreement, any
Other Agreement or the Stockholders Agreement.
11.4 Waiver. At any time prior to the Closing Date, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
41
<PAGE>
ARTICLE XII
[RESERVED]
ARTICLE XIII
[RESERVED]
ARTICLE XIV
[RESERVED]
ARTICLE XV
GENERAL PROVISIONS
15.1 Brokers. The Company represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
(except for any fee described in Schedule 15.1) or commission in connection with
the Acquisition or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. Centerprise represents and
warrants that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
Acquisition or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Centerprise or its stockholders (other than
underwriting discounts and commission to be paid in connection with the IPO).
15.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
given in accordance with this Section):
15.2.1 If to Centerprise or Mergersub, to:
Centerprise Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert Basten
42
<PAGE>
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
15.2.2 If to the Company, to:
Follmer Rudzewicz & Co., P.C.
12900 Hall Road, Suite 500
Sterling Heights, Michigan 48313
Attn: Anthony P. Frabotta
Facsimile No: (810) 254-1805
with a copy to:
Young & Associates
26200 American Drive, Suite 305
Southfield, Michigan 48034
Attn: Rodger Young, Esq.
Facsimile No: (248) 353-6559
15.2.3 If to the Member Representative, to:
Follmer Rudzewicz & Co., P.C.
12900 Hall Road, Suite 500
Sterling Heights, Michigan 48313
Attn: Anthony P. Frabotta
Facsimile No: (810) 254-1805
15.3 Interpretation. The table of contents and headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
15.4 Certain Definitions. As used in this Agreement, (i) the term
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated association, corporation, entity, firm,
association, organization or other business in any form whatsoever or government
(whether Federal, state, county, city or otherwise, including, without
limitation, any instrumentality, division, agency or department thereof), (ii)
the term "Affiliate" shall have the
43
<PAGE>
meaning given for that term in Rule 405 under the Securities Act, and shall
include each past and present Affiliate of a Person and the members of such
Affiliate's immediate family or their spouses or children and any trust the
beneficiaries of which are such individuals or relatives, and (iii) an
individual will be deemed to have "Knowledge" of a particular fact or other
matter if: (a) such individual is actually aware of such fact or matter, or (b)
a prudent individual could be expected to discover or otherwise become aware of
such fact or other matter in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter and a
prudent individual would conduct such investigation; a Person, other than an
individual, will be deemed to have "Knowledge" of a particular fact or other
matter if any individual who is a partner, member or shareholder of such Person
or who is otherwise serving, or who has served, as a director, officer or
trustee (or any capacity) of such Person has, or at any time had, Knowledge of
such fact or other matter.
15.5 Entire Agreement; Assignment. This Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof and (b) shall not be assigned by operation of law or otherwise,
except that Centerprise may assign this Agreement to any wholly-owned subsidiary
of Centerprise.
15.6 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Illinois applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
15.7 Counterparts. This Agreement may be executed via facsimile or
otherwise in two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
15.8 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and their respective
successors, permitted assigns, heirs, legal representatives and executors and
except as expressly set forth in herein, nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
* * *
[remainder of page intentionally left blank]
44
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
as of the date first written above.
CENTERPRISE ADVISORS, INC.
By: /s/ Robert C. Basten
--------------------------------
Name:
------------------------------
Its:
-------------------------------
FRC MERGERSUB INC.
By: /s/ Robert C. Basten
--------------------------------
Name:
------------------------------
Its:
-------------------------------
FOLLMER RUDZEWICZ & CO., P.C.
By: /s/ Anthony Frabotta
--------------------------------
Name:
------------------------------
Its:
-------------------------------
<PAGE>
Exhibit 2.38
------------------------------
AMENDED AND RESTATED
MERGER AGREEMENT
by and among
CENTERPRISE ADVISORS, INC.,
MFSL MERGERSUB INC.,
and
MANN FRANKFORT STEIN & LIPP, P.C.
September 24, 1999
------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
THE MERGER..........................................................2
1.1 The Merger............................................2
1.2 Effects of the Merger.................................2
1.3 Directors and Officers of the Surviving Corporation...3
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT.................................3
2.1 Merger Consideration..................................3
2.1.1 Basic Purchase Consideration....................3
2.1.2 Treasury Stock..................................3
2.1.3 Dissenters......................................3
2.1.4 Conversion of Mergersub Stock...................3
2.1.5 Exchange of Certificates........................4
2.2 Post-Closing Adjustments to Basic Purchase
Consideration.........................................4
2.2.1 Adjustments for Net Working Capital
Shortfall/Excess................................4
2.2.2 Preliminary Balance Sheet and Adjustment........4
2.2.3 Interim Adjustment..............................4
2.2.4 Final Adjustment................................4
2.2.5 Disputes........................................4
2.2.6 Payment of Adjustments..........................5
2.3 Post-Closing Management of AR.........................5
2.4 Assignment of Uncollected AR..........................6
2.5 Definitions...........................................6
ARTICLE III
THE CLOSING AND CONSUMMATION DATE...................................6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................7
4.1 Organization and Qualification........................7
4.2 Company Subsidiaries..................................7
4.3 Authority; Non-Contravention; Approvals...............7
4.4 Capitalization........................................9
4.5 Year 2000.............................................9
4.6 Financial Statements.................................10
4.7 Absence of Undisclosed Liabilities...................10
(i)
<PAGE>
Page
----
4.8 Unbilled Fees and Expenses...........................10
4.9 Absence of Certain Changes or Events.................11
4.10 Litigation...........................................13
4.11 Compliance with Applicable Laws......................14
4.12 Licenses.............................................14
4.13 Material Contracts...................................14
4.14 Properties...........................................17
4.15 Intellectual Property................................18
4.16 Taxes................................................19
4.17 Employee Benefit Plans; ERISA........................20
4.18 Labor Matters........................................22
4.19 Environmental Matters................................22
4.20 Insurance............................................23
4.21 Interest in Customers and Suppliers; Affiliate
Transactions.........................................23
4.22 Business Relationships...............................24
4.23 Compensation.........................................24
4.24 Bank Accounts........................................24
4.25 Professional Credentials.............................24
4.26 Disclosure; No Misrepresentation.....................25
ARTICLE V
[RESERVED].........................................................25
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE......................25
6.1 Organization And Qualification.......................25
6.2 Capitalization.......................................25
6.3 No Subsidiaries......................................26
6.4 Authority; Non-Contravention; Approvals..............26
6.5 Absence of Undisclosed Liabilities...................27
6.6 Litigation...........................................28
6.7 Compliance with Applicable Laws......................28
6.8 No Misrepresentation.................................28
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS..................................28
7.1 Conduct of Business by the Company Prior to the
Effective Time.......................................28
7.2 No-Shop..............................................31
7.3 Schedules............................................31
7.4 Company Stockholders Meeting.........................32
(ii)
<PAGE>
Page
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7.5 Conversion...........................................33
ARTICLE VIII
ADDITIONAL AGREEMENTS..............................................33
8.1 Access to Information................................33
8.2 Registration Statements..............................34
8.3 Expenses and Fees....................................35
8.4 Agreement to Cooperate...............................35
8.5 Public Statements....................................35
8.6 [Reserved]...........................................35
8.7 Centerprise Covenants. .............................35
8.8 Release of Guarantees................................35
8.9 [Reserved]...........................................36
8.10 Preparation and Filing of Tax Returns................36
8.11 Maintenance of Insurance.............................36
8.12 Administration.......................................36
8.13 Stockholder Representative...........................36
ARTICLE IX
[RESERVED].........................................................36
ARTICLE X
CLOSING CONDITIONS.................................................37
10.1 Conditions to Each Party's Obligation to Effect
the Merger...........................................37
10.2 Conditions to Obligation of the Company to Effect
the Merger...........................................38
10.3 Conditions to Obligation of Centerprise to Effect
the Merger...........................................39
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER..................................41
11.1 Termination..........................................41
11.2 Effect of Termination................................42
11.3 Amendment............................................42
11.4 Waiver...............................................42
ARTICLE XII
[RESERVED].........................................................43
(iii)
<PAGE>
Page
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ARTICLE XIII
[RESERVED].........................................................43
ARTICLE XIV
[RESERVED].........................................................43
ARTICLE XV
GENERAL PROVISIONS.................................................43
15.1 Brokers..............................................43
15.2 Notices..............................................43
15.3 Interpretation.......................................44
15.4 Certain Definitions..................................45
15.5 Entire Agreement; Assignment.........................45
15.6 Applicable Law.......................................45
15.7 Counterparts.........................................45
15.8 Parties in Interest..................................45
(iv)
<PAGE>
LIST OF SCHEDULES
-----------------
Schedule 2.1 Consideration
Schedule 2.5 Net Working Capital Adjustment Items
Schedule 4.2 Company Subsidiaries
Schedule 4.3.2 Required Consents
Schedule 4.4 Capitalization
Schedule 4.7 Liabilities
Schedule 4.9 Certain Changes and Events
Schedule 4.10 Litigation
Schedule 4.11 Noncompliance with Applicable Laws
Schedule 4.12 Licenses and Permits
Schedule 4.13 Material Contracts
Schedule 4.14.1-1 Real Property
Schedule 4.14.1-2(a) Exceptions Regarding Owned Property
Schedule 4.14.1-2(b) Exceptions Regarding Leased Property
Schedule 4.14.2 Tangible Personal Property; Liens
Schedule 4.15 Intellectual Property
Schedule 4.16.1-1 Taxes
Schedule 4.16.1-2 Tax Audits
Schedule 4.17.1 Employee Plans
Schedule 4.17.2 Unwritten Employee Plans
Schedule 4.18 Labor Matters
Schedule 4.19 Environmental Matters
(v)
<PAGE>
Schedule 4.20 Insurance
Schedule 4.21 Affiliate Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 6.2 Centerprise's Capitalization
Schedule 6.5 Liabilities
Schedule 7.1.4(i) Terminated Agreements
Schedule 7.1.4(ii) Excluded Assets
Schedule 8.8 Guarantees
Schedule 15.1 Brokers
(vi)
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit 10.2(c) Form of Opinion of Centerprise's Counsel
Exhibit 10.2(d) Form of Incentive Compensation Agreement
Exhibit 10.2(f) Form of Stockholders Agreement
Exhibit 10.3(c) Form of Opinion of Counsel to the Company
Exhibit 10.3(d)(A) Form of Separate Practice Agreement
Exhibit 10.3(d)(B) Form of Services Agreement
Exhibit 10.3(j) Form of Release
Exhibit 10.3(m) Form of Conversion Merger Agreement
Exhibit 10.3(r) Form of Company Stockholder Agreement
(vii)
<PAGE>
DEFINED TERMS
-------------
Accounting Licenses.........................................Section 4.12
Actions...................................................Section 4.10.1
Affiliate...................................................Section 15.4
Affiliate Transactions......................................Section 4.21
Agreement...................................................Introduction
AR........................................................Section 2.5(a)
Arbitrator.................................................Section 2.2.5
Attestation Practice........................................Introduction
Basic Purchase Consideration...............................Section 2.1.1
Business....................................................Introduction
Cash Consideration.........................................Section 2.1.1
Centerprise.................................................Introduction
Centerprise Accountants....................................Section 2.2.2
Centerprise Common Stock...................................Section 2.1.1
Centerprise Material Adverse Effect........................Section 6.4.3
Centerprise Representatives................................Section 8.1.1
Centerprise Required Statutory Approvals...................Section 6.4.3
Closing......................................................Article III
Closing Balance Sheet......................................Section 2.2.2
Closing Date.................................................Article III
Code........................................................Introduction
Company.....................................................Introduction
Company Material Adverse Effect............................Section 4.3.3
Company Representatives....................................Section 8.1.1
(viii)
<PAGE>
Company Stock..................................................Section 2.1.1
Company Stockholder Agreement................................Section 10.3(r)
Company Subsidiary(ies)..........................................Section 4.2
Contracts.......................................................Section 4.13
Conversion..................................................... Introduction
Copyrights......................................................Section 4.15
DGCL.............................................................Section 1.1
Disputed Item..................................................Section 2.2.5
Dissenting Shares..............................................Section 2.1.3
Effective Time...................................................Section 1.1
Employee Plan..............................................Section 4.17.5(a)
Environmental and Safety Requirements...........................Section 4.19
ERISA......................................................Section 4.17.5(b)
Excluded Assets................................................Section 7.1.4
Excluded Liabilities...........................................Section 7.1.4
Final Adjustment...............................................Section 2.2.4
Financial Statements.............................................Section 4.6
First Person...............................................Section 4.17.5(c)
Form S-1.......................................................Section 4.3.3
Form S-4.......................................................Section 4.3.3
Founding Companies..............................................Introduction
GAAP.............................................................Section 4.6
general increase................................................Section 4.23
Governmental Authority.........................................Section 4.3.2
Hazardous Materials.............................................Section 4.19
(ix)
<PAGE>
herein..........................................................Section 15.3
hereof..........................................................Section 15.3
hereunder.......................................................Section 15.3
HSR Act........................................................Section 4.3.3
Incentive Compensation Agreement.............................Section 10.2(d)
Intellectual Property...........................................Section 4.15
Intellectual Property Licenses..................................Section 4.15
Interim Adjustment.............................................Section 2.2.3
IPO.............................................................Introduction
Knowledge.......................................................Section 15.4
Latest Balance Sheet.............................................Section 4.6
Laws............................................................Section 4.11
Leased Property...............................................Section 4.14.1
Licenses........................................................Section 4.12
Lien(s)........................................................Section 4.3.2
Liquidated Damages Amount........................................Section 7.3
Marks...........................................................Section 4.15
Material Contracts..............................................Section 4.13
Merger..........................................................Introduction
Merger Documents.................................................Section 1.1
Mergersub.......................................................Introduction
Mergersub Stock................................................Section 2.1.4
Net Working Capital...........................................Section 2.5(b)
1933 Act.......................................................Section 4.3.3
Organizational Documents.........................................Section 4.1
(x)
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Other Agreements................................................Introduction
Other Mergers...................................................Introduction
Owned Property................................................Section 4.14.1
Patents.........................................................Section 4.15
Person..........................................................Section 15.4
Plan Affiliate.............................................Section 4.17.5(c)
Qui Tam Claims...................................................Section 4.6
Real Property.................................................Section 4.14.1
Registration Statements........................................Section 4.3.3
Resolution Period..............................................Section 2.2.5
Returns.......................................................Section 4.16.1
Schedules........................................................Section 7.3
SEC............................................................Section 4.3.3
Securities Act.................................................Section 4.3.3
Special Bonus Plan ...................................Section 2.5(c)
Stock Consideration............................................Section 2.1.1
Stockholder Representative......................................Section 8.13
Stockholders Agreement.......................................Section 10.2(f)
Surviving Corporation............................................Section 1.2
Target........................................................Section 2.5(d)
Tax Accrual...................................................Section 2.5(e)
Taxes.........................................................Section 4.16.2
TBCA.............................................................Section 1.1
Territory....................................................Section 13.1(a)
Trade Secrets...................................................Section 4.15
(xi)
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Underwriters...................................................Section 8.1.1
(xii)
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AMENDED AND RESTATED
MERGER AGREEMENT
THIS AMENDED AND RESTATED MERGER AGREEMENT (this "Agreement") is made
as of September 24, 1999, by and among Centerprise Advisors, Inc., a Delaware
corporation ("Centerprise"), MFSL Mergersub Inc., a Delaware corporation and
wholly-owned subsidiary of Centerprise ("Mergersub"), and Mann Frankfort Stein &
Lipp, P.C., a Texas professional corporation (together with its permitted
successor and assigns, the "Company").
WITNESSETH:
WHEREAS, the Company engages directly, and indirectly through the
Company Subsidiaries, in the business of providing accounting, tax and other
related services (such business provided by the Company is referred to as the
"Business");
WHEREAS, prior to, and in anticipation of, completion of the
transactions contemplated hereby (a) the Company will cease to provide services
related to the practice of accounting that, pursuant to applicable laws and
regulations, may only be conducted by certified public accountants (the
"Attestation Practice") and (b) the Company will be converted from a
professional corporation to a business corporation by adopting a plan of
conversion and amending the Company's Organizational Documents (as defined in
Section 4.1) such that it converts to a business corporation (the "Conversion");
WHEREAS, the Boards of Directors of the Company, Centerprise and
Mergersub deem it advisable and in the best interests of their respective
shareholders to approve and consummate the business combination transaction
provided for herein in which Mergersub would merge with and into the Company,
with the Company being the surviving corporation in the merger (the "Merger");
WHEREAS, the Voting Agreement, dated as of March 31, 1999, among
Centerprise and certain of the stockholders of the Company has been terminated
and is no longer in force and effect;
WHEREAS, Centerprise is entering into other agreements (the "Other
Agreements") substantially similar to this Agreement with each of Reznick Fedder
& Silverman, P.C., Robert F. Driver Company, Inc., The Reppond Company, Inc.,
Reppond Administrators, LLC, Verasource Excess Risk Ltd., Berry, Dunn, McNeil &
Parker, Chartered, Urbach, Kahn & Werlin, P.C., Self Funded Benefits, Inc. d/b/a
Insurance Design Administrators, Grace & Company, P.C., Simione, Scillia, Larrow
& Dowling LLC and Follmer Rudzewicz & Co., P.C., (which companies together with
the Company are collectively referred to herein as the "Founding Companies"),
which agreements provide for the merger of a wholly-owned subsidiary of
Centerprise with each such Founding Company (the "Other Mergers") simultaneously
with the Merger. Centerprise has provided a side letter to each holder of equity
interests of the Company to such effect;
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WHEREAS, simultaneously with the consummation of the Merger,
Centerprise will close an initial public offering (the "IPO") of Centerprise
Common Stock (as defined in Section 2.1.1); and
WHEREAS, the parties intend the acquisition of Centerprise Common Stock
pursuant to the terms hereof to be tax-free under the provisions of Section 351
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the
mutual representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement and in reliance upon the representations and warranties set
forth herein, Mergersub shall be merged with and into the Company, the result of
which will cause the separate corporate existence of Mergersub to cease and the
Company to continue under the laws of the State of Texas. As promptly as
possible on the Closing Date, the parties shall cause the Merger to be completed
by filing articles of merger and a certificate of merger, as applicable (the
"Merger Documents"), with the Secretary of State of the State of Texas, as
provided in the Texas Business Corporation Act, as amended (the "TBCA"), and
with the Secretary of State of the State of Delaware, as provided in the
Delaware General Corporation Law (the "DGCL"). The Merger shall become effective
(the "Effective Time") upon the filing of the Merger Documents with the
Secretary of State of the State of Texas and the Secretary of State of the State
of Delaware or at such later time, contemporaneously with the closing of the
IPO, as agreed by Centerprise and the Company and specified in the Merger
Documents.
1.2 Effects of the Merger. At the Effective Time (i) the separate
existence of Mergersub shall cease and Mergersub shall be merged with and into
the Company, with the Company being the surviving corporation in the Merger (the
Company is sometimes referred to herein as the "Surviving Corporation"), (ii)
the Articles of Incorporation and By-laws of the Surviving Corporation shall be
amended in form and substance acceptable to Centerprise and as specified in the
Merger Documents, (iii) the Merger shall have all the effects provided by
applicable law and (iv) the Surviving Corporation shall be a wholly-owned
subsidiary of Centerprise.
1.3 Directors and Officers of the Surviving Corporation. From and after
the Effective Time, the directors and officers of Mergersub shall be the
directors and officers of the Surviving Corporation until their successors are
duly elected and qualified.
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ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2.1 Merger Consideration.
2.1.1 Basic Purchase Consideration. At the Closing, by virtue
of the Merger and without any action on the part of the holders thereof, the
outstanding shares of capital stock, consisting of 1,574.2869 shares of common
stock, par value $1.00 per share, of the Company (the "Company Stock") shall be
converted into the right to receive: (a) that number of shares of Centerprise
common stock, par value $.01 per share (the "Centerprise Common Stock") shown on
line T of Schedule 2.1; provided, however, that if the initial public offering
price of the Centerprise Common Stock is below $11.90 per share, the number of
shares of Centerprise Common Stock received at the Closing shall be increased
such that the value of the shares, using the actual public offering price,
equals the amounts shown on line U of Schedule 2.1 (the "Stock Consideration")
and (b) the amount of cash shown on line S of Schedule 2.1 (the "Cash
Consideration"). The sum of the Cash Consideration and the Stock Consideration
is herein referred to as "Basic Purchase Consideration."
2.1.2 Treasury Stock. Each share of capital stock of the
Company held in treasury of the Company shall be canceled and retired and no
payment shall be made in respect thereof.
2.1.3 Dissenters. Each outstanding share of capital stock of
the Company held by a Person that has perfected the right to dissent under
applicable law and has not effectively withdrawn or lost such right as of the
Effective Time (the "Dissenting Shares") shall not be converted into the right
to receive Basic Purchase Consideration, and the holder thereof shall be
entitled only to such rights as are granted by applicable law. The Company shall
give Centerprise prompt notice upon receipt by the Company of any such written
demands for payment of fair value of shares of Company Stock and any other
instruments provided pursuant to applicable law. Any payments made in respect of
Dissenting Shares shall be made by the Surviving Corporation.
2.1.4 Conversion of Mergersub Stock. At the Effective Time,
each share of the capital stock of Mergersub (the "Mergersub Stock") issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and become one validly issued, fully paid and non-assessable share of the
Surviving Corporation. Such newly issued shares shall thereafter constitute all
of the issued and outstanding capital stock of the Surviving Corporation.
2.1.5 Exchange of Certificates. At the Closing, Centerprise
shall receive the original Company Stock certificates, duly endorsed in blank by
the Company's stockholders or accompanied by blank stock powers, in exchange for
the allocated share of (a) Centerprise Common Stock certificates representing
the Stock Consideration and (b) payment of the Cash Consideration by certified
check, cashier's check or wire transfer of immediately available funds to a bank
account or bank accounts in the amounts and manner specified by the Stockholder
Representative in a writing delivered to Centerprise at least three (3) business
days prior to the
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Closing Date. The shares represented by the Company Stock certificates so
delivered to Centerprise shall be canceled. Until surrendered as contemplated by
this Section 2.1.5, each certificate representing shares of Company Stock
represents only the right to receive Basic Purchase Consideration, as adjusted
in accordance with this Article II.
2.2 Post-Closing Adjustments to Basic Purchase Consideration.
2.2.1 Adjustments for Net Working Capital Shortfall/Excess.
The Basic Purchase Consideration shall be (a) reduced dollar-for-dollar
to the extent Net Working Capital on the Closing Date is less than the
Target or (b) increased dollar-for-dollar to the extent Net Working
Capital on the Closing Date is greater than the Target.
2.2.2 Preliminary Balance Sheet and Adjustment. At or about
the Closing, the Company will prepare, and the firm of
PricewaterhouseCoopers LLP (the "Centerprise Accountants") will review,
a balance sheet of the Company, as of the Closing Date, in accordance
with GAAP and consistent with the accounting policies and practices
used in connection with the preparation of the Financial Statements
(the "Closing Balance Sheet") along with a preliminary calculation of
any excess or shortfall of Net Working Capital as compared to the
Target.
2.2.3 Interim Adjustment. As soon as practicable, the Company
will prepare and deliver to Centerprise a revised calculation of Net
Working Capital reflecting all collections of AR up to the date 90 days
from the Closing Date. Within 10 days of receipt of such calculation,
Centerprise will deliver to the Stockholder Representative a written
report indicating the amount and nature of any adjustment to the Basic
Purchase Consideration determined in accordance with Section 2.2.1 (the
"Interim Adjustment").
2.2.4 Final Adjustment. As soon as practicable, the Company
will prepare and deliver to Centerprise a final calculation of Net
Working Capital revised to reflect all collections of AR up to the date
180 days from the Closing Date. Centerprise will review such
calculation and any records, work papers and other documents related
thereto. Within 10 days of receipt of such calculation, Centerprise
will deliver to the Stockholder Representative a written report
indicating the amount and nature of any adjustment to the Basic
Purchase Consideration determined in accordance with Section 2.2.1 (the
"Final Adjustment").
2.2.5 Disputes. The parties hereto shall not object to the
Interim Adjustment which shall be binding on the parties hereto, and
shall withhold all objections until delivery of the Final Adjustment
report. If the Stockholder Representative does not object (or otherwise
respond) in writing to the Final Adjustment report within 30 days after
its delivery, the Final Adjustment shall automatically become final,
binding and conclusive on all parties hereto. Any objection to the
Final Adjustment report shall be in writing and shall specify the item
or items in dispute (each a "Disputed Item").
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If the Stockholder Representative and Centerprise are unable
to resolve any Disputed Item within 30 days after notice from the
Stockholder Representative that a dispute exists (the "Resolution
Period"), then a representative from the office of a nationally
recognized accounting firm (the "Arbitrator") selected jointly by
Centerprise and the Stockholder Representative will arbitrate the
dispute. The Stockholder Representative and Centerprise shall, within
20 days after expiration of the Resolution Period, present their
respective positions with respect to any Disputed Item to the
Arbitrator together with such materials as the Arbitrator deems
appropriate. To the extent any Disputed Item is similar to a disputed
item under the Other Agreements, the Arbitrator shall arbitrate the
Disputed Item based on the submitted materials and without regard to
the disputed item under the Other Agreements. The Arbitrator shall,
after the submission of the materials, submit a written decision on
each Disputed Item to the Stockholder Representative and Centerprise
and such determination shall be final and binding on the parties
hereto. The arbitration shall be conducted in Chicago, Illinois. The
parties hereto agree that the cost of the Arbitrator shall be borne by
the non-prevailing party or as determined by the Arbitrator.
2.2.6 Payment of Adjustments. In the event Net Working Capital
is less than the Target, the Company's stockholders shall pay the
amount of the shortfall to Centerprise. In the event Net Working
Capital is greater than the Target, Centerprise shall pay the amount of
the excess to the Company's stockholders. Any payment required to be
made pursuant to this paragraph shall be made, within ten days of
delivery of the report indicating any adjustment, by wire transfer of
immediately available funds to an account designated in writing by the
party that is to receive payment of such adjustment. In respect of the
Final Adjustment, the party making a payment required by such
adjustment shall make such payment within ten days after the Final
Adjustment becomes final and shall receive credit for or return of any
amount previously paid in connection with the Interim Adjustment.
2.3 Post-Closing Management of AR. Following the Closing, the billing,
servicing, administering and collection of the AR shall be conducted by the
Company. The Company shall take all such actions as may be necessary or
advisable to collect the AR in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in accordance with the
Company's credit and collection policy in effect at Closing. The Company may
modify, adjust or write-off AR from time to time in accordance with the
Company's credit and collection policy in effect at Closing. Unless otherwise
required by contract or law, payments by an obligor in respect of services
rendered or expenses advanced by the Company shall be applied as follows: in the
event any such payment specifically references the invoice being paid or clearly
relates to an outstanding invoice, the payment will be applied to the
corresponding invoice; and, in any other case, the payment will be applied to
satisfy AR relating to such obligor in the order that such AR arose. Any
adjustment, modification or write-off affecting AR and fees and expenses
receivable and unbilled fees and expenses of the Company incurred after Closing
with respect to the same client engagement shall be allocated ratably to the
pre-Closing and post-Closing periods.
2.4 Assignment of Uncollected AR. If any AR remain uncollected by the
Company as of 180 days after the Closing Date, the Company will assign the
uncollected AR to the Company's
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stockholders. Notwithstanding the foregoing, the Company will retain the sole
right to service, administer and collect the uncollected AR in accordance with
Section 2.3.
2.5 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) "AR" means any fees and expenses receivable and unbilled
fees and expenses of the Company on the Closing Date.
(b) "Net Working Capital" means an amount determined as of the
Closing Date, whenever calculated, equal to the difference between: (i)
the sum of any AR, prepaid expenses and other current assets less (ii)
the sum of accounts payable, accrued current liabilities, the items
listed on Schedule 2.5, the Tax Accrual and the portion of
employer-paid FICA attributable to Medicare, payable in connection with
deferred compensation and the Special Bonus Plan. For purposes of this
Section 2.5(b), the Special Bonus Plan accrual shall not constitute a
current liability.
(c) "Special Bonus Plan" means the Company's Special Bonus
Plan dated March 31, 1999.
(d) "Target" means an amount equal to 1% of the Company's net
revenues for the four quarter period ending on the last day of the
calendar quarter prior to the Closing.
(e) "Tax Accrual" means an amount equal to the product of (i)
Net Working Capital (calculated before deduction of the Tax Accrual)
less an amount equal to any tax deductions realized by Centerprise as a
result of any payments pursuant to the Special Bonus Plan and (ii) the
sum of 34% plus the effective state tax rate on the Company (net of any
federal tax benefit). A negative Tax Accrual shall be treated as a
current asset for purposes of Section 2.5(b)(i).
ARTICLE III
THE CLOSING AND CONSUMMATION DATE
The consummation of the Merger and the other transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Katten
Muchin & Zavis, Chicago, Illinois, contemporaneously with the closing of the
IPO, or at such other time and date as the parties hereto may mutually agree
(the "Closing Date").
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Centerprise, as of March
31, 1999 and, subject to Section 7.3, as of the date on which Centerprise and
the lead Underwriter (as defined in Section 8.1.1) execute and deliver the
Underwriting Agreement related to the IPO and as of the Closing Date, as
follows:
4.1 Organization and Qualification. The Company is a professional
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas and, following the Conversion, the Company will be a
business corporation duly organized, validly existing and in good standing under
the laws of the State of Texas. Each Company Subsidiary (as defined in Section
4.2) is duly organized, validly existing and in good standing under the laws of
the state of its organization set forth on Schedule 4.2. Each of the Company and
the Company Subsidiaries has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted, and is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary. True,
accurate and complete copies of the Company's and each Company Subsidiary's
Organizational Documents, in each case as in effect on March 31, 1999, have
heretofore been delivered to Centerprise. "Organizational Documents" means (a)
the articles or certificate of incorporation and the bylaws of a corporation
(professional or otherwise), (b) the partnership agreement and any statement of
partnership of a general partnership, (c) the limited partnership agreement and
the certificate of limited partnership of any limited partnership, (d) the
operating or limited liability company agreement and certificate of formation of
any limited liability company, (e) any charter or similar document adopted and
filed in connection with the creation, formation, organization or governance (as
applicable) of any Person and (f) any amendment to any of the foregoing.
4.2 Company Subsidiaries. Schedule 4.2 sets forth the name (including
any assumed names), jurisdiction of organization and ownership of the issued and
outstanding equity interests of each Person in which the Company owns, directly
or indirectly, securities or other interests having the power to elect a
majority of such Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of such Person
(each a "Company Subsidiary" and collectively, the "Company Subsidiaries").
Except as set forth on Schedule 4.2, the Company does not, directly or
indirectly, own, of record or beneficially, or control any capital stock,
securities convertible into capital stock or any other equity interest in any
Person.
4.3 Authority; Non-Contravention; Approvals.
4.3.1 The Company has full right, power and authority to enter
into this Agreement and, subject to the approval of the Merger and the
transactions contemplated hereby by the Company's stockholders, to
consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by the Company have been
duly authorized by all necessary corporate action on the part of the
Company, subject
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to the approval of the Merger and the transactions contemplated hereby
by the Company's stockholders. This Agreement has been duly executed
and delivered by the Company, and, assuming the due authorization,
execution and delivery hereof by Centerprise, constitutes a valid and
legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, except that such enforcement may
be subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to enforcement of creditors'
rights generally and (ii) general equitable principles.
4.3.2 The execution and delivery of this Agreement by the
Company does not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in
the creation of any claim, lien, privilege, mortgage, charge,
hypothecation, assessment, security interest, pledge or other
encumbrance, conditional sales contract, equity charge, restriction, or
adverse claim of interest of any kind or nature whatsoever (each a
"Lien" and collectively, the "Liens"), upon any of the properties or
assets of the Company or any Company Subsidiary under, any of the
terms, conditions or provisions of (i) the Organizational Documents of
the Company or any Company Subsidiary, (ii) following completion of the
Conversion, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or
federal, state, provincial, local or foreign government, or any
subdivision, agency or authority of any thereof ("Governmental
Authority") applicable to the Company, any Company Subsidiary, or the
Business, properties or assets of the Company or any Company
Subsidiary, except for those items discussed in (ii) above relating to
regulating, licensing or permitting the practice of public accountancy,
or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which the Company or any Company
Subsidiary is a party or by which the Company, any Company Subsidiary
or any of the properties or assets of the Company or any Company
Subsidiary may be bound or affected. The consummation by the Company of
the transactions contemplated hereby will not result in a violation,
conflict, breach, right of termination, creation or acceleration of
Liens under the terms, conditions or provisions of the items described
in clauses (i) through (iii) of the immediately preceding sentence,
subject in the case of the terms, conditions or provisions of the items
described in clause (iii) above, to obtaining (prior to the Closing
Date) such consents required from third parties set forth on Schedule
4.3.2 and except for those items described in (ii) and (iii) above,
relating to regulating, licensing or permitting the practice of public
accountancy and any filing which may be required under the HSR Act.
4.3.3 Except for (i) the declaration of effectiveness of a
registration statement on Form S-1 (the "Form S-1") and a
post-effective amendment to the registration statement on Form S-4 (the
"Form S-4") (Form S-1 and Form S-4 are collectively the "Registration
Statements") with the Securities and Exchange Commission (the"SEC")
pursuant to the Securities Act of 1933, as amended (the "Securities
Act"or the "1933 Act"), and filings, if required, with various state
securities or "blue sky" authorities, (ii) any filing which may
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be required under the Hart-Scott-Rodino Antitrust Improvement Act of
1976, as amended (the "HSR Act"), and (iii) any filing which may be
required by any Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy,
no declaration, filing or registration with, notice to, or
authorization, consent or approval of, any Governmental Authority is
necessary for the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions
contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if
not made or obtained, as the case may be, would not, individually or in
the aggregate, have a "Company Material Adverse Effect," which, for
purposes of this Agreement means a material adverse effect on the
operations, assets, condition (financial or other), operating results,
employee or client relations, or prospects of the Company or any
Company Subsidiary.
4.4 Capitalization.
4.4.1 The authorized capital stock of the Company consists of
10,000,000 shares of Company Stock, of which 1,574.2869 shares are
issued and outstanding. The authorized capital stock of each of the
Company Subsidiaries, if any, and the number of such shares issued and
outstanding is completely and accurately set forth in Schedule 4.4. The
stockholders of the Company own beneficially and of record all of the
issued and outstanding shares of the Company Stock, which shares
constitute all of the outstanding shares of capital stock of the
Company. The Company owns all shares of the Company Subsidiaries, as
indicated on Schedule 4.4, in each case free and clear of all Liens,
and the Company has good and marketable title to such shares of the
Company Subsidiaries. All of such issued and outstanding shares are
validly issued and are fully paid, nonassessable and free of preemptive
rights.
4.4.2 Except as set forth on Schedule 4.4 or in connection
with the Conversion, there are no outstanding subscriptions, options,
calls, contracts, commitments, undertakings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement
to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of the Company or any Company
Subsidiary or obligating the Company or any Company Subsidiary to
grant, extend or enter into any such agreement or commitment or
obligating the Company or any Company Subsidiary to convey or transfer
any Company Stock or Company Subsidiary stock, as the case may be. As
of the Closing Date, there will be no voting trusts, proxies or other
agreements or understandings to which the Company or any Company
Subsidiary is a party or is bound with respect to the voting of any
shares of capital stock or other equity interests of the Company or any
Company Subsidiary.
4.5 Year 2000. To the Knowledge of the Company, all of the computer
software, computer firmware, computer hardware (whether general or special
purpose), and other similar or related items of automated, computerized, and/or
software system(s) that are used or relied on by the Company or any Company
Subsidiary in the conduct of the Business will not malfunction, will not cease
to function, will not generate incorrect data, and will not produce incorrect
results when
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processing, providing, and/or receiving (i) date-related data into and between
the twentieth (20th) and twenty-first (21st) centuries and (ii) date-related
data in connection with any valid date in the twentieth (20th) and twenty-first
(21st) centuries, except for any malfunctions or generations of incorrect data
or results that would not individually or in the aggregate have a Company
Material Adverse Effect. Nothing in this Section 4.5 is intended or shall be
construed as a representation or warranty with respect to embedded systems.
4.6 Financial Statements. The Company has previously furnished to
Centerprise copies of the audited consolidated balance sheets of the Company as
of December 31 in each of the years 1997 and 1998 (the "Latest Balance Sheet"),
and the related audited consolidated statements of income, stockholders' equity
and cash flow for each of the years in the three (3) year period ended December
31, 1998, including all notes thereto (collectively, the "Financial
Statements"). Each of the Financial Statements is accurate and complete in all
material respects, is consistent with the books and records of the Company and
the Company Subsidiaries (which, in turn, are accurate and complete in all
material respects), and fairly presents in all material respects the financial
condition, assets and liabilities of the Company and the Company Subsidiaries as
of its date and the results of operations and cash flows for the periods related
thereto, in each case in accordance with generally accepted accounting
principles, applied on a consistent basis ("GAAP"), except that the accounts
receivable of the Company include approximately $486,600.00 owed by the
Partnership for Fraud Analysis in connection with the Marks Federal Cases
matter, which under an agreement between the Company and the Partnership for
Fraud Analysis will be paid only if, as and when and to the extent the
Partnership for Fraud Analysis recovers against defendants in lawsuits regarding
Medicare fraud and related claims (the "Qui Tam Claims").
4.7 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
4.7, neither the Company nor any Company Subsidiary had, as of the date of the
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent clearly and accurately reflected or accrued or fully
reserved against in the Financial Statements or (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business and consistent with past custom and practices (none of which
is a liability resulting from a breach of contract, breach of warranty, tort,
infringement claim, legal violation or lawsuit).
4.8 Unbilled Fees and Expenses. Except for unbilled fees and expenses
relating to the Partnership for Fraud Analysis with respect to the Qui Tam
Claims related to the Marks Federal Cases, at the Closing, all unbilled fees and
expenses at net realizable value reflected in the records of the Company and the
Company Subsidiaries arose in the ordinary course of business and will be
billable in the ordinary course of business using normal billing practices and
adjustments employed as of the date of this Agreement by the Company and each
Company Subsidiary. Upon such billing any such amounts will be collectible in
the ordinary course of business using normal collection practices and policies
employed by the Company and each Company Subsidiary (net of any allowance for
doubtful accounts determined in accordance with the Company's and the Company
Subsidiaries' past practice and custom).
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4.9 Absence of Certain Changes or Events. Except as set forth on
Schedule 4.9, since the date of the Latest Balance Sheet, each of the Company
and the Company Subsidiaries has conducted its business only in the ordinary
course consistent with past custom and practices. Except as set forth on
Schedule 4.9, since the date of the Latest Balance Sheet, there has not been
any:
(a) material adverse change in the operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee or client relations or prospects of the Company or any Company
Subsidiary;
(b) damage, destruction or loss of any property owned by the
Company or any Company Subsidiary, or used in the operation of the
Business, whether or not covered by insurance, having a replacement
cost or fair market value in excess of five percent (5%) of the amount
of net property, plant and equipment shown on the Latest Balance Sheet,
in the aggregate;
(c) voluntary or involuntary sale, transfer, surrender,
cancellation, abandonment, waiver, release or other disposition of any
kind by the Company or any Company Subsidiary of any right, power,
claim, or debt, except the collection of accounts and billing of
work-in-process, each in the ordinary course of business consistent
with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination or other labor dispute or similar occurrence that is
reasonably expected to adversely affect the Company, a Company
Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary
to any Person, other than as a result of services performed for, or
expenses properly and reasonably advanced for the benefit of, customers
in the ordinary course of business consistent with past custom and
practices;
(f) notice (formal or otherwise) of any liability, potential
liability or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or
other distribution in respect of the Company's capital stock or other
equity interests or any direct or indirect redemption, purchase, or
other acquisition of the Company's or any Company Subsidiary's capital
stock or other equity interests, or the payment of principal or
interest on any note, bond, debt instrument or debt to any Affiliate
(as defined in Section 15.4) of the Company or any Company Subsidiary,
except bonuses and distributions to employees and stockholders of the
Company disclosed to Centerprise in writing that are consistent with
the Company's past custom and practices or as otherwise contemplated by
this Agreement;
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(h) incurrence by the Company or any Company Subsidiary of
debts, liabilities or obligations except current liabilities incurred
in connection with or for services rendered or goods supplied in the
ordinary course of business consistent with past custom and practices,
liabilities on account of taxes and governmental charges (but not
penalties, interest or fines in respect thereof), and obligations or
liabilities incurred by virtue of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any
notes, bonds, or other debt securities or any equity securities or
securities convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or
amendment or termination of, any material commitment, contract,
agreement, or transaction, other than in the ordinary course of
business and other than expiration of contracts in accordance with
their terms;
(k) loss or threatened loss of, or any material reduction or
threatened material reduction in revenues from, any client of the
Company or any Company Subsidiary that accounted for revenues during
the last twelve months in excess of one percent (1%) of the
consolidated net revenues of the Company and the Company Subsidiaries,
or change in the relationship of the Company or any Company Subsidiary
with any client or Governmental Authority that is reasonably expected
to adversely affect the Company, any Company Subsidiary or the
Business;
(l) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or
amortization policies or rates) utilized by the Company or any Company
Subsidiary;
(m) discharge or satisfaction by the Company or any Company
Subsidiary of any material liability or encumbrance or payment by the
Company or any Company Subsidiary of any material obligation or
liability, other than current liabilities paid in the ordinary course
of its business consistent with past custom and practices;
(n) sale, lease or other disposition by the Company or any
Company Subsidiary of any tangible assets (having an aggregate
replacement cost or fair market value in excess of five percent (5%) of
the amount of net property, plant and equipment shown on the Latest
Balance Sheet) other than in the ordinary course of business, or the
sale, assignment or transfer by the Company or any Company Subsidiary
of any trademarks, service marks, trade names, corporate names,
copyright registrations, trade secrets or other intangible assets, or
disclosure of any proprietary confidential information of the Company
or any Company Subsidiary to any Person other than an employee, agent,
attorney, accountant or other representative of the Company that has
agreed to maintain the confidentiality of any such proprietary
confidential information;
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(o) capital expenditures or commitments therefor by the
Company or any Company Subsidiary in excess of $50,000 individually or
$100,000 in the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the
Company or any Company Subsidiary or creation of any easements, Liens
or other interests against or on any of the Real Property (as defined
in Section 4.14.1);
(q) adoption, amendment or termination of any Employee Plan
(as defined in Section 4.17.5(a)) or increase in the benefits provided
under any Employee Plan, or promise or commitment to undertake any of
the foregoing in the future; or
(r) an occurrence or event not included in clauses (a) through
(q) that has resulted or, based on information of which the Company has
Knowledge, is reasonably expected to result in a Company Material
Adverse Effect.
4.10 Litigation. Except as set forth on Schedule 4.10 (which shall
disclose the parties to, nature of and relief sought for each matter to be
disclosed on Schedule 4.10):
4.10.1 There is no suit, action, proceeding, investigation,
claim or order pending or, to the Knowledge of the Company, threatened
against the Company or any Company Subsidiary, or with respect to the
Merger, or with respect to any Employee Plan, or any fiduciary of any
such plan (or pending or, to the Knowledge of the Company, threatened
against any of the officers, directors, stockholders, partners, members
or employees of the Company or any Company Subsidiary with respect to
its business or proposed business activities), or to which the Company
or any Company Subsidiary is otherwise a party, or that is reasonably
expected to have a Company Material Adverse Effect, before any court,
or before any Governmental Authority (each an "Action" and
collectively, the "Actions"); nor, to the Knowledge of the Company, is
there any basis for any such Action.
4.10.2 Neither the Company nor any Company Subsidiary is
subject to any unsatisfied or continuing judgment, order or decree of
any court or Governmental Authority. Neither the Company nor any
Company Subsidiary, to the Knowledge of the Company, is otherwise
exposed, from a legal standpoint, to any liability or disadvantage that
is reasonably expected to result in a Company Material Adverse Effect,
and neither the Company nor any Company Subsidiary is a party to any
legal action to recover monies due it or for damages sustained by it,
other than collection of past due charges for services rendered or
expenses incurred by the Company.
4.10.3 Schedule 4.10 lists the insurer for each Action covered
by insurance or designates such Action, or a portion of such Action, as
uninsured and lists the individual and aggregate policy limits for the
insurance covering each insured Action and the applicable policy
deductibles for each insured Action.
4.10.4 Schedule 4.10 sets forth all material closed litigation
matters to which the Company or any Company Subsidiary was a party
during the five (5) year period preceding
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the Closing Date, the date such litigation was commenced and concluded,
and the nature of the resolution thereof (including amounts paid in
settlement or judgment).
4.11 Compliance with Applicable Laws. Except as set forth on Schedules
4.11 and 4.19, each of the Company and the Company Subsidiaries has complied in
all material respects with all laws, rules, regulations, writs, injunctions,
decrees, and orders (collectively, the "Laws") applicable to it or to the
operation of the Business, and neither the Company nor any Company Subsidiary
has received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of the Company, no event has occurred or circumstances exist that
(with or without notice or lapse of time) is reasonably expected to constitute
or result in a violation by the Company or any Company Subsidiary of any Law
that gives rise to any liability on the part of the Company or any Company
Subsidiary under any Law.
4.12 Licenses. Schedule 4.12 lists all Licenses used by the Company and
the Company Subsidiaries that are material to the conduct of the Business.
"Licenses" means all notifications, licenses, permits, franchises, certificates,
approvals, exemptions, classifications, registrations and other similar
documents and authorizations, and applications therefor, held by the Company or
any Company Subsidiary and issued by, or submitted by the Company or any Company
Subsidiary to, any Governmental Authority or other Person, other than those
relating to the practice of public accountancy. Section B of Schedule 4.12 lists
all licenses, certificates, approvals, registrations and other similar documents
and authorizations, and applications therefor, relating to the practice of
public accountancy (the "Accounting Licenses") held by the Company or a Company
Subsidiary and issued by, or submitted by the Company or any Company Subsidiary
to, any Governmental Authority or other Person. All such Licenses and Accounting
Licenses are valid, binding and in full force and effect. Except as described on
Schedule 4.12, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not adversely affect
any such Licenses. To the Knowledge of the Company, the Company and the Company
Subsidiaries have taken all necessary action to maintain such Licenses. Except
as set forth on Schedule 4.12, no loss or expiration of any such License is
pending or, to the Company's Knowledge, threatened or reasonably foreseeable.
4.13 Material Contracts. Except as listed or described on Schedule 4.13
(such contracts, or those which should have been listed on Schedule 4.13, are
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments (each a
"Contract" and collectively, the "Contracts") relating to or in any way
affecting the operation or ownership of the Business that are of a type
described below and no such agreements are currently in negotiation or proposed:
(a) any consulting agreement pursuant to which the Company or
a Company Subsidiary is to receive consulting services (other than
consulting agreements that may be terminated by the Company or a
Company Subsidiary on not more than 30 days notice
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without penalty), employment agreement, change-in-control agreement, or
collective bargaining arrangement with any labor union;
(b) any Contract for capital expenditures or the acquisition
or construction of fixed assets in excess of $50,000;
(c) any Contract for the purchase, maintenance or acquisition,
or the sale or furnishing, of materials, supplies, merchandise,
machinery, equipment, parts or other property or services (except if
such Contract is made in the ordinary course of business and requires
aggregate future payments of less than $25,000);
(d) any Contract, other than trade payables in the ordinary
course of business, relating to the borrowing of money, or the guaranty
of another Person's borrowing of money, including, without limitation,
any notes, mortgages, indentures and other obligations, guarantees of
performance, agreements and instruments for or relating to any lending
or borrowing, including assumed indebtedness;
(e) any Contract granting any Person a Lien on all or any part
of the assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions
in connection with Hazardous Materials (as defined in Section 4.19),
the remediation of any existing environmental liabilities or relating
to the performance of any environmental audit or study;
(g) any Contract granting to any Person an option, first
refusal, first-offer or similar preferential right to purchase or
acquire any material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative
which is not terminable by the Company or a Company Subsidiary upon
ninety (90) calendar days or less notice without penalty;
(i) any Contract under which the Company or any Company
Subsidiary is (A) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property, or (B) a lessor of any
tangible personal property owned by the Company or any Company
Subsidiary, in either case having an original purchase price or
requiring aggregate lease payments in excess of $50,000;
(j) any Contract under which the Company or any Company
Subsidiary has granted or received a license or sublicense or under
which it is obligated to pay or has the right to receive a royalty,
license fee or similar payment, in any case which provides for payments
over the life of such Contract in excess of $25,000;
(k) any Contract concerning an Affiliate Transaction (as
defined in Section 4.21);
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(l) any Contract providing for the indemnification or holding
harmless of any officer, director, employee or other Person;
(m) any Contract (A) for purchase or sale by the Company or
any Company Subsidiary of any real property on which the Company or any
Company Subsidiary conducts any aspect of the Business, (B) granting
any options to lease or purchase all or any portion of the Real
Property, or (C) providing for labor, services or materials to the Real
Property (including, without limitation, brokerage or management
services) involving aggregate future payments of more than $25,000;
(n) any Contract limiting, restricting or prohibiting the
Company or any Company Subsidiary from conducting business anywhere in
the United States or elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to
the Leased Property (as defined in Section 4.14.1);
(q) any Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the
Company or any Company Subsidiary, which, if amended, modified or
terminated as a result of, relating to or in connection with a failure
to provide prior notice, or gain such consent or approval, would result
in a Company Material Adverse Effect; or
(r) any other Contract, whether or not made in the ordinary
course of business, which involves future payments by the Company or
any Company Subsidiary in excess of $25,000.
The Company has provided Centerprise with a true and complete copy of
each written Material Contract and a true and complete summary of each oral
Material Contract, in each case including all amendments or other modifications
thereto. Except as set forth on Schedule 4.13, each Material Contract is a valid
and binding obligation of, and enforceable in accordance with its terms against,
the Company or a Company Subsidiary, as applicable, and, to the Knowledge of the
Company, the other parties thereto, and is in full force and effect, subject
only to bankruptcy, reorganization, receivership and other laws affecting
creditors' rights generally and equitable principles. Except as set forth on
Schedule 4.13, the Company or one of the Company Subsidiaries, as applicable,
has performed in all material respects all obligations required to be performed
by it as of the date hereof and will have performed in all material respects all
obligations required to be performed by it as of the Closing Date under each
Material Contract and neither the Company nor any Company Subsidiary, as
applicable, nor, to the Knowledge of the Company, any other party to any
Material Contract is in breach or default thereunder, and, to the Knowledge of
the Company, there exists no condition which would, with or without the lapse of
time or the giving of notice, or both, constitute a breach or default
thereunder. The Company has not been notified that any party to any Material
Contract intends to cancel, terminate, not renew, or exercise
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an option under any Material Contract, whether in connection with the
transactions contemplated hereby or otherwise.
4.14 Properties.
4.14.1 Schedule 4.14.1-1 is a correct and complete list, and a
brief description of, all real estate in which the Company or any of
the Company Subsidiaries has an ownership interest (the "Owned
Property") and all real property leased by the Company (the "Leased
Property"). Except as lessee of Leased Property, neither the Company
nor any Company Subsidiary is a lessee under or otherwise a party to
any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which another Person has granted to the
Company or any Company Subsidiary the right to use or occupy all or any
portion of any real property.
The Company or one or more of the Company Subsidiaries has
good and marketable fee simple title to the Owned Property and,
assuming good title in the landlord, a valid leasehold interest in the
Leased Property (the Owned Property and the Leased Property being
sometimes referred to herein as "Real Property"), in each case free and
clear of all Liens, assessments or restrictions (including, without
limitation, inchoate liens arising out of the provision of labor,
services or materials to any such real estate) other than (a) mortgages
shown on the Financial Statements as securing specified liabilities or
obligations, with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default) exists,
(b) Liens for current taxes not yet due, (c) (i) minor imperfections of
title, including utility and access easements depicted on subdivision
plats for platted lots that do not impair the intended use of the
property, if any, none of which materially impairs the current
operations of the Company, any Company Subsidiary or the Business, and
(ii) zoning laws and other land use restrictions or restrictive
covenants that do not materially impair the present use of the property
subject thereto and (d) Liens, assessments and restrictions pursuant to
and by virtue of the terms of the lease of the Leased Property. The
Real Property constitutes all real properties reflected on the
Financial Statements or used or occupied by the Company or any Company
Subsidiary in connection with the Business or otherwise.
With respect to the Owned Property, except as reflected on
Schedule 4.14.1-2(a):
(a) the Company or one of the Company Subsidiaries is in
exclusive possession thereof and no easements, licenses or rights are
necessary to conduct the Business thereon in addition to those which
exist as of the date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority
materially adverse to the Owned Property and, to the Knowledge of the
Company, there is no threatened condemnation or proceeding with respect
thereto;
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(c) there is no violation of any covenant, condition,
restriction, easement or agreement of any Governmental Authority that
affects the Owned Property or the ownership, operation, use or
occupancy thereof;
(d) no portion of any parcel of the Owned Property is subject
to any roll-back tax, dual or exempt valuation tax, and no portion of
any Owned Property is omitted from the appropriate tax rolls; and
(e) all assessments and taxes currently due and payable on
such Owned Property have been paid.
With respect to the Leased Property, except as reflected on Schedule
4.14.1-2(b):
(i) the Company and/or one of the Company
Subsidiaries is in exclusive, peaceful and undisturbed possession
thereof and, to the Knowledge of the Company, no easements, licenses or
rights are necessary to conduct the Business thereon in addition to
those which exist as of the date hereof; and
(ii) to the Knowledge of the Company, no portion
thereof is subject to any pending condemnation proceeding or proceeding
by any public or quasi-public authority materially adverse to the
Leased Property and there is no threatened condemnation or proceeding
with respect thereto.
4.14.2 The Latest Balance Sheet and/or Schedule 4.14.2 reflect
all material tangible personal property owned by the Company or any
Company Subsidiary, except as sold or otherwise disposed of or acquired
in the ordinary course of business. Except as set forth on Schedule
4.14.2, the Company or one of the Company Subsidiaries has good and
marketable title to, or a valid leasehold interest in, or valid license
of, such personal property (including, without limitation, machinery,
equipment and computers), in each case free and clear of any Liens
(other than Liens that are part of such leasehold or license), and each
such asset is in working order and has been maintained in a
commercially reasonable manner and does not contain, to the Knowledge
of the Company, any material defect. Except as set forth in Schedule
4.14.2, no personal property (including, without limitation, software
and databases maintained on off-premises computers) used by the Company
or any Company Subsidiary in connection with the Business is held under
any lease, security agreement, conditional sales contract or other
title retention or security arrangement or is located other than on the
Real Property.
4.15 Intellectual Property. The (i) patents, patent applications,
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered trademarks, trade names, company names, assumed
business names and service marks (collectively, the "Marks"), (iii) copyrights
(the "Copyrights"), and (iv) know how, trade secrets, confidential information,
client lists, software, technical information, data, process technology, plans
and drawings (collectively, the "Trade Secrets") owned, used or licensed by the
Company or any Company Subsidiary (collectively, the "Intellectual Property")
are all those necessary to enable
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the Company and the Company Subsidiaries to conduct and to continue to conduct
the Business substantially as it is currently conducted. Schedule 4.15 contains
a complete and accurate list of all material Patents, Marks and Copyrights and a
brief description of all material Trade Secrets owned, used by or directly
licensed to the Company or any Company Subsidiary, and a list of all material
license agreements and arrangements with respect to any of the Intellectual
Property to which the Company or any Company Subsidiary is a party, whether as
licensee, licensor or otherwise (collectively, the "Intellectual Property
Licenses"). Except as set forth on Schedule 4.15, (i) all of the Intellectual
Property is owned or, to the Knowledge of the Company, used under a valid
Intellectual Property License, by the Company or one of the Company
Subsidiaries, and is free and clear of all Liens and other adverse claims; (ii)
neither the Company nor any Company Subsidiary has received any written notice
that it is or has infringed on, misappropriated or otherwise conflicted with, or
otherwise has Knowledge that it is infringing on, misappropriating, or otherwise
conflicting with the intellectual property rights of any third parties; (iii)
there is no claim pending or, to the Knowledge of the Company, threatened
against the Company or any Company Subsidiary with respect to the alleged
infringement or misappropriation by the Company or any Company Subsidiary, or a
conflict with, any intellectual property rights of others; (iv) the operation of
any aspect of the Business in the manner in which it has heretofore been
operated or is presently operated does not give rise to any such infringement or
misappropriation; and (v) there is no infringement or misappropriation of the
Intellectual Property by a third party or claim, pending or, to the Knowledge of
the Company, threatened, against any third party with respect to the alleged
infringement or misappropriation of the Intellectual Property.
4.16 Taxes.
4.16.1 Except as set forth on Schedule 4.16.1-1, each of the
Company and the Company Subsidiaries has timely and accurately prepared
and filed or been included in or will timely and accurately prepare and
file or be included in all federal, state, local and foreign returns,
declarations and reports, information returns and statements
(collectively, the "Returns") for Taxes (as defined in Section 4.16.2)
required to be filed by or with respect to the Company or the Company
Subsidiaries before the Closing Date, and has paid or caused to be
paid, or has made adequate provision or set up an adequate accrual or
reserve for the payment of, all Taxes required to be paid in respect of
the periods for which Returns are due on or prior to the Closing Date,
and will establish an adequate accrual or reserve for the payment of
all Taxes payable in respect of the period, including portions thereof,
subsequent to the last of said periods required to be so accrued or
reserved, in each case in accordance with GAAP up to and including the
Closing Date. All such Returns are or will be true and correct in all
material respects. The Company has delivered to Centerprise true and
complete copies of all Returns referred to in the first sentence of
this Section 4.16.1 (including any amendments thereof) for the five (5)
most recent taxable years. Neither the Company nor any Company
Subsidiary is delinquent in the payment of any Tax, and no material
deficiencies for any Tax, assessment or governmental charge have been
threatened, claimed, proposed or assessed, in each case in writing. No
waiver or extension of time to assess any Taxes has been given or
requested. No written claim, or any other claim, by any taxing
authority in any jurisdiction where the Company or any Company
Subsidiary does not file Tax returns is pending pursuant to which the
Company
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or Company Subsidiary, as applicable, is or may be subject to taxation
by that jurisdiction. The Company's and the Company Subsidiaries'
Returns were last audited by the Internal Revenue Service or comparable
state, local or foreign agencies on the dates set forth on Schedule
4.16.1-2.
4.16.2 For purposes of this Agreement, the term "Taxes" shall
mean all taxes, charges, withholdings, fees, levies, penalties,
additions, interest or other assessments, including, without
limitation, income, gross receipts, excise, property, sales,
employment, withholding, social security, occupation, use, service,
service use, license, payroll, franchise, transfer and recording taxes,
fees and charges, windfall profits, severance, customs, import, export,
employment or similar taxes, charges, fees, levies or other
assessments, imposed by the United States, or any state, local, foreign
or provincial government or subdivision or any agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other
basis.
4.17 Employee Benefit Plans; ERISA.
4.17.1 Except as described in Schedule 4.17.1, neither the
Company nor any Company Subsidiary has or is reasonably expected to
have any liability (including contingent liability) whether direct or
indirect (and regardless of whether it would be derived from a current
or former Plan Affiliate, as defined in Section 4.17.5(c)) with respect
to any of the following (whether written, unwritten or terminated): (i)
any employee welfare benefit plan, as defined in Section 3(1) of ERISA
(as defined in Section 4.17.5(b)), including, but not limited to, any
medical plan, life insurance plan, short-term or long-term disability
plan or dental plan; (ii) any "employee pension benefit plan," as
defined in Section 3(2) of ERISA, including, but not limited to, any
excess benefit plan, top hat plan or deferred compensation plan or
arrangement, nonqualified retirement plan or arrangement, qualified
defined contribution or defined benefit arrangement; or (iii) any other
benefit plan, policy, program, arrangement or agreement, including, but
not limited to, any material fringe benefit plan or program, personnel
policy, bonus or incentive plan, stock option, restricted stock, stock
bonus, holiday pay, vacation pay, sick pay, bonus program, service
award, moving expense, reimbursement program, tool allowance, safety
equipment allowance, deferred bonus plan, salary reduction agreement,
change-of-control agreement, employment agreement or consulting
agreement.
4.17.2 A complete copy of each written Employee Plan (as
defined in Section 4.17.5(a)) as amended to the Closing, together with
audited financial statements, if any, for the three (3) most recent
plan years; a copy of each trust agreement or other funding vehicle
with respect to each such plan; a copy of any and all determination
letters, rulings or notices issued by a Governmental Authority with
respect to such plan; a copy of the Form 5500 Annual Report for the
three (3) most recent plan years; and a copy of each and any general
explanation or communication which was required to be distributed or
otherwise provided to participants in such plan and which describes all
or any relevant aspect of each plan, including summary plan
descriptions and/or summary of material modifications, have been
delivered to Centerprise. A description of each unwritten
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Employee Plan, including a description of eligibility, participation,
benefits, funding arrangements and assets or other relevant aspects of
the obligation, is set forth in Schedule 4.17.2.
4.17.3 Except as is not reasonably expected to give rise to
any liability (including contingent liability), whether direct or
indirect, to the Company or any Company Subsidiary, each Employee Plan
(i) has been and is operated and administered in compliance with its
terms; (ii) has been and is operated, administered, maintained and
funded in compliance with the applicable requirements of the Code in
such a manner as to qualify, where appropriate and intended, for both
Federal and state purposes, for income tax exclusions, tax-exempt
status, and the allowance of deductions and credits with respect to
contributions thereto; (iii) where appropriate, has received a
favorable determination letter from the Internal Revenue Service upon
which the sponsor of the plan may currently rely; (iv) has been and
currently complies in form and in operation in all respects with all
applicable requirements of ERISA and the Code and any applicable
reporting and disclosure requirements of Federal and state laws,
including but not limited to the requirement of Part 6 of subtitle B of
Title I of ERISA and Section 4980B of the Code. With respect to each
Employee Plan, no Person has: (i) entered into any nonexempt
"prohibited transaction," as such terms are defined in ERISA or the
Code; (ii) breached a fiduciary obligation or (iii) any liability for
any failure to act or comply in connection with the administration or
investment of the assets of such plan; and no Employee Plan has any
liability and there is no liability in connection with any Employee
Plan, other than a liability (i) which is expressly and adequately
reflected in the Latest Balance Sheets, (ii) which is discretionary or
terminable at will by the Company or one of the Company Subsidiaries
without incurring any such liability, or (iii) which is adequately
funded under a funding arrangement separate from the assets of the
Company, any Company Subsidiary or a Plan Affiliate (and only to the
extent of such funding). Any contribution made or accrued with respect
to any Employee Plan is fully deductible by the Company, a Company
Subsidiary or a Plan Affiliate.
4.17.4 Neither the Company nor any Company Subsidiary or Plan
Affiliate has ever sponsored, maintained, contributed to or been
required to contribute to, or has any liability, whether direct or
indirect, with respect to any Employee Plan which is or has ever been
(i) a "multiemployer plan" as defined in Section 4001 of ERISA, (ii) a
"multiemployer plan" within the meaning of Section 3(37) of ERISA,
(iii) a "multiple employer plan" within the meaning of Code Section
413(c), (iv) a "multiple employer welfare arrangement" within the
meaning of Section 3(40) of ERISA, (v) subject to the funding
requirements of Section 412 of the Code or to Title IV of ERISA, or
(vi) provides for post-retirement medical, life insurance or other
welfare-type benefits.
4.17.5 As used in this Agreement, the following terms shall
have the following respective meanings:
(a) the term "Employee Plan" shall mean any plan,
policy, program, arrangement or agreement described in Section
4.17.1, whether or not scheduled;
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(b) the term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended; and
(c) with respect to any Person ("First Person"), the
term "Plan Affiliate" shall mean any other Person with whom
the First Person constitutes or has constituted all or part of
a controlled group, or which would be treated or have been
treated with the First Person as under common control or whose
employees would be or have been treated as employed by the
First Person, under Section 414 of the Code or Section 4001(b)
of ERISA and any regulations, administrative rulings and case
law interpreting the foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no,
and within the last three (3) years neither the Company nor any Company
Subsidiary has experienced any, strike, picketing, boycott, work stoppage or
slowdown or other similar labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor pending or,
to the Knowledge of the Company, threatened against the Company or any Company
Subsidiary, or that is reasonably expected to affect the Company or any Company
Subsidiary; nor, to the Knowledge of the Company, is there any basis for any
such allegation, charge, or complaint. There is no request for representation
pending and, to the Knowledge of the Company, no question concerning
representation has been raised. There is no grievance pending that is reasonably
expected to result in a Company Material Adverse Effect nor any arbitration
proceeding arising out of a union agreement. To the Knowledge of the Company, no
employee who is key to the Business and no group of employees has announced or
otherwise indicated any plans to terminate employment with the Company or any
Company Subsidiary. Each of the Company and any Company Subsidiary has complied
with all applicable laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes. Neither the
Company nor any Company Subsidiary is liable for any arrears of wages or any
taxes or penalties for failure to comply with any such laws, ordinances or
regulations.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19,
(i) each of the Company and the Company Subsidiaries is operating and has
operated its business in compliance with all applicable Environmental and Safety
Requirements (as defined later in this Section); (ii) to the actual knowledge of
the Officers of the Company, without any duty to inquire (notwithstanding the
definition of "Knowledge" in Section 15.4), there are no Hazardous Materials (as
defined later in this Section) present at, on or under any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
(other than those present in office supplies and cleaning/maintenance materials)
for which the Company or a Company Subsidiary is or is reasonably expected to be
responsible, or otherwise have any liability, for response costs under any
Environmental and Safety Requirements; (iii) each of the Company and the Company
Subsidiaries has disposed of all waste materials generated by the Company or
such Company Subsidiary at any real property currently or formerly owned, leased
or used by the Company or Company Subsidiary in compliance with applicable
Environmental and Safety Requirements; and (iv) there are and have been no
facts, events, occurrences or conditions at or related to any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
that
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is reasonably expected to cause or give rise to liabilities or response
obligations of the Company or any Company Subsidiary under any Environmental and
Safety Requirements. The term "Environmental and Safety Requirements" means any
federal, state and local laws, statutes, regulations or other requirements
relating to the protection, preservation or conservation of the environment or
worker health and safety, all as amended or reauthorized. The term "Hazardous
Materials" means "hazardous substances," as defined by the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq., "hazardous wastes," as defined by the Resource Conservation Recovery
Act, 42 U.S.C. Section 6901 et seq., asbestos in any form or condition,
polychlorinated biphenyls and any other material, substance or waste to which
liability or standards of conduct may be imposed under any Environmental and
Safety Requirement.
4.20 Insurance. Each of the Company and the Company Subsidiaries has in
full force and effect commercially reasonable amounts of insurance to protect
the Company's and Company Subsidiaries' ownership or interest in, and operation
of, its assets against the types of liabilities, including professional
malpractice, customarily insured against in connection with operations similar
to the Business, and all premiums due on such policies have been paid. To the
Company's Knowledge, each of the Company and the Company Subsidiaries has
complied with the provisions of all such policies and is not in default under
any of such policies. Schedule 4.20 contains a complete and correct list of all
such insurance policies. Neither the Company nor any Company Subsidiary has
received any notice of cancellation or intent to cancel or increase premiums
with respect to such insurance policies. Schedule 4.20 also contains a list of
all claims or asserted claims reported to insurers under such policies relating
to the ownership or interest in the Company's and the Company Subsidiaries'
assets, or operation of the Business, including all professional malpractice
claims and similar types of claims, actions or proceedings asserted against the
Company or any Company Subsidiary arising out of the Business at any time within
the past three (3) years.
4.21 Interest in Customers and Suppliers; Affiliate Transactions.
Except as described on Schedule 4.21 and except for ownership as an investment
of not more than one percent (1%) of any class of capital stock of any
publicly-traded company, none of the Company, any of its stockholders, any
Affiliate of its stockholders, any Affiliate of the Company nor any Company
Subsidiary (i) possesses, directly or indirectly, any financial interest in, or
is a director, officer, employee or affiliate of, any Person that is a client,
supplier, customer, lessor, lessee or competitor of the Company or any Company
Subsidiary, (ii) owns, directly or indirectly, in whole or in part, or has any
interest in any tangible or intangible property used in the conduct of the
Business, or (iii) is a party to an agreement or relationship, that involves the
receipt by such Person of compensation or property from the Company or any
Company Subsidiary other than through a customary employment relationship or
through distributions made with respect to the Company Stock or equity interests
in any Company Subsidiary (provided such distributions have been made consistent
with the Company's or any Company Subsidiary's, as the case may be, past custom
and practices). Schedule 4.21 sets forth the parties to and the date, nature and
amount of each transaction during the last five years involving the transfer of
any cash, property or rights to or from the Company or any Company Subsidiary
from, to or for the benefit of any Affiliates (other than customary employment
relationships or distributions made with respect to the Company Stock)
("Affiliate Transactions"), and any existing commitments of the Company or any
Company
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Subsidiary to engage in the future in any Affiliate Transactions. Except as
disclosed, each Affiliate Transaction and each transaction with former
Affiliates of the Company or any Company Subsidiary was effected on terms
equivalent to those that would have been established in an arm's-length
transaction.
4.22 Business Relationships. Schedule 4.22 lists all clients of the
Company and each Company Subsidiary representing one percent (1%) or more of the
Company's consolidated net revenues for the twelve (12) months ended December
31, 1998. Except as set forth on Schedule 4.22, since December 31, 1998, none of
such clients has canceled or substantially reduced its business with the Company
or Company Subsidiary, as applicable, nor are any of such clients threatening to
do so. To the Knowledge of the Company, no client that accounts for one percent
(1%) or more of the Company's consolidated net revenue, or supplier of the
Company or any Company Subsidiary, will cease to do business with, or
substantially reduce its business with, the Company or any Company Subsidiary,
as applicable, after the consummation of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
names and current total compensation, including, without limitation, salary and
bonuses paid to employees and draws or other distributions paid to partners,
members or owners of each Person who earned from the Company or a Company
Subsidiary in 1998 total compensation in excess of $100,000. Except as set forth
in Schedule 4.23, no Person listed thereon has received any bonus or increase in
compensation and there has been no "general increase" in the compensation or
rate of compensation payable to any employees, partners, members or owners of
the Company or any Company Subsidiary since the date of the Latest Balance
Sheet, other than in the Company's and Company Subsidiaries' ordinary course of
business, consistent with past custom and practices, nor since that date has
there been any oral or written promise to employees, partners, members or owners
of any bonus or increase in compensation, other than in the Company's and
Company Subsidiaries' ordinary course of business, consistent with past custom
and practices. The term "general increase" as used herein means any increase
generally applicable to a class or group, but does not include increases granted
to individuals for merit, length of service or change in position or
responsibility made on the basis of the custom and past practices of the Company
or any Company Subsidiary. Schedule 4.23 includes the date and amount of the
last bonus or similar distribution or increase in compensation for each listed
individual.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each
bank in which the Company or any Company Subsidiary has an account or safe
deposit box, the number of each such account or box, and the names of all
Persons authorized to draw thereon or to have access thereto.
4.25 Professional Credentials. Each stockholder of the Company is a
Certified Public Accountant in good standing in one of the States of the United
States or the District of Columbia, and entitled to practice in one of the
jurisdictions in which the Company or any Company Subsidiary maintains an
office, and there are no disciplinary proceedings pending or threatened against
the Company, any Company Subsidiary or any of the stockholders or the Company by
any Governmental Authority or self-regulatory organization regulating, licensing
or permitting the practice of public accountancy.
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4.26 Disclosure; No Misrepresentation. No representation or warranty of
the Company contained in this Agreement or in any of the certification,
schedules, lists, documents, exhibits, or other instruments delivered or to be
delivered to Centerprise as contemplated by any provision hereof contains any
untrue statement regarding a material fact or omits to state a material fact
necessary in order to make the statements made herein or therein not misleading.
To the Knowledge of the Company, there is no fact or circumstance that has not
been disclosed to Centerprise herein that has or is reasonably expected to have
a Company Material Adverse Effect.
ARTICLE V
[RESERVED]
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE
Centerprise represents and warrants to the Company as of March 31, 1999
and, subject to Section 7.3, as of the date on which Centerprise and the lead
Underwriter execute and deliver the Underwriting Agreement related to the IPO
and as of the Closing Date as follows:
6.1 Organization And Qualification. Each of Centerprise and Mergersub
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. True, accurate and complete copies of each of
Centerprise's and Mergersub's Certificate of Incorporation and By-laws, as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to the Company.
6.2 Capitalization.
6.2.1 The authorized capital stock of Centerprise consists of
20,000 shares of Centerprise Common Stock, of which 17,500 shares are
outstanding as of the date hereof. All of the issued and outstanding
shares of Centerprise Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights. Immediately prior to
the Closing Date, the authorized capital stock of Centerprise will
consist of 50,000,000 shares of Centerprise Common Stock, of which the
number of shares set forth in the Form S-1 will be issued and
outstanding, and 10,000,000 shares of Preferred Stock, par value $0.01
per share, none of which will be issued and outstanding. Other than (i)
shares of Centerprise Common Stock issued pursuant to a split of the
shares outstanding as of the date of this Agreement, (ii) shares of
Centerprise Common Stock issued in accordance with the Merger and the
Other Mergers, and (iii) shares of Centerprise Common Stock that may be
issued to new members of management in lieu of shares previously issued
to current members of
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management, but which will not increase the number of shares of
outstanding Centerprise Common Stock, no shares of Centerprise Common
Stock will be issued prior to the consummation of the IPO. Mergersub's
authorized capital stock consists solely of 1,000 shares of common
stock, par value $.01 per share, all of which are issued and
outstanding, are owned free and clear of any Liens by Centerprise, and
are fully paid, nonassessable and free of preemptive rights.
6.2.2 Except as set forth on Schedule 6.2, as of the date
hereof, there are no outstanding subscriptions, options, calls,
contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under
any outstanding security, instrument or other agreement obligating
Centerprise to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock of Centerprise or
obligating Centerprise to grant, extend or enter into any such
agreement or commitment. There are no voting trusts, proxies or other
agreements or understandings to which Centerprise is a party or is
bound with respect to the voting of any shares of capital stock of
Centerprise. The shares of Centerprise Common Stock issued to the
Company's stockholders pursuant to this Agreement will at the Closing
Date be duly authorized, validly issued, fully paid and nonassessable
and free of preemptive rights and issued pursuant to a registration
statement as required by the 1933 Act or an exemption therefrom.
6.3 No Subsidiaries. Except for Centerprise's ownership of 100% of the
capital stock of each of Professional Service Group, Inc., a Delaware
corporation, and Mergersub (and similar entities created for similar purposes
with respect to the Other Agreements) Centerprise has no subsidiaries and it
does not own any capital stock of any corporation or any equity or other
interest of any nature whatsoever in any Person.
6.4 Authority; Non-Contravention; Approvals.
6.4.1 Each of Centerprise and Mergersub has all requisite
right, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has
been approved by the Boards of Directors of Centerprise and Mergersub,
and no other corporate proceedings on the part of Centerprise or
Mergersub are necessary to authorize the execution and delivery of this
Agreement or the consummation by Centerprise and Mergersub of the
transactions contemplated hereby. This Agreement has been duly executed
and delivered by Centerprise and Mergersub and, assuming the due
authorization, execution and delivery hereof by the Company constitutes
a valid and legally binding agreement of Centerprise and Mergersub,
enforceable against each of them in accordance with its terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and (ii) general
equitable principles.
6.4.2 The execution and delivery of this Agreement by
Centerprise and Mergersub does not violate, conflict with or result in
a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default)
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under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under,
or result in the creation of any Lien upon any of the properties or
assets of Centerprise and Mergersub under any of the terms, conditions
or provisions of (i) the Certificate of Incorporation or By-laws of
Centerprise or Mergersub, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or
license of any court or Governmental Authority applicable to
Centerprise, Mergersub or any of their respective properties or assets,
or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which Centerprise or Mergersub
is now a party or by which Centerprise, Mergersub or any of their
respective properties or assets, may be bound or affected, except those
items described in clause (ii) relating to regulating, licensing or
permitting the practice of public accountancy. The consummation by
Centerprise and Mergersub of the transactions contemplated hereby will
not result in any violation, conflict, breach, right of termination or
acceleration or creation of Liens under any of the terms, conditions or
provisions of the items described in clauses (i) through (iii) of the
immediately preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (ii) above,
to obtaining (prior to the Closing Date) Centerprise Required Statutory
Approvals and except for those items described in (ii) above relating
to regulating, licensing or permitting the practice of public
accountancy.
6.4.3 Except with respect to (i) the declaration of the
effectiveness of the Registration Statements by the SEC and filings, if
required, with various state securities or "blue sky" authorities, (ii)
any filing which may be required under the HSR Act, (iii) any filing
which may be required by any Governmental Authority or self-regulatory
organization regulating, licensing or permitting the practice of public
accountancy (the filings and approvals referred to in clauses (i)
through (iii) are collectively referred to as the "Centerprise Required
Statutory Approvals") no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is necessary for the execution and
delivery of this Agreement by Centerprise or Mergersub or the
consummation by Centerprise or Mergersub of the transactions
contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if
not made or obtained, as the case may be, are not reasonably expected
to, in the aggregate, have a material adverse effect on the business
operations, properties, assets, condition (financial or other), results
of operations or prospects of Centerprise and its subsidiaries, taken
as a whole (a "Centerprise Material Adverse Effect").
6.5 Absence of Undisclosed Liabilities. Except as set forth on Schedule
6.5, neither Centerprise nor Mergersub has incurred any liabilities or
obligations (whether known or unknown, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise) of any nature. Except as set
forth on Schedule 6.5, neither Centerprise nor Mergersub has engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is it bound by any obligation or undertaking.
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6.6 Litigation. There are no claims, suits, actions or proceedings
pending or, to the Knowledge of Centerprise, threatened against, relating to or
affecting Centerprise or Mergersub, before any court, Governmental Authority or
any arbitrator that seek to restrain or enjoin the consummation of the Merger or
the IPO or which could reasonably be expected, either alone or in the aggregate
with all such claims, actions or proceedings, to have a Centerprise Material
Adverse Effect. Centerprise is not subject to any unsatisfied or continuing
judgment, order or decree of any court or Governmental Authority. Centerprise is
not a party to any legal action to recover monies due it or for damages
sustained by it.
6.7 Compliance with Applicable Laws. Each of Centerprise and Mergersub
has complied in all material respects with all Laws applicable to it, and has
not received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of Centerprise, no event has occurred or circumstances exist that
(with or without notice or lapse of time) may constitute or result in a
violation by Centerprise or Mergersub of any Law or may give rise to any
liability on the part of the Centerprise or Mergersub under any Law.
6.8 No Misrepresentation. None of the representations and warranties of
Centerprise or Mergersub set forth in this Agreement or in any of the
certificates, schedules, lists, documents, exhibits, or other instruments
delivered or to be delivered to the Company as contemplated by any provision
hereof contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. To the Knowledge of Centerprise, there is no fact or circumstance
that has not been disclosed to the Company herein that has or is reasonably
expected to have a Company Material Adverse Effect.
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS
7.1 Conduct of Business by the Company Prior to the Effective Time.
7.1.1 Except as otherwise contemplated by this Agreement,
after the date hereof and prior to the Closing Date or earlier
termination of this Agreement, unless Centerprise shall otherwise agree
in writing, the Company shall, and shall cause each Company Subsidiary
to:
(a) in all material respects conduct the Business in
the ordinary and usual course and consistent with past customs
and practices;
(b) not (i) amend its Organizational Documents except
as necessary to complete the Conversion, (ii) split, combine
or reclassify its outstanding capital stock or (iii) declare,
set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise except dividends or distributions
which (A) are
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consistent with past customs and practices, (B) do not result
in a Company Material Adverse Effect and (C) as set forth on
Schedule 7.1.4(ii);
(c) not issue, sell, pledge or dispose of, or agree
to issue, sell, pledge or dispose of (i) any additional shares
of, or any options, warrants or rights of any kind to acquire
any shares of, its capital stock or equity interests of any
class, (ii) any debt with voting rights or (iii) any debt or
equity securities convertible into or exchangeable for, or any
rights, warrants, calls, subscriptions, or options to acquire,
any such capital stock, debt with voting rights or convertible
securities;
(d) not (i) incur or become contingently liable with
respect to any indebtedness for borrowed money other than (A)
borrowings in the ordinary course of business in a manner
consistent with past customs and practices or (B) borrowings
to refinance existing indebtedness on commercially reasonable
terms, (ii) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or equity interests or
any options, warrants or rights to acquire any of its capital
stock or equity interests or any security convertible into or
exchangeable for its capital stock or equity interests, (iii)
sell, pledge, dispose of or encumber any assets or businesses
other than dispositions in the ordinary course of business in
a manner consistent with past customs and practices (iv) enter
into any contract, agreement, commitment or arrangement with
respect to any of the foregoing;
(e) use commercially reasonable efforts to (i)
preserve intact its business organizations and goodwill, (ii)
keep available the services of its present officers and key
employees, and (iii) preserve the goodwill and business
relationships with clients and others having business
relationships with it and not engage in any action, directly
or indirectly, with the intent to adversely impact the
transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one
or more representatives of Centerprise to report operational
matters of materiality and the general status of ongoing
operations;
(g) except as contemplated on Schedule 4.9, not (i)
increase in any manner the base compensation of, or enter into
any new bonus or incentive agreement or arrangement with, any
of its employees, partners, members or owners, except in the
ordinary course of business in a manner consistent with past
customs and practices of the Company or any Company
Subsidiary, as applicable, (ii) pay or agree to pay any
additional pension, retirement allowance or other employee
benefit under any Employee Plan to any such Person, whether
past or present, (iii) enter into any new employment,
severance, consulting, or other compensation agreement with
any of its existing employees, partners, members or owners,
(iv) amend or enter into a new Employee Plan (except as
required by Law) or amend or enter into a new collective
bargaining agreement, or (v) engage in any new Affiliate
Transaction;
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(h) comply in all material respects with all
applicable Laws;
(i) not make any material investment in, directly or
indirectly, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any
other manner, any businesses or any Person or division thereof
or otherwise acquire or agree to acquire any assets in each
case which are material to it other than in the ordinary
course of business in a manner consistent with past customs
and practices;
(j) other than as set forth on Schedule 7.1.4(ii),
not sell, lease, license, encumber or otherwise dispose of, or
agree to sell, lease, license, encumber or otherwise dispose
of, any of its assets other than in the ordinary course of
business, consistent with past customs and practices;
(k) maintain with financially responsible insurance
companies insurance on its tangible assets and its businesses
in such amounts and against such risks and losses in a manner
consistent with past customs and practices in all material
respects; and
(l) collect and bill receivables in the ordinary and
usual course and consistent with past custom and practices.
7.1.2 [Reserved]
7.1.3 Notwithstanding the fact that such action might
otherwise be permitted pursuant to this Article, the Company shall not
take, or permit any Company Subsidiary to take, any action that would
or is reasonably likely to result in any of the representations or
warranties of the Company set forth in this Agreement being untrue or
in any of the conditions to the consummation of the transactions
contemplated hereunder set forth in Article X not being satisfied.
7.1.4 Prior to the Closing, (i) the Company shall terminate,
without any liability to the Company or the Company Subsidiaries, all
agreements relating to the voting of the Company's capital stock, and
all agreements and obligations of the Company and the Company
Subsidiaries relating to borrowed money and/or involving payments to or
for the benefit of a present or former stockholder of the Company, or
an Affiliate or family member of a present or former stockholder of the
Company, including, without limitation, those set forth on Schedule
7.1.4(i), but excluding (A) debt reflected on Schedule 2.1 as Debt
Assumed by Centerprise, (B) items reflected on Schedule 2.5, (C)
agreements and obligations to the extent such agreements and
obligations result in Indirect Costs under the Incentive Compensation
Agreement and (D) items approved by Centerprise in writing; and (ii)
notwithstanding anything contained in this Section 7.1 to the contrary,
the Company will transfer and distribute the assets listed on Schedule
7.1.4(ii) including, without limitation, any AR not necessary to meet
the Target or otherwise satisfy the obligations of the Company
hereunder (the "Excluded Assets") to the Persons listed on Schedule
7.1.4(ii),
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in subject to all liabilities and obligations of any nature (whether
known or unknown, accrued, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise) relating to the
Excluded Assets (collectively, the "Excluded Liabilities"); provided,
however, that prior to the Closing, the Company shall obtain novations
or other releases or agreements discharging the Company from all
Excluded Liabilities (so that the respective Excluded Liabilities will
become direct liabilities and obligations of the assignee), and provide
copies thereof to Centerprise.
7.2 No-Shop.
(a) After the date hereof and prior to the Closing Date or
earlier termination of this Agreement, the Company shall (i) not, and
the Company shall use its diligent efforts to cause the Company
Subsidiaries and any officer, director or employee of, or any attorney,
accountant, investment banker, financial advisor or other agent
retained by the Company or any Company Subsidiary not to, initiate,
solicit, negotiate, encourage, or provide non-public or confidential
information to facilitate, any proposal or offer to acquire all or any
substantial part of the business and properties of the Company or any
Company Subsidiary, or any capital stock or other equity interest of
the Company or any Company Subsidiary, whether by merger, purchase of
assets or otherwise, whether for cash, securities or any other
consideration or combination thereof, or enter into any joint venture
or partnership or similar arrangement, and (ii) promptly advise
Centerprise of the terms of any communications the Company may receive
or become aware of relating to any bid for part or all of the Company
or any Company Subsidiary. Notwithstanding the foregoing, if the
underwriters' internal sales force presentation or "road show" for the
IPO has not started by October 15, 1999, then from and after such date,
the Company may (through its authorized agents) conduct limited
discussions with potential acquirers of the Company for the sole
purpose of assessing the potential terms and conditions of an
acquisition proposal involving the Company. Notwithstanding the
preceding sentence, the Company shall not (i) disclose any non-public
or confidential information regarding the Company to any such third
party or (ii) enter into any agreement (including, without limitation,
any letter of intent or term sheet) with such third party unless this
Agreement has been terminated pursuant to Article XI.
(b) The Company (i) acknowledges that a breach of any of its
covenants contained in this Section 7.2 will result in irreparable harm
to Centerprise which will not be compensable in money damages, and (ii)
agrees that such covenant shall be specifically enforceable and that
specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
7.3 Schedules. Each party hereto agrees that with respect to the
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement or amend and deliver to the other parties all the schedules to this
Agreement (the "Schedules") to correct any matter which would constitute a
breach of any such party's representations and warranties herein; provided,
however, that no amendment or supplement to a Schedule that constitutes or
reflects a Company Material Adverse
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Effect or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8 may be made unless
Centerprise and a majority of the Founding Companies consent to such amendment
or supplement. No amendment of or supplement to a Schedule shall be made later
than three (3) business days prior to the anticipated effectiveness of the Form
S-1. For all purposes of this Agreement, including, without limitation, for
purposes of determining whether the conditions set forth in Sections 10.2 and
10.3 have been fulfilled, the Schedules hereto shall be deemed to be the
Schedules as amended or supplemented pursuant to this Section 7.3. In the event
that (i) one of the other Founding Companies seeks to amend or supplement a
Schedule pursuant to Section 7.3 of one of the Other Agreements, (ii) such
amendment or supplement constitutes or reflects a Company Material Adverse
Effect (as defined in such Other Agreement) or affects Schedule 4.2, Schedule
4.4 or Schedule 8.8 of such Other Agreement, and (iii) Centerprise and a
majority of the Founding Companies consent to such amendment or supplement, but
the Company does not, the Company may terminate this Agreement at any time prior
to the Closing Date. In the event that (i) the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.3, (ii) such amendment or
supplement constitutes or reflects a Company Material Adverse Effect or affects
Schedule 4.2, Schedule 4.4 or Schedule 8.8, and (iii) Centerprise and a majority
of the Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section 7.3,
unless this Agreement is so terminated in connection with an amendment of or
supplement to a Schedule relating to the Company's breach of a representation or
warranty as of the date of this Agreement in which case the Company shall pay to
Centerprise, as Centerprise's exclusive remedy (notwithstanding anything to the
contrary) and as liquidated damages, and not as a penalty, an amount equal to
$2,000,000 (the "Liquidated Damages Amount"). The Company agrees that in the
case of such termination Centerprise and the Founding Companies (excluding the
Company) will sustain immediate and irreparable economic harm and loss of
goodwill and that actual losses suffered by such parties will be difficult, if
not impossible, to ascertain, but the Liquidated Damages Amount set forth herein
is reasonable and has been arrived at after a good faith effort to estimate such
losses. Payment of the Liquidated Damages Amount shall be made in cash to
Centerprise within thirty (30) days of a termination pursuant to this Section
7.3 in connection with an amendment of or supplement to a Schedule relating to a
breach of a representation or warranty as of the date of this Agreement.
7.4 Company Stockholders Meeting. The Company shall take all action in
accordance with applicable Laws and its Organizational Documents necessary to
duly call, give notice of, convene and hold a meeting of the Company's
stockholders to be held on the earliest practicable date determined in
consultation with Centerprise to consider and vote upon approval of the
Conversion, the Merger, this Agreement and the transactions contemplated hereby
or execute a written consent of the stockholders in lieu thereof. The Company
shall solicit the approval of the Conversion, the Merger, this Agreement and the
transactions contemplated hereby by Company's stockholders, and the Company's
Board of Directors shall recommend approval of the Conversion, the Merger, this
Agreement and the transactions contemplated hereby by the Company's
stockholders. If the Conversion, the Merger, this Agreement and the transactions
contemplated hereby are approved by the Company's stockholders, the Company
shall not call, give notice of,
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convene or hold any other meeting of its stockholders to rescind or modify such
approval or to consider any other transaction.
7.5 Conversion. Prior to the Closing but effective only if, as and when
the Closing occurs, the Company shall complete the Conversion pursuant to
applicable law and present such evidence of the Conversion at the Closing, as
Centerprise or its counsel may require.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Access to Information.
8.1.1 The Company shall and shall cause the Company
Subsidiaries to afford to Centerprise and its accountants, counsel,
financial advisors and other representatives, including without
limitation the underwriters engaged in connection with the IPO (each an
"Underwriter" and collectively, the "Underwriters") and their counsel
(collectively, the "Centerprise Representatives"), and to the other
Founding Companies and their accountants, counsel, financial advisors
and other representatives, and Centerprise shall afford to the Company
and their accountants, counsel, financial advisors and other
representatives (the "Company Representatives"), upon reasonable
notice, full access during normal business hours throughout the period
prior to the Closing Date to all of its respective properties, books,
contracts, commitments and records (including, but not limited to,
financial statements and Tax Returns) and, during such period, shall
furnish promptly to one another all due diligence information requested
by the other party. Centerprise shall hold and shall use its best
efforts to cause the Centerprise Representatives to hold, and the
Company shall hold and shall use their best efforts to cause the
Company Representatives to hold, in strict confidence all non-public
information furnished to it in connection with the transactions
contemplated by this Agreement, except that each of Centerprise, the
Company may disclose any information that it is required by law or
judicial or administrative order to disclose. In addition, Centerprise
will cause each of the other Founding Companies and their members and
stockholders to enter into a provision similar to this Section 8.1
requiring each such Founding Company to keep confidential any
information obtained by such Founding Company in connection with the
transactions contemplated by this Agreement.
8.1.2 In the event that this Agreement is terminated in
accordance with its terms, each party shall promptly return to the
disclosing party all non-public written material provided pursuant to
this Section 8.1 or pursuant to the Other Agreements and shall not
retain any copies, extracts or other reproductions of such written
material. In the event of such termination, all documents, memoranda,
notes and other writings prepared by Centerprise or the Company based
on the information in such material shall be destroyed (and Centerprise
and the Company shall use their respective reasonable best efforts to
cause their advisors and representatives to similarly destroy such
documents, memoranda and
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notes), and such destruction (and reasonable best efforts) shall be
certified in writing by an authorized officer supervising such
destruction.
8.2 Registration Statements.
8.2.1 Centerprise has filed the Registration Statements with
the SEC and shall use all reasonable efforts to have the Registration
Statements declared effective by the SEC as promptly as practicable.
Centerprise shall also take any action required to be taken under
applicable state "blue sky" or securities laws in connection with the
issuance of Centerprise Common Stock. Centerprise and the Company shall
promptly furnish to each other all information, and take such other
actions, as may reasonably be requested in connection with making such
filings. All information provided and to be provided by Centerprise and
the Company, respectively, for use in the Registration Statements shall
be true and correct in all material respects without omission of any
material fact which is required to make such information not false or
misleading as of the date thereof and in light of the circumstances
under which given or made. The Company agrees promptly to advise
Centerprise if at any time during the period in which a prospectus
relating to the offering or the Merger is required to be delivered
under the Securities Act, any information contained in the prospectus
concerning the Company or the Company Subsidiaries becomes incorrect or
incomplete in any material respect, and to provide the information
needed to correct such inaccuracy or remedy such incompletion.
8.2.2 Centerprise agrees that it will provide to the Company
and its counsel copies of drafts of the Registration Statements (and
any amendments thereto) containing material changes to the information
therein as they are prepared and will not (i) file with the SEC, (ii)
request the acceleration of the effectiveness of or (iii) circulate any
prospectus forming a part of, the Registration Statements (or any
amendment thereto) unless the Company and its counsel (x) have had at
least two days to review the revised information contained therein
(which changes shall be highlighted by computer generated marks
indicating the additions and deletions made from the prior draft
reviewed by the Company's counsel) and (y) have not objected to the
substance of the information contained therein. Any objections posed by
the Company or its counsel shall be in writing and state with
specificity the material in question, the reason for the objection, and
the Company's proposed alternative. If the objection is founded upon a
rule promulgated under the Securities Act, the objection shall cite the
rule. Notwithstanding the foregoing, during the five (5) business days
immediately preceding the date scheduled for the filing of the
Registration Statements and any amendment thereto, the Company and its
counsel shall be obligated to respond to proposed changes
electronically transmitted to them within two (2) hours from the time
the proposed changes (in the case of the initial filing of the
Registration Statements, from the last circulated draft of the
Registration Statements; and, in the case of any subsequent filing of
the Registration Statements or any amendment thereof, from the most
recently filed Registration Statements or amendment thereof) are
transmitted to the Company's counsel; provided, that, Centerprise has
provided to the Company or its counsel reasonable advance notice of
such proposed changes; provided, further, that such changes are
highlighted by
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computer generated marks indicating the additions and deletions made
from the prior draft reviewed by the Company's counsel.
8.2.3 Centerprise will advise the Stockholder Representative
of the effectiveness of the Registration Statements, advise the
Stockholder Representative of the entry of any stop order suspending
the effectiveness of the Registration Statements or the initiation of
any proceeding for that purpose, and, if such stop order shall be
entered, use its best efforts promptly to obtain the lifting or removal
thereof. Upon the written request of the Company, Centerprise will
furnish to the Company a reasonable number of copies of the final
prospectus associated with the IPO.
8.3 Expenses and Fees. Centerprise shall pay the fees and expenses of
the independent public accountants and legal counsel to Centerprise and all
filing, printing and other reasonable, documented fees and expenses associated
with the IPO and Form S-4. The Company and its stockholders will not be liable
for any portion of the above expenses in the event the IPO is not completed.
Centerprise shall also pay the underwriting discounts and commissions payable in
connection with the sale of Centerprise Common Stock in the IPO. All other costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
8.4 Agreement to Cooperate. Subject to the terms and conditions herein
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
8.5 Public Statements. Except as may be required by law, no party
hereto nor any Affiliate of any party hereto shall issue any press release or
any written public statement with respect to this Agreement or the transactions
contemplated by this Agreement or the Other Agreements without the prior written
consent of Centerprise and the Company.
8.6 [Reserved]
8.7 Centerprise Covenants. After the date hereof and prior to the
Closing Date or earlier termination of this Agreement in accordance with its
terms, Centerprise shall comply in all material respects with all applicable
Laws. Centerprise shall not take any action that would or is reasonably likely
to result in any of the representations or warranties of Centerprise as set
forth in this Agreement being untrue or in any of the conditions to the
consummation of the transactions contemplated hereunder set forth in Article X
not being satisfied.
8.8 Release of Guarantees. Centerprise shall use all commercially
reasonable efforts and good faith to have the Company's stockholders released
from any and all guarantees on any indebtedness and leases that they personally
guaranteed for the benefit of the Company as set forth on Schedule 8.8, with all
such guarantees on indebtedness and leases being assumed by Centerprise, if
necessary to achieve such releases. If any guaranteed indebtedness is repaid in
full with proceeds from the IPO and the Company's stockholders' guarantees
thereafter shall have no further force
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or effect, then Centerprise shall not be obligated to use any efforts to obtain
a release of such guarantee. In the event that Centerprise cannot obtain such
releases from the lenders of any such guaranteed indebtedness or lessors of any
guaranteed leases, Centerprise agrees to indemnify, defend and hold harmless the
Company's stockholders against any and all claims made by lenders or landlords
under such guarantees.
8.9 [Reserved]
8.10 Preparation and Filing of Tax Returns.
8.10.1 The Company shall be responsible for causing the timely
filing of the final pre-Closing Returns for the Company and the Company
Subsidiaries; provided, however, that Centerprise and its advisors
shall have the right to review and approve such returns prior to
filing, which approval shall not be unreasonably withheld. Centerprise
shall, and shall cause its Affiliates to, provide to the Company such
cooperation and information reasonably requested in filing any return,
amended return or claim for refund, determining a liability for Taxes
or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. The Company shall bear all costs of
filing such returns.
8.10.2 Each of the Company and Centerprise shall comply with
the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction
as subject to the provisions of Section 351 of the Code.
8.11 Maintenance of Insurance. The Company covenants and agrees that
all insurance policies listed, or required to be listed, on Schedule 4.20 will
be maintained in full force and effect through the Closing Date.
8.12 Administration. After the Closing, at the request of the
Stockholder Representative, Centerprise shall, directly or through one or more
of its subsidiaries, administer and manage the collection of amounts referred to
on Schedule 7.1.4(ii) using reasonable care and in accordance with the Company's
policies in effect at Closing.
8.13 Stockholder Representative. The Company appoints Richard H. Stein
(the "Stockholder Representative") as its agent and representative with full
power and authority to agree, contest or settle any claim or dispute affecting
the Company made under Article II and to otherwise act on behalf of the Company
and its stockholders in accordance with the terms of this Agreement.
ARTICLE IX
[RESERVED]
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ARTICLE X
CLOSING CONDITIONS
10.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have
been executed and the closing of the sale of Centerprise Common Stock
to the Underwriters pursuant thereto shall have occurred simultaneously
with the Closing hereunder;
(b) the closings of the transactions contemplated under each
of the Other Agreements shall have occurred simultaneously with the
Closing hereunder, unless terminated in accordance with Section 7.3 of
the applicable Other Agreement;
(c) the Registration Statements shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in
effect and no proceeding for that purpose shall have been instituted by
the SEC or any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or
decree shall be pending before or issued by any federal or state court
which seeks to prevent or prevents the consummation of the IPO, the
Merger or any of the Other Mergers shall have been issued and remain in
effect;
(e) the minimum price condition set forth on Schedule 2.1
shall have been satisfied;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government
or governmental agency in the United States which would prevent the
consummation of the Merger or any of the Other Mergers or make the
consummation of the Merger or any of the Other Mergers illegal;
(g) all material governmental and third party waivers,
consents and approvals required for the consummation of the Merger or
any of the Other Mergers and the transactions contemplated hereby and
by the Other Agreements (including, without limitation, any consents
listed on Schedules 4.3.2 or 4.12) shall have been obtained and be in
effect;
(h) no action, suit or proceeding with respect to the Merger
has been filed or threatened by a third party and remains threatened or
remains pending before any court, Governmental Authority or regulatory
Person;
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(i) this Agreement, the Merger and the transactions
contemplated hereby shall have been approved and adopted by the
Company's stockholders in the manner required by any applicable Law and
the Company's Organizational Documents and such approval shall remain
in full force and effect; and
(j) Centerprise shall have entered into one or more credit
facilities providing for aggregate commitments of not less than $75
million;
10.2 Conditions to Obligation of the Company to Effect the Merger.
Unless waived by the Company, the obligation of the Company to effect the Merger
shall be subject to the fulfillment at or prior to the Closing of the following
additional conditions:
(a) Centerprise, Mergersub and each of the other Founding
Companies shall have performed in all material respects their
respective agreements contained in this Agreement and each Other
Agreement required to be performed on or prior to the Closing Date and
the representations and warranties of Centerprise contained in this
Agreement and each Other Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and the Company shall
have received a certificate of the Chief Executive Officer or President
of Centerprise to that effect;
(b) no Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy
shall have promulgated or formally proposed any statute, rule or
regulation which, when taken together with all such promulgations,
would materially impair the value to the Company of the Merger;
(c) the Company shall have received an opinion from Katten
Muchin & Zavis, dated as of the Closing Date, containing the
substantive opinions set forth in Exhibit 10.2(c), the final form of
such opinion to be in form and substance reasonably acceptable to the
Company;
(d) each of the Company's stockholders shall have been
afforded the opportunity to enter into an incentive compensation
agreement (the "Incentive Compensation Agreement") with Centerprise
substantially in the form attached hereto as Exhibit 10.2(d);
(e) Centerprise shall have delivered to the Company a
certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State, showing
that Centerprise is in good standing;
(f) each of the Company's stockholders, the partners, members
and stockholders of the other Founding Companies who are to receive
shares of Centerprise Common Stock pursuant to the Other Agreements,
and the other stockholders of Centerprise other than those acquiring
stock in the IPO shall have entered into an agreement (the
"Stockholders Agreement") substantially in the form attached hereto as
Exhibit 10.2(f);
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(g) all conditions to the Other Mergers, on substantially the
same terms as provided herein, shall have been satisfied or waived by
the applicable party and the Company;
(h) the Company shall have been afforded the opportunity to
review the executed employment agreement by and between Centerprise and
Robert C. Basten; and
(i) the Company shall have received an opinion of Katten
Muchin & Zavis, dated as of the Closing Date and based upon certain
factual representations and assumptions, that for federal income tax
purposes there will be no gain or loss recognized with respect to the
Centerprise Common Stock received in exchange for Company Stock in the
Merger pursuant to Section 351 of the Code, the final form of such
opinion to be in form and substance reasonably acceptable to the
Company.
10.3 Conditions to Obligation of Centerprise to Effect the Merger.
Unless waived by Centerprise, the obligation of Centerprise and Mergersub to
effect the Merger shall be subject to the fulfillment at or prior to the Closing
of the additional following conditions:
(a) the Company shall have performed in all material respects
its agreements contained in this Agreement required to be performed on
or prior to the Closing Date and the representations and warranties of
the Company contained in this Agreement shall be true and correct in
all material respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and Centerprise and the
Underwriters shall have received a Certificate of the Chief Executive
Officer or President of the Company to that effect;
(b) [Reserved];
(c) Centerprise and the Underwriters shall have received an
opinion of Hirsch and Westheimer, P.C., counsel to the Company, dated
as of the Closing Date, in the form attached hereto as Exhibit 10.3(c),
the final form of such opinion to be in form and substance reasonably
acceptable to the Underwriters and Centerprise;
(d) the Company and the other parties thereto, as applicable,
shall have executed and delivered the Separate Practice Agreement
substantially in the form attached hereto as Exhibit 10.3(d)(A) and the
Services Agreement substantially in the form attached hereto as Exhibit
10.3(d)(B);
(e) each of the Company's stockholders shall have executed and
delivered the Incentive Compensation Agreement substantially in the
form attached hereto as Exhibit 10.2(e);
(f) Centerprise and the Underwriters shall have received
"Comfort" letters in customary form from the Company's independent
public accountants, dated the effective date of the Form S-1 and the
Closing Date (or such other date reasonably acceptable to
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Centerprise), with respect to certain financial statements and other
financial information included in the Form S-1 and any subsequent
changes in specified balance sheet and income statement items,
including total assets, working capital, total stockholders' equity,
total revenues and the total and per share amounts of net income;
(g) the Company shall have delivered to Centerprise and the
Underwriters a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the appropriate Governmental
Authority in the state of organization of the Company and each Company
Subsidiary and, unless waived by Centerprise, in each state in which
the Company or any Company Subsidiary is authorized to do business,
showing the Company or Company Subsidiary (as applicable) is in good
standing;
(h) no Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy
shall have promulgated or formally proposed any statute, rule or
regulation which, when taken together with all such promulgations,
would materially impair the value to Centerprise of the Merger;
(i) the Company's stockholders shall have executed the
Stockholders Agreement;
(j) the Company's stockholders shall have delivered to
Centerprise an instrument in the form attached hereto as Exhibit
10.3(j), dated the Closing Date, releasing the Company (and the Company
Subsidiaries) from any and all claims of such Persons against the
Company (and the Company Subsidiaries) and obligations of the Company
(and the Company Subsidiaries) to such Persons;
(k) the Company shall have presented evidence satisfactory to
Centerprise of its compliance with the provisions of Section 7.1.4
hereof including, without limitation, that as of the Closing, the
amount of debt of the Company and the Company Subsidiaries shall not
exceed the amount reflected on Schedule 2.1 as Debt Assumed by
Centerprise;
(l) the Company shall have terminated or have caused the
termination of any voting trusts, proxies or other agreements or
understandings to which the Company is a party or is bound with respect
to any shares of capital stock or other equity interests of the Company
and the Company Subsidiaries and shall have provided Centerprise
evidence of such termination that is acceptable to Centerprise's
counsel;
(m) the Company shall have completed the Conversion pursuant
to the Conversion Agreement attached as Exhibit 10.3(m) and shall have
presented evidence of such conversion in accordance with Section 7.5;
(n) the Company shall have delivered to Centerprise a payoff
letter including a statement of per diem interest amounts and other
applicable release documents from all institutional lenders and
creditors of the Company and the Company Subsidiaries regarding the
payment in full of indebtedness at Closing, in each case in form and
substance
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satisfactory to Centerprise (including, without limitation, applicable
UCC-3 termination statements);
(o) the Company shall have paid in full any indebtedness owed
by the Company to any present or former stockholder of the Company, and
shall have provided evidence of same that is acceptable to
Centerprise's counsel;
(p) the Company shall have merged the Company's existing
401(k) plans into a single 401(k) plan, and shall have provided
evidence of such merger that is acceptable to Centerprise's counsel;
(q) the secretary of the Company shall have delivered
certified copies of the resolutions of the board of directors and the
stockholders of the Company approving execution and delivery of this
Agreement, the Conversion, the Merger and the other actions, agreements
and documents necessary or desirable to complete the transactions
contemplated herein; and
(r) the Company's stockholders shall have executed and
delivered to Centerprise a stockholder agreement (the "Company
Stockholder Agreement") in the form of Exhibit 10.3(r) attached hereto.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) pursuant to Section 7.3;
(b) by the Company,
(i) if the Merger is not completed by November 15,
1999 other than on account of delay or default on the part of
the Company or any of its affiliates or associates;
(ii) if the Merger is enjoined by a final,
unappealable court order not entered at the request or with
the support of the Company or any of its affiliates or
associates;
(iii) if Centerprise (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
respects within thirty (30) days after written notice of such
default is given to Centerprise; or
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(c) by Centerprise,
(i) if the Merger is not completed by November 15,
1999 other than on account of delay or default on the part of
Centerprise or any of its stockholders or any of their
affiliates or associates;
(ii) if the Merger is enjoined by a final,
unappealable court order not entered at the request or with
the support of Centerprise or any of its stockholders or any
of their affiliates or associates;
(iii) if the Company (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
respects within thirty (30) days after written notice of such
default is given to the Company by Centerprise; or
(d) by mutual consent of the Company and the Board of
Directors of Centerprise.
11.2 Effect of Termination. In the event of termination of this
Agreement by either Centerprise or the Company, as provided in Section 11.1,
this Agreement shall forthwith become void and there shall be no further
obligation on the part of the Company, Centerprise, Mergersub or their
respective officers or directors (except the obligations set forth in this
Section 11.2 and in Sections 8.1, 8.3 and 8.5, all of which shall survive the
termination). Nothing in this Section 11.2 shall relieve any party from
liability for any breach of this Agreement.
11.3 Amendment. This Agreement may not be amended except by action
taken by the Boards of Directors of Centerprise and the Company or duly
authorized committees thereof and then only by an instrument in writing signed
on behalf of each of the parties hereto and in compliance with applicable law.
Centerprise covenants and agrees that it shall not amend, modify or supplement
the material terms of any Other Agreement following the Closing without the
prior written consent of at least two thirds (2/3rds) of the members of
Centerprise's Board of Directors; provided, that, no waiver of any restriction
set forth in Article XII shall be of any effect unless consented to by a
majority of the members of Centerprise's Board of Directors who do not at the
time of such proposed waiver hold Restricted Shares within the meaning of this
Agreement, any Other Agreement or the Stockholders Agreement.
11.4 Waiver. At any time prior to the Closing Date, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
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ARTICLE XII
[RESERVED]
ARTICLE XIII
[RESERVED]
ARTICLE XIV
[RESERVED]
ARTICLE XV
GENERAL PROVISIONS
15.1 Brokers. The Company represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
(except for any fee described in Schedule 15.1) or commission in connection with
the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. Centerprise represents and
warrants that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Centerprise or its stockholders (other than underwriting
discounts and commission to be paid in connection with the IPO).
15.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
given in accordance with this Section):
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15.2.1 If to Centerprise or Mergersub, to:
Centerprise Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert Basten
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
15.2.2 If to the Company, to:
Mann Frankfort Stein & Lipp, P.C.
12 Greenway Plaza, Eighth Floor
Houston, TX 77046
Attn: Richard H. Stein
Facsimile No: (713) 960-9549
with a copy to:
Hirsch & Westheimer, P.C.
700 Louisiana
Suite 2550
Houston, TX 77002
Attn: Michael Wilk
Facsimile No: (713) 223-9319
15.2.3 If to the Stockholder Representative, to:
Richard H. Stein.
c/o Mann Frankfort Stein & Lipp, P.C.
12 Greenway Plaza, Eighth Floor
Houston, TX 77046
Attn: Richard H. Stein
Facsimile No: (713) 960-9549
15.3 Interpretation. The table of contents and headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) the words "herein,"
44
<PAGE>
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Article, Section or other
subdivision and (ii) reference to any Article or Section means such Article or
Section hereof. No provision of this Agreement shall be interpreted or construed
against any party hereto solely because such party or its legal representative
drafted such provision.
15.4 Certain Definitions. As used in this Agreement, (i) the term
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated association, corporation, entity, firm,
association, organization or other business in any form whatsoever or government
(whether Federal, state, county, city or otherwise, including, without
limitation, any instrumentality, division, agency or department thereof), (ii)
the term "Affiliate" shall have the meaning given for that term in Rule 405
under the Securities Act, and shall include each past and present Affiliate of a
Person and the members of such Affiliate's immediate family or their spouses or
children and any trust the beneficiaries of which are such individuals or
relatives, and (iii) an individual will be deemed to have "Knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or matter, or (b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the existence of
such fact or other matter and a prudent individual would conduct such
investigation; a Person, other than an individual, will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is a
partner, member or shareholder of such Person or who is otherwise serving, or
who has served, as a director, officer or trustee (or any capacity) of such
Person has, or at any time had, knowledge of such fact or other matter.
15.5 Entire Agreement; Assignment. This Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof and (b) shall not be assigned by operation of law or otherwise,
except that Centerprise may assign this Agreement to any wholly-owned subsidiary
of Centerprise.
15.6 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Illinois applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
15.7 Counterparts. This Agreement may be executed via facsimile or
otherwise in two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
15.8 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and their respective
successors, permitted assigns, heirs, legal representatives and executors and
except as expressly set forth in herein, nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
45
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* * *
[remainder of page intentionally left blank]
46
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
as of the date first written above.
CENTERPRISE ADVISORS, INC.
By: /s/ Robert C. Basten
--------------------------------
Name: Robert C. Basten
------------------------------
Its: President and Chief Executive
Officer
-------------------------------
MFSL MERGERSUB INC.
By: /s/ Robert C. Basten
--------------------------------
Name: Robert C. Basten
------------------------------
Its: President
-------------------------------
MANN FRANKFORT STEIN & LIPP, P.C.
By: /s/ Milton N. Frankfort
--------------------------------
Name: Milton N. Frankfort
------------------------------
Its: Managing Director
-------------------------------
<PAGE>
Exhibit 2.39
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
MERGER AGREEMENT
by and among
CENTERPRISE ADVISORS, INC.,
BERRY DUNN MERGERSUB INC.,
and
BERRY, DUNN, McNEIL & PARKER, CHARTERED
September 24, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER.................................................... 2
1.1 The Merger.................................................... 2
1.2 Effects of the Merger......................................... 2
1.3 Directors and Officers of the Surviving Corporation........... 2
ARTICLE II CONSIDERATION AND MANNER OF PAYMENT........................... 3
2.1 Merger Consideration.......................................... 3
2.1.1 Basic Purchase Consideration........................... 3
2.1.2 Treasury Stock......................................... 3
2.1.3 Dissenters............................................. 3
2.1.4 Conversion of Mergersub Stock.......................... 3
2.1.5 Exchange of Certificates............................... 3
2.2 Post-Closing Adjustments to Basic Purchase Consideration...... 4
2.2.1 Adjustments for Net Working Capital Shortfall/Excess... 4
2.2.2 Preliminary Balance Sheet and Adjustment............... 4
2.2.3 Interim Adjustment..................................... 4
2.2.4 Final Adjustment....................................... 4
2.2.5 Disputes............................................... 4
2.2.6 Payment of Adjustments................................. 5
2.3 Post-Closing Management of AR................................. 5
2.4 Assignment of Uncollected AR.................................. 6
2.5 Definitions................................................... 6
ARTICLE III THE CLOSING AND CONSUMMATION DATE............................. 6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 7
4.1 Organization and Qualification................................ 7
4.2 Company Subsidiaries.......................................... 7
4.3 Authority; Non-Contravention; Approvals....................... 7
4.4 Capitalization................................................ 9
4.5 Year 2000..................................................... 10
4.6 Financial Statements.......................................... 10
4.7 Absence of Undisclosed Liabilities............................ 10
4.8 Unbilled Fees and Expenses.................................... 10
4.9 Absence of Certain Changes or Events.......................... 11
4.10 Litigation.................................................... 13
4.11 Compliance with Applicable Laws............................... 14
4.12 Licenses...................................................... 14
4.13 Material Contracts............................................ 14
4.14 Properties.................................................... 17
(i)
<PAGE>
Page
----
4.15 Intellectual Property............................................ 19
4.16 Taxes............................................................ 19
4.17 Employee Benefit Plans; ERISA.................................... 20
4.18 Labor Matters.................................................... 22
4.19 Environmental Matters............................................ 23
4.20 Insurance........................................................ 23
4.21 Interest in Customers and Suppliers; Affiliate Transactions...... 24
4.22 Business Relationships........................................... 24
4.23 Compensation..................................................... 24
4.24 Bank Accounts.................................................... 25
4.25 Professional Credentials......................................... 25
4.26 Disclosure; No Misrepresentation................................. 25
ARTICLE V [Reserved]....................................................... 25
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF CENTERPRISE.................. 25
6.1 Organization And Qualification................................... 26
6.2 Capitalization................................................... 26
6.3 No Subsidiaries.................................................. 27
6.4 Authority; Non-Contravention; Approvals.......................... 27
6.5 Absence of Undisclosed Liabilities............................... 28
6.6 Litigation....................................................... 28
6.7 Compliance with Applicable Laws.................................. 28
6.8 No Misrepresentation............................................. 29
ARTICLE VII CERTAIN COVENANTS AND OTHER TERMS............................. 29
7.1 Conduct of Business by the Company Pending the Acquisition....... 29
7.2 No-Shop.......................................................... 32
7.3 Schedules........................................................ 32
7.4 Company Stockholders Meeting..................................... 33
7.5 Conversion....................................................... 33
ARTICLE VIII ADDITIONAL AGREEMENTS........................................ 34
8.1 Access to Information............................................ 34
8.2 Registration Statements.......................................... 34
8.3 Expenses and Fees................................................ 36
8.4 Agreement to Cooperate........................................... 36
8.5 Public Statements................................................ 36
8.6 [Reserved]....................................................... 36
8.7 Centerprise Covenants............................................ 36
8.8 Release of Guarantees............................................ 36
8.9 [Reserved]....................................................... 36
(ii)
<PAGE>
Page
----
8.10 Preparation and Filing of Tax Returns............................. 37
8.11 Maintenance of Insurance.......................................... 37
8.12 Administration.................................................... 37
8.13 Member Representative............................................. 37
ARTICLE IX [Reserved]...................................................... 37
ARTICLE X CLOSING CONDITIONS............................................... 37
10.1 Conditions to Each Party's Obligation to Effect the Acquisition... 37
10.2 Conditions to Obligation of the Company to Effect the Acquisition. 39
10.3 Conditions to Obligation of Centerprise to Effect the Acquisition. 40
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER............................... 42
11.1 Termination....................................................... 42
11.2 Effect of Termination............................................. 43
11.3 Amendment......................................................... 43
11.4 Waiver............................................................ 43
ARTICLE XII [Reserved]..................................................... 43
ARTICLE XIII [Reserved]..................................................... 44
ARTICLE XIV [Reserved]..................................................... 44
ARTICLE XV GENERAL PROVISIONS.............................................. 44
15.1 Brokers........................................................... 44
15.2 Notices........................................................... 44
15.3 Interpretation.................................................... 45
15.4 Certain Definitions............................................... 45
15.5 Entire Agreement; Assignment...................................... 46
15.6 Applicable Law.................................................... 46
15.7 Counterparts...................................................... 46
15.8 Parties in Interest............................................... 46
(iii)
<PAGE>
LIST OF SCHEDULES
-----------------
Schedule 2.1 Consideration
Schedule 2.5 Net Working Capital Adjustment Items
Schedule 4.2 Company Subsidiaries
Schedule 4.3.2 Required Consents
Schedule 4.4 Capitalization
Schedule 4.7 Liabilities
Schedule 4.9 Certain Changes and Events
Schedule 4.10 Litigation
Schedule 4.11 Noncompliance with Applicable Laws
Schedule 4.12 Licenses and Permits
Schedule 4.13 Material Contracts
Schedule 4.14.1-1 Real Property
Schedule 4.14.1-2(a) Exceptions Regarding Owned Property
Schedule 4.14.1-2(b) Exceptions Regarding Leased Property
Schedule 4.14.2 Tangible Personal Property; Liens
Schedule 4.15 Intellectual Property
Schedule 4.16.1-1 Taxes
Schedule 4.16.1-2 Tax Audits
Schedule 4.17.1 Employee Plans
Schedule 4.17.2 Unwritten Employee Plans
Schedule 4.18 Labor Matters
(iv)
<PAGE>
Schedule 4.19 Environmental Matters
Schedule 4.20 Insurance
Schedule 4.21 Affiliate Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 6.2 Centerprise's Capitalization
Schedule 6.5 Liabilities
Schedule 7.1.4(i) Terminated Agreements
Schedule 7.1.4(ii) Excluded Assets
Schedule 8.8 Company Stockholders' Guarantees
Schedule 15.1 Brokers
(v)
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit 10.2(c) Form of Opinion of Centerprise's Counsel
Exhibit 10.2(d) Form of Incentive Compensation Agreement
Exhibit 10.2(f) Form of Stockholders Agreement
Exhibit 10.3(c) Form of Opinion of Counsel to the Company
Exhibit 10.3(d)(A) Form of Separate Practice Agreement
Exhibit 10.3(d)(B) Form of Services Agreement
Exhibit 10.3(j) Form of Members' Release
Exhibit 10.3(r) Form of Company Stockholder Agreement
(vi)
<PAGE>
DEFINED TERMS
-------------
Accounting Licenses........................................... Section 4.12
Acquisition................................................... Introduction
Actions....................................................... Section 4.10.1
Affiliate..................................................... Section 15.4
Affiliate Transactions........................................ Section 4.21
Agreement..................................................... Introduction
AR............................................................ Section 2.5
Arbitrator.................................................... Section 2.2.5
Attestation Practice.......................................... Introduction
Basic Purchase Consideration.................................. Section 2.1.1
Business...................................................... Introduction
Cash Consideration............................................ Section 2.1
Centerprise................................................... Introduction
Centerprise Accountants....................................... Section 2.2.2
Centerprise Common Stock...................................... Section 2.1
Centerprise Material Adverse Effect........................... Section 6.4.3
Centerprise Representatives................................... Section 8.1.1
Centerprise Required Statutory Approvals...................... Section 6.4.3
Closing....................................................... Article III
Closing Balance Sheet......................................... Section 2.2.2
Closing Date.................................................. Article III
Code.......................................................... Introduction
Company....................................................... Introduction
Company Material Adverse Effect............................... Section 4.3.3
(vii)
<PAGE>
Company Representatives.................................... Section 8.1.1
Company Stock.............................................. Section 2.1
Company Subsidiary(ies).................................... Section 4.2
Contracts.................................................. Section 4.13
Conversion................................................. Introduction
Copyrights................................................. Section 4.15
DGCL....................................................... Section 1.1
Disputed Item.............................................. Section 2.2.5
Dissenting Shares.......................................... Section 2.1.3
Effective Time............................................. Section 1.1
Employee Plan.............................................. Section 4.17.5(a)
Environmental and Safety Requirements...................... Section 4.19
ERISA...................................................... Section 4.17.5(b)
Excluded Assets............................................ Section 7.1.4
Excluded Liabilities....................................... Section 7.1.4
Final Adjustment........................................... Section 2.2.4
Financial Statements....................................... Section 4.6
First Person............................................... Section 4.17.5(c)
Form S-1................................................... Section 4.3.3
Form S-4................................................... Section 4.3.3
Founding Companies......................................... Introduction
GAAP....................................................... Section 4.6
general increase........................................... Section 4.23
Governmental Authority..................................... Section 4.3.2
Hazardous Materials........................................ Section 4.19
(viii)
<PAGE>
herein........................................................ Section 15.3
hereof........................................................ Section 15.3
hereunder..................................................... Section 15.3
HSR Act....................................................... Section 4.3.3
Incentive Compensation Agreement.............................. Section 10.2(d)
Intellectual Property......................................... Section 4.15
Intellectual Property Licenses................................ Section 4.15
Interim Adjustment............................................ Section 2.2.3
IPO........................................................... Introduction
Knowledge..................................................... Section 15.4
Latest Balance Sheet.......................................... Section 4.6
Laws.......................................................... Section 4.11
Leased Property............................................... Section 4.14.1
Licenses...................................................... Section 4.12
Lien(s)....................................................... Section 4.3.2
Liquidated Damages Amount..................................... Section 7.3
Marks......................................................... Section 4.15
Material Contracts............................................ Section 4.13
Merger........................................................ Introduction
Mergersub..................................................... Introduction
Mergersub Stock............................................... Section 6.2.1
Merger Documents.............................................. Section 1.1
Net Working Capital........................................... Section 2.5
1933 Act...................................................... Section 4.3.3
Organizational Documents...................................... Section 4.1
(ix)
<PAGE>
Other Agreements........................................... Introduction
Other Acquisitions......................................... Introduction
Owned Property............................................. Section 4.14.1
Patents.................................................... Section 4.15
Person..................................................... Section 15.4
Plan Affiliate............................................. Section 4.17.5(c)
Real Property.............................................. Section 4.14.1
Registration Statements.................................... Section 4.3.3
Resolution Period.......................................... Section 2.2.5
Returns.................................................... Section 4.16.1
Schedules.................................................. Section 7.3
SEC........................................................ Section 4.3.3
Securities Act............................................. Section 4.3.3
Seller..................................................... Introduction
Special Bonus Plan......................................... Section 2.5(c)
Stock Consideration........................................ Section 2.1.1
Stockholders Agreement..................................... Section 10.2(f)
Surviving Corporation...................................... Section 1.2
Target..................................................... Section 2.5(d)
Tax Accrual................................................ Section 2.5(e)
Taxes...................................................... Section 4.16.2
Territory.................................................. Section 13.1(a)
Trade Secrets.............................................. Section 4.15
Underwriters............................................... Section 8.1.1
Voting Agreement........................................... Introduction
(x)
<PAGE>
AMENDED AND RESTATED
MERGER AGREEMENT
THIS AMENDED AND RESTATED MERGER AGREEMENT (this "Agreement") is made as
of September 24, 1999, by and among Centerprise Advisors, Inc., a Delaware
corporation ("Centerprise"), Berry Dunn Mergersub Inc., a Delaware corporation
and wholly owned subsidiary of Centerprise ("Mergersub"), and Berry, Dunn,
McNeil & Parker, Chartered, a Maine professional corporation (the "Company").
WITNESSETH:
WHEREAS, the Company engages directly, and indirectly through the Company
Subsidiaries, in the business of providing accounting, tax and other related
services (such business provided by the Company is referred to as the
"Business");
WHEREAS, prior to, and in anticipation of, completion of the transactions
contemplated hereby (a) the Company will cease to provide services related to
the practice of accounting that, pursuant to applicable laws and regulations,
may only be conducted by certified public accountants (the "Attestation
Practice") and (b) the Company will be converted from a professional corporation
to a business corporation by amending the Company's Organizational Documents (as
defined in Section 4.1) such that it converts to a business corporation, and (c)
the Company's stockholders will contribute all of the outstanding shares of the
Company to BDM&P Holdings LLC ("Holdings") (the actions described in the
foregoing (a), (b) and (c), the "Conversion");
WHEREAS, the Boards of Directors of the Company, Centerprise and Mergersub
deem it advisable and in the best interests of their respective shareholders to
approve and consummate the business combination transaction provided for herein
in which Mergersub would merge with the Company, with the Company being the
surviving corporation in the merger (the "Acquisition" or "Merger");
WHEREAS, Centerprise is entering into other agreements (the "Other
Agreements") substantially similar to this Agreement with each of Robert F.
Driver Company, Inc., Mann Frankfort Stein & Lipp, P.C., The Reppond Company,
Inc., Reppond Administrators, LLC, Verasource Excess Risk Ltd., Reznick Fedder
& Silverman, P.C., Urbach Kahn & Werlin PC, Self Funded Benefits, Inc. d/b/a
Insurance Design Administrators, Grace & Company, P.C., Simione, Scillia, Larrow
& Dowling LLC, and Follmer Rudzewicz & Co., P.C. (which companies together with
the Company are collectively referred to herein as the "Founding Companies"),
which agreements provide for the merger of a wholly owned subsidiary of
Centerprise with each such Founding Company (the "Other Acquisitions")
simultaneously with the Acquisition; Centerprise has provided a side letter to
each holder of equity interests of the Company to such effect;
<PAGE>
WHEREAS, the Voting Agreement, dated as of March 31, 1999, among
Centerprise and certain of the stockholders of the Company has been terminated
and is no longer in force and effect;
WHEREAS, simultaneously with the consummation of the Acquisition,
Centerprise will close an initial public offering (the "IPO") of Centerprise
Common Stock (as defined in Section 2.1); and
WHEREAS, the parties intend the acquisition of Centerprise Common Stock
pursuant to the terms hereof to be tax-free under the provisions of Section 351
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement and in reliance upon the representations and warranties set forth
herein, Mergersub shall be merged with and into the Company, the result of which
will cause the separate corporate existence of Mergersub to cease and the
Company to continue under the laws of the State of Maine. As promptly as
possible on the Closing Date, the parties shall cause the Merger to be completed
by filing articles of merger and a certificate of merger, as applicable (the
"Merger Documents"), with the Secretary of State of the State of Maine, as
provided in the Maine Business Corporation Act, as amended (the "MBCA"), and
with the Secretary of State of the State of Delaware, as provided in the General
Corporation Law of the State of Delaware (the "DGCL"). The Merger shall become
effective (the "Effective Time") upon the filing of the Merger Documents with
the Secretary of State of the State of Maine and the Secretary of State of the
State of Delaware or at such later time, contemporaneously with the closing of
the IPO, as agreed by Centerprise and the Company and specified in the Merger
Documents.
1.2 Effects of the Merger. At the Effective Time (i) the separate
existence of Mergersub shall cease and Mergersub shall be merged with and into
the Company, with the Company being the surviving corporation in the Merger (the
Company is sometimes referred to herein as the "Surviving Corporation"), (ii)
the Articles of Incorporation and By-laws of the Surviving Corporation shall be
amended in form and substance acceptable to Centerprise and as specified in the
Merger Documents, (iii) the Merger shall have all the effects provided by
applicable law, and (iv) the Company shall be a wholly-owned subsidiary of
Centerprise.
2
<PAGE>
1.3 Directors and Officers of the Surviving Corporation. From and after
the Effective Time, the directors and officers of Mergersub shall be the
directors and officers of the Surviving Corporation until their successors are
duly elected and qualified.
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2.1 Merger Consideration.
2.1.1 Basic Purchase Consideration. At the Closing, by virtue of the
Merger and without any action on the part of the holders thereof, the
outstanding shares of capital stock, consisting of the number of shares of
common stock, no par value per share, of the Company (the "Company Stock"), set
forth on Schedule 4.4, shall be converted into the right to receive: (a) that
number of shares of Centerprise common stock, par value $.01 per share (the
"Centerprise Common Stock") shown on line T of Schedule 2.1; provided, however,
that if the initial public offering price of the Centerprise Common Stock is
below $11.90 per share, the number of shares of Centerprise Common Stock
received at Closing shall be increased such that the value of the shares, using
the initial public offering price, equals the amount shown on line U of Schedule
2.1 (the "Stock Consideration") and (b) the amount of cash shown on line S of
Schedule 2.1 (the "Cash Consideration"). The sum of the Cash Consideration
and the Stock Consideration is herein referred to as "Basic Purchase
Consideration."
2.1.2 Treasury Stock. Each share of capital stock of the Company
held in treasury of the Company shall be canceled and retired and no payment
shall be made in respect thereof.
2.1.3 Dissenters. Each outstanding share of capital stock of the
Company the holder of which has perfected his right to dissent under applicable
law and has not effectively withdrawn or lost such right as of the Effective
Time (the "Dissenting Shares") shall not be converted into the right to receive
Basic Purchase Consideration, and the holder thereof shall be entitled only to
such rights as are granted by applicable law. The Company shall give
Centerprise prompt notice upon receipt by the Company of any such written
demands for payment of fair value of shares of capital stock of the Company and
any other instruments provided pursuant to applicable law. Any payments made in
respect of Dissenting Shares shall be made by the Surviving Corporation.
2.1.4 Conversion of Mergersub Stock. At the Effective Time, each
share of Mergersub Stock issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and become one validly issued, fully
paid and non-assessable share of the Surviving Corporation. Such newly issued
shares shall thereafter constitute all of the issued and outstanding capital
stock of the Surviving Corporation.
3
<PAGE>
2.1.5 Exchange of Certificates. At the Closing, Centerprise shall
receive the original Company Stock certificates, duly endorsed in blank by the
Company's stockholder(s) or accompanied by blank stock powers, in exchange for
the allocated share of (a) Centerprise Common Stock certificates representing
the Stock Consideration and (b) payment of the Cash Consideration by certified
check, cashier's check or wire transfer of immediately available funds to a bank
account or bank accounts in the amounts and manner specified by the Company in a
writing delivered to Centerprise at least three (3) business days prior to the
Closing Date. The shares represented by the Company Stock certificates so
delivered to Centerprise shall be canceled. Until surrendered as contemplated by
this Section 2.1.5, each certificate representing shares of Company Stock
represents only the right to receive Basic Purchase Consideration, as adjusted
in accordance with this Article II.
2.2 Post-Closing Adjustments to Basic Purchase Consideration.
2.2.1 Adjustments for Net Working Capital Shortfall/Excess. The Basic
Purchase Consideration shall be (a) reduced dollar-for-dollar to the extent
Net Working Capital on the Closing Date is less than the Target or (b)
increased dollar-for-dollar to the extent Net Working Capital on the
Closing Date is greater than the Target.
2.2.2 Preliminary Balance Sheet and Adjustment. At or about the
Closing, the Company will prepare, and the firm of PricewaterhouseCoopers
LLP (the "Centerprise Accountants") will review, a balance sheet of the
Company, as of the Closing Date, in accordance with GAAP and consistent
with the accounting policies and practices used in connection with the
preparation of the Financial Statements (the "Closing Balance Sheet") along
with a preliminary calculation of any excess or shortfall of Net Working
Capital as compared to the Target.
2.2.3 Interim Adjustment. As soon as practicable, the Company will
prepare and deliver to Centerprise a revised calculation of Net Working
Capital reflecting all collections of AR up to the date 90 days from the
Closing Date. Within 10 days of receipt of such calculation, Centerprise
will deliver to the Member Representative a written report indicating the
amount and nature of any adjustment to the Basic Purchase Consideration
determined in accordance with Section 2.2.1 (the "Interim Adjustment").
2.2.4 Final Adjustment. As soon as practicable, the Company will
prepare and deliver to Centerprise a final calculation of Net Working
Capital revised to reflect all collections of AR up to the date 180 days
from the Closing Date. Centerprise will review such calculation and any
records, work papers and other documents related thereto. Within 10 days of
receipt of such calculation, Centerprise will deliver to the Member
Representative a written report indicating the amount and nature of any
adjustment to the Basic Purchase Consideration determined in accordance
with Section 2.2.1 (the "Final Adjustment").
4
<PAGE>
2.2.5 Disputes. The parties hereto shall not object to the Interim
Adjustment which shall be binding on the parties hereto, and shall withhold
all objections until delivery of the Final Adjustment report. If the
Member Representative does not object (or otherwise respond) in writing to
the Final Adjustment report within 30 days after its delivery, the Final
Adjustment shall automatically become final, binding and conclusive on all
parties hereto. Any objection to the Final Adjustment report shall be in
writing and shall specify the item or items in dispute (each a "Disputed
Item").
If the Member Representative and Centerprise are unable to resolve any
Disputed Item within 30 days after notice from the Member Representative
that a dispute exists (the "Resolution Period"), then a representative from
the office of a nationally recognized accounting firm (the "Arbitrator")
selected jointly by Centerprise and the Member Representative will
arbitrate the dispute. The Member Representative and Centerprise shall,
within 20 days after expiration of the Resolution Period, present their
respective positions with respect to any Disputed Item to the Arbitrator
together with such materials as the Arbitrator deems appropriate. To the
extent any Disputed Item is similar to a disputed item under the Other
Agreements, the Arbitrator shall arbitrate the Disputed Item based on the
submitted materials and without regard to the disputed item under the Other
Agreements. The Arbitrator shall, after the submission of the materials,
submit a written decision on each Disputed Item to the Member
Representative and Centerprise and such determination shall be final and
binding on the parties hereto. The arbitration shall be conducted in
Chicago, Illinois. The parties hereto agree that the cost of the
Arbitrator shall be borne by the non-prevailing party or as determined by
the Arbitrator.
2.2.6 Payment of Adjustments. In the event Net Working Capital is
less than the Target, the Company's stockholders shall pay the amount of
the shortfall to Centerprise. In the event Net Working Capital is greater
than the Target, Centerprise shall pay the amount of the excess to the
Company's stockholders. Any payment required to be made pursuant to this
paragraph shall be made, within ten days of delivery of the report
indicating any adjustment, by wire transfer of immediately available funds
to an account designated in writing by the party that is to receive payment
of such adjustment. In respect of the Final Adjustment, the party making a
payment required by such adjustment shall make such payment within ten days
after the Final Adjustment becomes final and shall receive credit for or
return of any amount previously paid in connection with the Interim
Adjustment.
2.3 Post-Closing Management of AR. Following the Closing, the billing,
servicing, administering and collection of the AR shall be conducted by the
Company. The Company shall take all such actions as may be necessary or
advisable to collect the AR in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in accordance with the
Company's credit and collection policy in effect at Closing. The Company may
modify, adjust or write-off AR from time to time in accordance with the
Company's credit and collection policy in effect at Closing. Unless otherwise
required by contract or law, payments by an obligor in respect of services
rendered or expenses advanced by the Company shall be applied as follows:
5
<PAGE>
in the event any such payment specifically references the invoice being paid or
clearly relates to an outstanding invoice, the payment will be applied to the
corresponding invoice; and, in any other case, the payment will be applied to
satisfy AR relating to such obligor in the order that such AR arose. Any
adjustment, modification or write-off affecting AR and fees and expenses
receivable and unbilled fees and expenses of the Company incurred after Closing
with respect to the same client engagement shall be allocated ratably to the
pre-Closing and post-Closing periods.
2.4 Assignment of Uncollected AR. If any AR remain uncollected by the
Company as of 180 days after the Closing Date, the Company will assign the
uncollected AR to the Company's stockholders. Notwithstanding the foregoing,
the Company will retain the sole right to service, administer and collect the
uncollected AR in accordance with Section 2.3.
2.5 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) "AR" means any fees and expenses receivable and unbilled fees and
expenses of the Company on the Closing Date.
(b) "Net Working Capital" means an amount determined as of the Closing
Date, whenever calculated, equal to difference between: (i) the sum of any
AR, prepaid expenses and other current assets less (ii) the sum of accounts
payable, accrued current liabilities, the items listed on Schedule 2.5, the
Tax Accrual and the portion of employer-paid FICA attributable to Medicare,
payable in connection with deferred compensation. For purposes of this
Section 2.5(b), the Special Bonus Plan accrual shall not constitute a
current liability.
(c) [Reserved]
(d) "Target" means an amount equal to 1% of the Company's net revenues
for the four quarter period ending on the last day of the calendar quarter
prior to Closing.
(e) "Tax Accrual" means an amount equal to (A) the product of (i) Net
Working Capital (calculated before deduction of the Tax Accrual) less an
amount equal to any tax deductions realized by Centerprise as a result of
any payments pursuant to the Special Bonus Plan times (ii) the sum of 34%
plus the effective state tax rate on the Company (net of any federal tax
benefit) less (B) an amount equal to discounted value (calculated by using
a discount rate of 5.17%), as of the Closing Date, of the tax benefit that
the Company is expected to realize with respect to capitalized goodwill
reflected in the Company's books as of the Closing Date. A negative Tax
Accrual shall be treated as a current asset for purposes of Section
2.5(b)(i).
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ARTICLE III
THE CLOSING AND CONSUMMATION DATE
The consummation of the Acquisition and the other transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Katten
Muchin & Zavis, Chicago, Illinois, contemporaneously with the closing of the
IPO, or at such other time and date as the parties hereto may mutually agree
(the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Centerprise, as of March 31, 1999
and, subject to Section 7.3, as of the date on which Centerprise and the lead
Underwriter (as defined in Section 8.1.1) execute and deliver the Underwriting
Agreement related to the IPO and as of the Closing Date, as follows:
4.1 Organization and Qualification. The Company is a professional
corporation duly organized, validly existing and in good standing under the laws
of the State of Maine and, following the Conversion, the Company will be a
business corporation duly organized, validly existing and in good standing under
the laws of the State of Maine. Each Company Subsidiary (as defined in Section
4.2) is duly organized, validly existing and in good standing under the laws of
the state of its organization set forth on Schedule 4.2. Each of the Company
and the Company Subsidiaries has the requisite power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted, and is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary.
True, accurate and complete copies of the Company's and each Company
Subsidiary's Organizational Documents, in each case as in effect on March 31,
1999, have heretofore been delivered to Centerprise. "Organizational Documents"
means (a) the articles or certificate of incorporation and the bylaws of a
corporation (professional or otherwise), (b) the partnership agreement and any
statement of partnership of a general partnership, (c) the limited partnership
agreement and the certificate of limited partnership of any limited partnership,
(d) the operating or limited liability company agreement and certificate of
formation of any limited liability company, (e) any charter or similar document
adopted and filed in connection with the creation, formation, organization or
governance (as applicable) of any Person and (f) any amendment to any of the
foregoing.
4.2 Company Subsidiaries. Schedule 4.2 sets forth the name (including any
assumed names), jurisdiction of organization and ownership of the issued and
outstanding equity interests of each Person in which the Company owns, directly
or indirectly, securities or other interests having the power to elect a
majority of such Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of such Person
(each a
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"Company Subsidiary" and collectively, the "Company Subsidiaries"). Except as
set forth on Schedule 4.2, the Company does not, directly or indirectly, own, of
record or beneficially, or control any capital stock, securities convertible
into capital stock or any other equity interest in any Person.
4.3 Authority; Non-Contravention; Approvals.
4.3.1 The Company has full right, power and authority to enter into
this Agreement and, subject to the approval of the Merger and the
transactions contemplated hereby by the Company's stockholders, to
consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement by the Company has been duly authorized
by all necessary corporate action on the part of the Company, subject to
the approval of the Merger and the transactions contemplated hereby by the
Company's stockholders. This Agreement has been duly executed and
delivered by the Company, and, assuming the due authorization, execution
and delivery hereof by Centerprise, constitutes a valid and legally binding
agreement of the Company, enforceable against it in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
4.3.2 The execution and delivery of this Agreement by the Company
does not violate, conflict with or result in a breach of any provision of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any claim,
lien, privilege, mortgage, charge, hypothecation, assessment, security
interest, pledge or other encumbrance, conditional sales contract, equity
charge, restriction, or adverse claim of interest of any kind or nature
whatsoever (each a "Lien" and collectively, the "Liens"), upon any of the
properties or assets of the Company or any Company Subsidiary under, any of
the terms, conditions or provisions of (i) the Organizational Documents of
the Company or any Company Subsidiary, (ii) following completion of the
Conversion, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or federal,
state, provincial, local or foreign government, or any subdivision, agency
or authority of any thereof ("Governmental Authority") applicable to the
Company, any Company Subsidiary, or the Business, properties or assets of
the Company or any Company Subsidiary, except for those items discussed in
(ii) above relating to regulating, licensing or permitting the practice of
public accountancy, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which any of the Company
or any Company Subsidiary is a party or by which any of the Company, any
Company Subsidiary or any of the properties or assets of the Company or any
Company Subsidiary may be bound or affected. The consummation by the
Company of the transactions contemplated hereby will not result in a
violation, conflict, breach, right of termination, creation or acceleration
of Liens under the terms, conditions or provisions
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of the items described in clauses (i) through (iii) of the immediately
preceding sentence, subject in the case of the terms, conditions or
provisions of the items described in clause (iii) above, to obtaining
(prior to the Closing Date) such consents required from third parties set
forth on Schedule 4.3.2 and except for those items described in (ii) and
(iii) above relating to regulating, licensing or permitting the practice of
public accountancy and any filing which may be required under the HSR Act.
4.3.3 Except for (i) the declaration of effectiveness of a
registration statement on Form S-1 (the "Form S-1") and a post-effective
amendment to the registration statement on Form S-4 (the "Form S-4") (Form
S-1 and Form S-4 are collectively the "Registration Statements") with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities
Act of 1933, as amended (the "Securities Act" or the "1933 Act"), and
filings, if required, with various state securities or "blue sky"
authorities, (ii) any filing which may be required under the Hart-Scott-
Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act"), and
(iii) any filing which may be required by any Governmental Authority or
self-regulatory organization regulating, licensing or permitting the
practice of public accountancy, no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any
Governmental Authority is necessary for the execution and delivery of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not
made or obtained, as the case may be, would not, individually or in the
aggregate, have a "Company Material Adverse Effect," which, for purposes of
this Agreement means a material adverse effect on the operations, assets,
condition (financial or other), operating results, employee or client
relations, or prospects of the Company or any Company Subsidiary.
4.4 Capitalization.
4.4.1 The authorized capital stock of the Company consists of 10,000
shares of Company Stock, of which the number of shares set forth on
Schedule 4.4 are issued and outstanding. The authorized capital stock of
each of the Company Subsidiaries, if any, and the number of such shares
issued and outstanding is completely and accurately set forth in Schedule
4.4. All of such issued and outstanding shares are validly issued and are
fully paid, nonassessable and free of preemptive rights. The Company owns
all shares of the Company Subsidiaries as indicated on Schedule 4.4, in
each case free and clear of all Liens, and the Company has good and
marketable title to such shares of the Company Subsidiaries. All of such
issued and outstanding shares are validly issued and are fully paid,
nonassessable and free of preemptive rights.
4.4.2 Except as set forth on Schedule 4.4, there are no outstanding
subscriptions, options, calls, contracts, commitments, undertakings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement to issue, deliver or sell, or cause to be issued, delivered or
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sold, additional shares of the capital stock of the Company or any Company
Subsidiary or obligating the Company or any Company Subsidiary to grant,
extend or enter into any such agreement or commitment or obligating the
Company or any Company Subsidiary to convey or transfer any Company Stock
or Company Subsidiary stock, as the case may be. As of the Closing Date,
there will be no voting trusts, proxies or other agreements or
understandings to which the Company or any Company Subsidiary is a party or
is bound with respect to the voting of any shares of capital stock or other
equity interests of the Company or any Company Subsidiary.
4.5 Year 2000. To the Knowledge of the Company, all of the computer
software, computer firmware, computer hardware (whether general or special
purpose), and other similar or related items of automated, computerized, and/or
software system(s) that are used or relied on by the Company or any Company
Subsidiary in the conduct of the Business will not malfunction, will not cease
to function, will not generate incorrect data, and will not produce incorrect
results when processing, providing, and/or receiving (i) date-related data into
and between the twentieth (20/th/) and twenty-first (21/st/) centuries and (ii)
date-related data in connection with any valid date in the twentieth (20/th/)
and twenty-first (21/st/) centuries, except for any malfunctions or generations
of incorrect data or results that would not individually or in the aggregate
have a 1 Company Material Adverse Effect. Nothing in this Section 4.5 is
intended or shall be construed as a representation or warranty with respect to
embedded systems.
4.6 Financial Statements. The Company has previously furnished to
Centerprise copies of the audited consolidated balance sheets of the Company as
of June 30 in each of the years 1997 and 1998 and an unaudited consolidated
balance sheet of the Company for the six month period ending December 31, 1998
(the "Latest Balance Sheet"), and the related audited consolidated statements
of income, stockholders' equity and cash flow for each of the years in the three
(3) year period ended June 30, 1998, including all notes thereto, and related
unaudited consolidated statements of income, stockholders' equity and cash flow
for the six month period ending December 31, 1998, including all notes thereto
(collectively, the "Financial Statements"). Each of the Financial Statements
is accurate and complete in all material respects, is consistent with the books
and records of the Company and the Company Subsidiaries (which, in turn, are
accurate and complete in all material respects), and fairly presents in all
material respects the financial condition, assets and liabilities of the Company
and the Company Subsidiaries as of its date and the results of operations and
cash flows for the periods related thereto, in each case in accordance with
generally accepted accounting principles, applied on a consistent basis
("GAAP").
4.7 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
4.7, neither the Company nor any Company Subsidiary had, as of the date of the
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent clearly and accurately reflected or accrued or fully
reserved against in the Financial Statements or (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business and consistent with past custom and practices
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(none of which is a liability resulting from a breach of contract, breach of
warranty, tort, infringement claim, legal violation or lawsuit).
4.8 Unbilled Fees and Expenses. At the Closing all unbilled fees and
expenses at net realizable value reflected in the records of the Company and the
Company Subsidiaries arose in the ordinary course of business and will be
billable in the ordinary course of business using normal billing practices and
adjustments employed as of the date of this Agreement by the Company and each
Company Subsidiary. Upon such billing any such amounts will be collectible in
the ordinary course of business using normal collection practices and policies
employed by the Company and each Company Subsidiary (net of any allowance for
doubtful accounts determined in accordance with the Company's and the Company
Subsidiaries' past practice and custom).
4.9 Absence of Certain Changes or Events. Except as set forth on Schedule
4.9, since the date of the Latest Balance Sheet, each of the Company and the
Company Subsidiaries has conducted its business only in the ordinary course
consistent with past custom and practices. Except as set forth on Schedule 4.9,
since the date of the Latest Balance Sheet, there has not been any:
(a) material adverse change in the operations, condition (financial or
otherwise), operating results, assets, liabilities, employee or client
relations or prospects of the Company or any Company Subsidiary;
(b) damage, destruction or loss of any property owned by the Company
or any Company Subsidiary, or used in the operation of the Business,
whether or not covered by insurance, having a replacement cost or fair
market value in excess of five percent (5%) of the amount of net property,
plant and equipment shown on the Latest Balance Sheet, in the aggregate;
(c) voluntary or involuntary sale, transfer, surrender, cancellation,
abandonment, waiver, release or other disposition of any kind by the
Company or any Company Subsidiary of any right, power, claim, or debt,
except the collection of accounts and billing of work-in-process, each in
the ordinary course of business consistent with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union organizational
activity, allegation, charge or complaint of employment discrimination or
other labor dispute or similar occurrence that is reasonably expected to
adversely affect the Company, a Company Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary to any
Person, other than as a result of services performed for, or expenses
properly and reasonably advanced for the benefit of, customers in the
ordinary course of business consistent with past custom and practices;
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(f) notice (formal or otherwise) of any liability, potential liability
or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or other
distribution in respect of the Company's capital stock or other equity
interests or any direct or indirect redemption, purchase, or other
acquisition of the Company's or any Company Subsidiary's capital stock or
other equity interests, or the payment of principal or interest on any
note, bond, debt instrument or debt to any Affiliate (as defined in Section
15.4) of the Company or any Company Subsidiary, except bonuses and
distributions to employees and stockholders of the Company disclosed to
Centerprise in writing that are consistent with the Company's past custom
and practices or as otherwise contemplated by this Agreement;
(h) incurrence by the Company or any Company Subsidiary of debts,
liabilities or obligations except current liabilities incurred in
connection with or for services rendered or goods supplied in the ordinary
course of business consistent with past custom and practices, liabilities
on account of taxes and governmental charges (but not penalties, interest
or fines in respect thereof), and obligations or liabilities incurred by
virtue of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any notes,
bonds, or other debt securities or any equity securities or securities
convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or amendment
or termination of, any material commitment, contract, agreement, or
transaction, other than in the ordinary course of business and other than
expiration of contracts in accordance with their terms;
(k) loss or threatened loss of, or any material reduction or
threatened material reduction in revenues from, any client of the Company
or any Company Subsidiary that accounted for revenues during the last
twelve months in excess of one percent (1%) of the consolidated net
revenues of the Company and the Company Subsidiaries, or change in the
relationship of the Company or any Company Subsidiary with any client or
Governmental Authority that is reasonably expected to adversely affect the
Company, any Company Subsidiary or the Business;
(l) change in accounting principles, methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) utilized by the Company or any Company Subsidiary;
(m) discharge or satisfaction by the Company or any Company Subsidiary
of any material liability or encumbrance or payment by the Company or any
Company Subsidiary of any material obligation or liability, other than
current liabilities paid in the ordinary course of its business consistent
with past custom and practices;
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(n) sale, lease or other disposition by the Company or any Company
Subsidiary of any tangible assets (having an aggregate replacement cost or
fair market value in excess of five percent (5%) of the amount of net
property, plant and equipment shown on the Latest Balance Sheet) other than
in the ordinary course of business, or the sale, assignment or transfer by
the Company or any Company Subsidiary of any trademarks, service marks,
trade names, corporate names, copyright registrations, trade secrets or
other intangible assets, or disclosure of any proprietary confidential
information of the Company or any Company Subsidiary to any Person other
than an employee, agent, attorney, accountant or other representative of
the Company that has agreed to maintain the confidentiality of any such
proprietary confidential information;
(o) capital expenditures or commitments therefor by the Company or any
Company Subsidiary in excess of $50,000 individually or $100,000 in the
aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the Company
or any Company Subsidiary or creation of any easements, Liens or other
interests against or on any of the Real Property (as defined in Section
4.14.1);
(q) adoption, amendment or termination of any Employee Plan (as
defined in Section 4.17.5(a)) or increase in the benefits provided under
any Employee Plan, or promise or commitment to undertake any of the
foregoing in the future; or
(r) an occurrence or event not included in clauses (a) through (q)
that has resulted or, based on information of which the Company has
Knowledge, is reasonably expected to result in a Company Material Adverse
Effect.
4.10 Litigation. Except as set forth on Schedule 4.10 (which shall
disclose the parties to, nature of and relief sought for each matter to be
disclosed on Schedule 4.10):
4.10.1 There is no suit, action, proceeding, investigation, claim or
order pending or, to the Knowledge of the Company, threatened against the
Company or any Company Subsidiary, or with respect to the Merger, or with
respect to any Employee Plan, or any fiduciary of any such plan (or pending
or, to the Knowledge of the Company, threatened against any of the
officers, directors, members, stockholders, partners or employees of the
Company or any Company Subsidiary with respect to its business or proposed
business activities), or to which the Company or any Company Subsidiary is
otherwise a party, or that is reasonably expected to have a Company
Material Adverse Effect, before any court, or before any Governmental
Authority (each an "Action" and collectively, the "Actions"); nor, to
the Knowledge of the Company, is there any basis for any such Action.
4.10.2 Neither the Company nor any Company Subsidiary is subject to
any unsatisfied or continuing judgment, order or decree of any court or
Governmental Authority. Neither the Company nor any Company Subsidiary, to
the Knowledge of the Company, is otherwise exposed, from a legal
standpoint, to any liability or disadvantage
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that is reasonably expected to result in a Company Material Adverse Effect,
and neither the Company nor any Company Subsidiary is a party to any legal
action to recover monies due it or for damages sustained by it, other than
collection of past due charges for services rendered or expenses incurred
by the Company.
4.10.3 Schedule 4.10 lists the insurer for each Action covered by
insurance or designates such Action, or a portion of such Action, as
uninsured and lists the individual and aggregate policy limits for the
insurance covering each insured Action and the applicable policy
deductibles for each insured Action.
4.10.4 Schedule 4.10 sets forth all material closed litigation
matters to which the Company or any Company Subsidiary was a party during
the five (5) year period preceding the Closing Date, the date such
litigation was commenced and concluded, and the nature of the resolution
thereof (including amounts paid in settlement or judgment).
4.11 Compliance with Applicable Laws. Except as set forth on Schedules
4.11 and 4.19, each of the Company and the Company Subsidiaries has complied in
all material respects with all laws, rules, regulations, writs, injunctions,
decrees, and orders (collectively, the "Laws") applicable to it or to the
operation of the Business, and neither the Company nor any Company Subsidiary
has received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of the Company, no event has occurred or circumstances exist that
(with or without notice or lapse of time) is reasonably expected to constitute
or result in a violation by the Company or any Company Subsidiary of any Law
that gives rise to any liability on the part of the Company or any Company
Subsidiary under any Law.
4.12 Licenses. Schedule 4.12 lists all Licenses used by the Company and
the Company Subsidiaries that are material to the conduct of the Business.
"Licenses" means all notifications, licenses, permits, franchises, certificates,
approvals, exemptions, classifications, registrations and other similar
documents and authorizations, and applications therefor, held by the Company or
any Company Subsidiary and issued by, or submitted by the Company or any Company
Subsidiary to, any Governmental Authority or other Person, other than those
relating to the practice of public accountancy. Section B of Schedule 4.12
lists all licenses, certificates, approvals, registrations and other similar
documents and authorizations, and applications therefor, relating to the
practice of public accountancy (the "Accounting Licenses") held by the Company
or a Company Subsidiary and issued by, or submitted by the Company or any
Company Subsidiary to any Governmental Authority or other Person. All such
Licenses and Accounting Licenses are valid, binding and in full force and
effect. Except as described on Schedule 4.12, the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not adversely affect any such Licenses. To the
Knowledge of the Company, the Company and the Company Subsidiaries have taken
all necessary action to maintain such Licenses. No loss or expiration of any
such License is pending or, to the Company's Knowledge, threatened or reasonably
foreseeable.
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4.13 Material Contracts. Except as listed or described on Schedule 4.13
(such contracts, or those which should have been listed on Schedule 4.13, are
herein referred to as the " Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments (each a
"Contract" and collectively, the "Contracts") relating to or in any way
affecting the operation or ownership of the Business that are of a type
described below and no such agreements are currently in negotiation or proposed:
(a) any consulting agreement pursuant to which the Company or a
Company Subsidiary is to receive consulting services (other than consulting
agreements that may be terminated by the Company or a Company Subsidiary on
not more than 30 days notice without penalty), employment agreement,
change-in-control agreement, or collective bargaining arrangement with any
labor union;
(b) any Contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $50,000;
(c) any Contract for the purchase, maintenance or acquisition, or the
sale or furnishing, of materials, supplies, merchandise, machinery,
equipment, parts or other property or services (except if such Contract is
made in the ordinary course of business and requires aggregate future
payments of less than $25,000);
(d) any Contract, other than trade payables in the ordinary course of
business, relating to the borrowing of money, or the guaranty of another
Person's borrowing of money, including, without limitation, any notes,
mortgages, indentures and other obligations, guarantees of performance,
agreements and instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(e) any Contract granting any Person a Lien on all or any part of the
assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (as defined in Section 4.19), the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) any Contract granting to any Person an option or a first refusal,
first-offer or similar preferential right to purchase or acquire any
material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative which
is not terminable by the Company or a Company Subsidiary upon ninety (90)
calendar days or less notice without penalty;
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(i) any Contract under which the Company or any Company Subsidiary is
(A) a lessee or sublessee of any machinery, equipment, vehicle or other
tangible personal property, or (B) a lessor of any tangible personal
property owned by the Company or any Company Subsidiary, in either case
having an original purchase price or requiring aggregate lease payments in
excess of $50,000;
(j) any Contract under which the Company or any Company Subsidiary
has granted or received a license or sublicense or under which it is
obligated to pay or has the right to receive a royalty, license fee or
similar payment, in either case which provides for payments over the life
of such Contract in excess of $25,000;
(k) any Contract concerning an Affiliate Transaction (as defined in
Section 4.21);
(l) any Contract providing for the indemnification or holding
harmless of any officer, director, employee or other Person;
(m) any Contract (A) for purchase or sale by the Company or any
Company Subsidiary of any real property on which the Company or any Company
Subsidiary conducts any aspect of the Business, (B) granting any options to
lease or purchase all or any portion of the Real Property, or (C) providing
for labor, services or materials to the Real Property (including, without
limitation, brokerage or management services) involving aggregate future
payments of more than $25,000;
(n) any Contract limiting, restricting or prohibiting the Company or
any Company Subsidiary from conducting business anywhere in the United
States or elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to the
Leased Property (as defined in Section 4.14.1);
(q) any Contract requiring prior notice, consent or other approval
upon a change of control in the equity ownership of the Company or any
Company Subsidiary, which, if amended, modified or terminated as a result
of, relating to or in connection with a failure to provide prior notice, or
gain such consent or approval, would result in a Company Material Adverse
Effect; or
(r) any other Contract, whether or not made in the ordinary course of
business, which involves future payments by the Company or any Company
Subsidiary in excess of $25,000.
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The Company has provided Centerprise with a true and complete copy of each
written Material Contract and a true and complete summary of each oral Material
Contract, in each case including all amendments or other modifications thereto.
Except as set forth on Schedule 4.13, each Material Contract is a valid and
binding obligation of, and enforceable in accordance with its terms against, the
Company or a Company Subsidiary, as applicable, and, to the Knowledge of the
Company, the other parties thereto, and is in full force and effect, subject
only to bankruptcy, reorganization, receivership and other laws affecting
creditors' rights generally and equitable principles. Except as set forth on
Schedule 4.13, the Company or one of the Company Subsidiaries, as applicable,
has performed in all material respects all obligations required to be performed
by it as of the date hereof and will have performed in all material respects all
obligations required to be performed by it as of the Closing Date under each
Material Contract and neither the Company or Company Subsidiary, as applicable,
nor, to the Knowledge of the Company, any other party to any Material Contract
is in breach or default thereunder, and, to the Knowledge of the Company, there
exists no condition which would, with or without the lapse of time or the giving
of notice, or both, constitute a breach or default thereunder. The Company has
not been notified that any party to any Material Contract intends to cancel,
terminate, not renew, or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
4.14 Properties.
----------
4.14.1 Schedule 4.14.1-1 is a correct and complete list, and a brief
description of, all real estate in which the Company or any of the Company
Subsidiaries has an ownership interest (the "Owned Property") and all
real property leased by the Company (the "Leased Property"). Except as
lessee of Leased Property, neither the Company nor any Company Subsidiary
is a lessee under or otherwise a party to any lease, sublease, license,
concession or other agreement, whether written or oral, pursuant to which
another Person has granted to the Company or any Company Subsidiary the
right to use or occupy all or any portion of any real property.
The Company or one or more of the Company Subsidiaries has good and
marketable fee simple title to the Owned Property and, assuming good title
in the landlord, a valid leasehold interest in the Leased Property (the
Owned Property and the Leased Property being sometimes referred to herein
as "Real Property"), in each case free and clear of all Liens,
assessments or restrictions (including, without limitation, inchoate liens
arising out of the provision of labor, services or materials to any such
real estate) other than (a) mortgages shown on the Financial Statements as
securing specified liabilities or obligations, with respect to which no
default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) Liens for current taxes not yet due, (c)
(i) minor imperfections of title, including utility and access easements
depicted on subdivision plats for platted lots that do not impair the
intended use of the property, if any, none of which materially impairs the
current operations of the Company, any Company Subsidiary or the Business,
and (ii) zoning laws and other land use restrictions or restrictive
covenants that do not materially impair the present use of the property
subject thereto, and (d) Liens,
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assessments, and restrictions pursuant to and by virtue of the terms of the
lease of the Leased Property. The Real Property constitutes all real
properties reflected on the Financial Statements or used or occupied by the
Company or any Company Subsidiary in connection with the Business or
otherwise.
With respect to the Owned Property, except as reflected on Schedule
4.14.1-2(a):
(a) the Company or one of the Company Subsidiaries is in exclusive
possession thereof and no easements, licenses or rights are necessary to
conduct the Business thereon in addition to those which exist as of the
date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority materially
adverse to the Owned Property and, to the Knowledge of the Company, there
is no threatened condemnation or proceeding with respect thereto;
(c) there is no violation of any covenant, condition, restriction,
easement or agreement of any Governmental Authority that affects the Owned
Property or the ownership, operation, use or occupancy thereof;
(d) no portion of any parcel of the Owned Property is subject to any
roll-back tax, dual or exempt valuation tax, and no portion of any Owned
Property is omitted from the appropriate tax rolls; and
(e) all assessments and taxes currently due and payable on such Owned
Property have been paid.
With respect to the Leased Property, except as reflected on Schedule
4.14.1-2(b):
(i) the Company and/or one of the Company Subsidiaries is in
exclusive, peaceful and undisturbed possession thereof and, to the
Knowledge of the Company, no easements, licenses or rights are necessary to
conduct the Business thereon in addition to those which exist as of the
date hereof; and
(ii) to the Knowledge of the Company, no portion thereof is subject to
any pending condemnation proceeding or proceeding by any public or quasi-
public authority materially adverse to the Leased Property and there is no
threatened condemnation or proceeding with respect thereto.
4.14.2 The Latest Balance Sheet and/or Schedule 4.14.2 reflect all
material tangible personal property owned by the Company or any Company
Subsidiary, except as sold or otherwise disposed of or acquired in the
ordinary course of business. Except as set forth on Schedule 4.14.2, the
Company or one of the Company Subsidiaries has good and marketable title
to, or a valid leasehold interest in, or valid license of, such personal
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property (including, without limitation, machinery, equipment and
computers), in each case free and clear of any Liens (other than Liens
that are part of such leasehold or license), and each such asset is in
working order and has been maintained in a commercially reasonable manner
and does not contain, to the Knowledge of the Company, any material defect.
Except as set forth in Schedule 4.14.2, no personal property (including,
without limitation, software and databases maintained on off-premises
computers) used by the Company or any Company Subsidiary in connection with
the Business is held under any lease, security agreement, conditional sales
contract or other title retention or security arrangement or is located
other than on the Real Property.
4.15 Intellectual Property. The (i) patents, patent applications,
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered trademarks, trade names, company names, assumed
business names and service marks (collectively, the "Marks"), (iii) copyrights
(the "Copyrights"), and (iv) know how, trade secrets, confidential information,
client lists, software, technical information, data, process technology, plans
and drawings (collectively, the "Trade Secrets") owned, used or licensed by the
Company or any Company Subsidiary (collectively, the "Intellectual Property")
are all those necessary to enable the Company and the Company Subsidiaries to
conduct and to continue to conduct the Business substantially as it is currently
conducted. Schedule 4.15 contains a complete and accurate list of all material
Patents, Marks and Copyrights and a brief description of all material Trade
Secrets owned, used by or directly licensed to the Company or any Company
Subsidiary, and a list of all material license agreements and arrangements with
respect to any of the Intellectual Property to which the Company or any Company
Subsidiary is a party, whether as licensee, licensor or otherwise (collectively,
the "Intellectual Property Licenses"). Except as set forth on Schedule 4.15, (i)
all of the Intellectual Property is owned or, to the Knowledge of the Company,
used under a valid Intellectual Property License, by the Company or one of the
Company Subsidiaries, and is free and clear of all Liens and other adverse
claims; (ii) none of the Company nor any Company Subsidiary has received any
written notice that it is or has infringed on, misappropriated or otherwise
conflicted with, or otherwise has Knowledge that it is infringing on,
misappropriating, or otherwise conflicting with the intellectual property rights
of any third parties; (iii) there is no claim pending or, to the Knowledge of
the Company, threatened against the Company or any Company Subsidiary with
respect to the alleged infringement or misappropriation by the Company or
Company Subsidiary, or a conflict with, any intellectual property rights of
others; (iv) the operation of any aspect of the Business in the manner in which
it has heretofore been operated or is presently operated does not give rise to
any such infringement or misappropriation; and (v) there is no infringement or
misappropriation of the Intellectual Property by a third party or claim, pending
or, to the Knowledge of the Company, threatened, against any third party with
respect to the alleged infringement or misappropriation of the Intellectual
Property.
4.16 Taxes.
-----
4.16.1 Except as set forth on Schedule 4.16.1-1, each of the Company
and the Company Subsidiaries has timely and accurately prepared and filed
or been included in or
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will timely and accurately prepare and file or be included in all federal,
state, local and foreign returns, declarations and reports, information
returns and statements (collectively, the "Returns") for Taxes (as
defined in Section 4.16.2) required to be filed by or with respect to the
Company or the Company Subsidiaries before the Closing Date, and has paid
or caused to be paid, or has made adequate provision or set up an adequate
accrual or reserve for the payment of, all Taxes required to be paid in
respect of the periods for which Returns are due on or prior to the Closing
Date, and will establish an adequate accrual or reserve for the payment of
all Taxes payable in respect of the period, including portions thereof,
subsequent to the last of said periods required to be so accrued or
reserved, in each case in accordance with GAAP up to and including the
Closing Date. All such Returns are or will be true and correct in all
material respects. The Company has delivered to Centerprise true and
complete copies of all Returns referred to in the first sentence of this
Section 4.16.1 (including any amendments thereof) for the five (5) most
recent taxable years. Neither the Company nor any Company Subsidiary is
delinquent in the payment of any Tax, and no material deficiencies for any
Tax, assessment or governmental charge have been threatened, claimed,
proposed or assessed. No waiver or extension of time to assess any Taxes
has been given or requested. No written claim, or any other claim, by any
taxing authority in any jurisdiction where the Company or any Company
Subsidiary does not file Tax returns is pending pursuant to which the
Company or Company Subsidiary, as applicable, is or may be subject to
taxation by that jurisdiction. The Company's and the Company Subsidiaries'
Returns were last audited by the Internal Revenue Service or comparable
state, local or foreign agencies on the dates set forth on Schedule
4.16.1-2.
4.16.2 For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, withholdings, fees, levies, penalties, additions,
interest or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, employment, withholding, social
security, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, windfall
profits, severance, customs, import, export, employment or similar taxes,
charges, fees, levies or other assessments, imposed by the United States,
or any state, local, foreign or provincial government or subdivision or any
agency thereof, whether computed on a separate, consolidated, unitary,
combined or any other basis.
4.17 Employee Benefit Plans; ERISA.
-----------------------------
4.17.1 Except as described in Schedule 4.17.1, neither the Company
nor any Company Subsidiary has or is reasonably expected to have any
liability (including contingent liability) whether direct or indirect (and
regardless of whether it would be derived from a current or former Plan
Affiliate, as defined in Section 4.17.5(c)) with respect to any of the
following (whether written, unwritten or terminated): (i) any employee
welfare benefit plan, as defined in Section 3(1) of "ERISA," including,
but not limited to, any medical plan, life insurance plan, short-term or
long-term disability plan or dental plan; (ii) any "employee pension
benefit plan," as defined in Section 3(2) of
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ERISA (as defined in Section 4.17.5(b)), including, but not limited to, any
excess benefit plan, top hat plan or deferred compensation plan or
arrangement, nonqualified retirement plan or arrangement, qualified defined
contribution or defined benefit arrangement; or (iii) any other benefit
plan, policy, program, arrangement or agreement, including, but not limited
to, any material fringe benefit plan or program, personnel policy, bonus or
incentive plan, stock option, restricted stock, stock bonus, holiday pay,
vacation pay, sick pay, bonus program, service award, moving expense,
reimbursement program, tool allowance, safety equipment allowance, deferred
bonus plan, salary reduction agreement, change-of-control agreement,
employment agreement or consulting agreement.
4.17.2 A complete copy of each written Employee Plan (as defined in
Section 4.17.5(a)) as amended to the Closing, together with audited
financial statements, if any, for the three (3) most recent plan years; a
copy of each trust agreement or other funding vehicle with respect to each
such plan; a copy of any and all determination letters, rulings or notices
issued by a Governmental Authority with respect to such plan; a copy of the
Form 5500 Annual Report for the three (3) most recent plan years; and a
copy of each and any general explanation or communication which was
required to be distributed or otherwise provided to participants in such
plan and which describes all or any relevant aspect of each plan, including
summary plan descriptions and/or summary of material modifications, have
been delivered to Centerprise. A description of each unwritten Employee
Plan, including a description of eligibility, participation, benefits,
funding arrangements and assets or other relevant aspects of the
obligation, is set forth in Schedule 4.17.2.
4.17.3 Except as is not reasonably expected to give rise to any
liability (including contingent liability), whether direct or indirect, to
the Company or any Company Subsidiary, each Employee Plan (i) has been and
is operated and administered in compliance with its terms; (ii) has been
and is operated, administered, maintained and funded in compliance with the
applicable requirements of the Code in such a manner as to qualify, where
appropriate and intended, for both Federal and state purposes, for income
tax exclusions, tax-exempt status, and the allowance of deductions and
credits with respect to contributions thereto; (iii) where appropriate, has
received a favorable determination letter from the Internal Revenue Service
upon which the sponsor of the plan may currently rely; (iv) has been and
currently complies in form and in operation in all respects with all
applicable requirements of ERISA and the Code and any applicable reporting
and disclosure requirements of Federal and state laws, including but not
limited to the requirement of Part 6 of subtitle B of Title I of ERISA and
Section 4980B of the Code. With respect to each Employee Plan, no Person
has: (i) entered into any nonexempt "prohibited transaction," as such
terms are defined in ERISA or the Code; (ii) breached a fiduciary
obligation or (iii) any liability for any failure to act or comply in
connection with the administration or investment of the assets of such
plan; and no Employee Plan has any liability and there is no liability in
connection with any Employee Plan, other than a liability (i) which is
expressly and adequately reflected in the Latest Balance Sheets, (ii) which
is discretionary or terminable at will by the Company or one of the Company
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Subsidiaries without incurring any such liability, or (iii) which is
adequately funded under a funding arrangement separate from the assets of
the Company, any Company Subsidiary or a Plan Affiliate (and only to the
extent of such funding). Any contribution made or accrued with respect to
any Employee Plan is fully deductible by the Company, a Company Subsidiary
or a Plan Affiliate.
4.17.4 Neither the Company nor any Company Subsidiary or Plan
Affiliate has ever sponsored, maintained, contributed to or been required
to contribute to, or has any liability, whether direct or indirect, with
respect to any Employee Plan which is or has ever been (i) a "multiemployer
plan" as defined in Section 4001 of ERISA, (ii) a "multiemployer plan"
within the meaning of Section 3(37) of ERISA, (iii) a "multiple employer
plan" within the meaning of Code Section 413(c), (iv) a "multiple employer
welfare arrangement" within the meaning of Section 3(40) of ERISA, (v)
subject to the funding requirements of Section 412 of the Code or to Title
IV of ERISA, or (vi) provides for post-retirement medical, life insurance
or other welfare-type benefits.
4.17.5 As used in this Agreement, the following terms shall have the
following respective meanings:
(a) the term "Employee Plan" shall mean any plan, policy,
program, arrangement or agreement described in Section 4.17.1, whether
or not scheduled;
(b) the term "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended; and
(c) with respect to any Person ("First Person"), the term
"Plan Affiliate" shall mean any other Person with whom the First Person
constitutes or has constituted all or part of a controlled group, or which
would be treated or have been treated with the First Person as under common
control or whose employees would be or have been treated as employed by the
First Person, under Section 414 of the Code or Section 4001(b) of ERISA and
any regulations, administrative rulings and case law interpreting the
foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no, and
within the last three (3) years neither the Company nor any Company Subsidiary
has experienced any, strike, picketing, boycott, work stoppage or slowdown or
other similar labor dispute, union organizational activity, allegation, charge
or complaint of unfair labor practice, employment discrimination or other
matters relating to the employment of labor pending or, to the Knowledge of the
Company, threatened against the Company or any Company Subsidiary, or that is
reasonably expected to affect the Company or any Company Subsidiary; nor, to the
Knowledge of the Company, is there any basis for any such allegation, charge, or
complaint. There is no request for representation pending and, to the Knowledge
of the Company, no question concerning representation has been raised. There is
no grievance pending that is reasonably expected to result in a Company Material
Adverse Effect nor any arbitration proceeding arising out of a union
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agreement. To the Knowledge of the Company, no employee who is key to the
Business and no group of employees has announced or otherwise indicated any
plans to terminate employment with the Company or any Company Subsidiary. Each
of the Company and any Company Subsidiary has complied with all applicable laws
relating to the employment of labor, including provisions thereof relating to
wages, hours, equal opportunity, collective bargaining and the payment of social
security and other taxes. Neither the Company nor any Company Subsidiary is
liable for any arrears of wages or any taxes or penalties for failure to comply
with any such laws, ordinances or regulations.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19, (i)
each of the Company and the Company Subsidiaries is operating and has operated
its business in compliance with all applicable Environmental and Safety
Requirements (as defined later in this Section); (ii) to the actual knowledge of
the Board of Directors of the Company, without any duty to inquire
(notwithstanding the definition of "Knowledge" in Section 15.4), there are no
Hazardous Materials (as defined later in this Section) present at, on or under
any real property currently or formerly owned, leased or used by the Company or
Company Subsidiary (other than those present in office supplies and
cleaning/maintenance materials) for which the Company or a Company Subsidiary is
or is reasonably expected to be responsible, or otherwise have any liability,
for response costs under any Environmental and Safety Requirements; (iii) each
of the Company and the Company Subsidiaries has disposed of all waste materials
generated by the Company or such Company Subsidiary at any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
in compliance with applicable Environmental and Safety Requirements; and (iv)
there are and have been no facts, events, occurrences or conditions at or
related to any real property currently or formerly owned, leased or used by the
Company or Company Subsidiary that is reasonably expected to cause or give rise
to liabilities or response obligations of the Company or any Company Subsidiary
under any Environmental and Safety Requirements. The term "Environmental and
Safety Requirements" means any federal, state and local laws, statutes,
regulations or other requirements relating to the protection, preservation or
conservation of the environment or worker health and safety, all as amended or
reauthorized. The term "Hazardous Materials" means "hazardous substances,"
as defined by the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. (S) 9601 et seq., "hazardous wastes," as defined by
the Resource Conservation Recovery Act, 42 U.S.C. (S) 6901 et seq., asbestos in
any form or condition, polychlorinated biphenyls and any other material,
substance or waste to which liability or standards of conduct may be imposed
under any Environmental and Safety Requirement.
4.20 Insurance. Each of the Company and the Company Subsidiaries has in
full force and effect commercially reasonable amounts of insurance to protect
the Company's and Company Subsidiaries' ownership or interest in, and operation
of, its assets against the types of liabilities, including professional
malpractice, customarily insured against in connection with operations similar
to the Business, and all premiums due on such policies have been paid. To the
Company's Knowledge, each of the Company and the Company Subsidiaries has
complied with the provisions of all such policies and is not in default under
any of such policies. Schedule 4.20 contains a complete and correct list of all
such insurance policies. None of the Company nor any Company
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Subsidiary has received any notice of cancellation or intent to cancel or
increase premiums with respect to such insurance policies. Schedule 4.20 also
contains a list of all claims or asserted claims reported to insurers under such
policies relating to the ownership or interest in the Company's and the Company
Subsidiaries' assets, or operation of the Business, including all professional
malpractice claims and similar types of claims, actions or proceedings asserted
against the Company or any Company Subsidiary arising out of the Business at any
time within the past three (3) years.
4.21 Interest in Customers and Suppliers; Affiliate Transactions. Except as
described on Schedule 4.21 and except for ownership as an investment of not more
than one percent (1%) of any class of capital stock of any publicly-traded
company, none of Holdings, the Company, any member of Holdings, any Affiliate of
any such member nor any Affiliate of Holdings, the Company or any Company
Subsidiary (i) possesses, directly or indirectly, any financial interest in, or
is a director, officer, employee or affiliate of, any Person that is a client,
supplier, customer, lessor, lessee or competitor of the Company or any Company
Subsidiary, (ii) owns, directly or indirectly, in whole or in part, or has any
interest in any tangible or intangible property used in the conduct of the
Business, or (iii) is a party to an agreement or relationship, that involves the
receipt by such Person of compensation or property from the Company or any
Company Subsidiary other than through a customary employment relationship or
through distributions made with respect to the Company Stock or equity interests
in any Company Subsidiary (provided such distributions have been made consistent
with the Company's or any Company Subsidiary's, as the case may be, past custom
and practices). Schedule 4.21 sets forth the parties to and the date, nature and
amount of each transaction during the last five years involving the transfer of
any cash, property or rights to or from the Company or any Company Subsidiary
from, to or for the benefit of any Affiliates (other than customary employment
relationships or distributions made with respect to the Company Stock)
("Affiliate Transactions"), and any existing commitments of the Company or any
Company Subsidiary to engage in the future in any Affiliate Transactions. Except
as disclosed, each Affiliate Transaction and each transaction with former
Affiliates of the Company or any Company Subsidiary was effected on terms
equivalent to those that would have been established in an arm's-length
transaction.
4.22 Business Relationships. Schedule 4.22 lists all clients of the Company
and each Company Subsidiary representing one percent (1%) or more of the
Company's consolidated net revenue for the twelve (12) months ended December 31,
1998. Except as set forth on Schedule 4.22, since December 31, 1998, none of
such clients has canceled or substantially reduced its business with the Company
or Company Subsidiary, as applicable, nor are any of such clients threatening to
do so. To the Knowledge of the Company, no client that accounts for one percent
(1%) or more of the Company's consolidated net revenue, or supplier of the
Company or any Company Subsidiary, will cease to do business with, or
substantially reduce its business with, the Company or any Company Subsidiary,
as applicable, after the consummation of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the names
and current total compensation, including, without limitation, salary and
bonuses paid to employees and draws
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or other distributions paid to partners, members or owners of each Person who
earned from the Company or a Company Subsidiary in 1998 total compensation in
excess of $100,000. Except as set forth in Schedule 4.23, no Person listed
thereon has received any bonus or increase in compensation and there has been no
"general increase" in the compensation or rate of compensation payable to any
employees, partners, members or owners of the Company or any Company Subsidiary
since the date of the Latest Balance Sheet, other than in the Company's and
Company Subsidiaries' ordinary course of business, consistent with past custom
and practices, nor since that date has there been any oral or written promise to
employees, partners, members or owners of any bonus or increase in compensation,
other than in the Company's and Company Subsidiaries' ordinary course of
business, consistent with past custom and practices. The term "general
increase" as used herein means any increase generally applicable to a class or
group, but does not include increases granted to individuals for merit, length
of service or change in position or responsibility made on the basis of the
custom and past practices of the Company or any Company Subsidiary. Schedule
4.23 includes the date and amount of the last bonus or similar distribution or
increase in compensation for each listed individual.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each bank
in which the Company or any Company Subsidiary has an account or safe deposit
box, the number of each such account or box, and the names of all Persons
authorized to draw thereon or to have access thereto.
4.25 Professional Credentials. Each Member is a Certified Public
Accountant in good standing in one of the States of the United States or the
District of Columbia, and entitled to practice in one of the jurisdictions in
which the Company or any Company Subsidiary maintains an office, and there are
no disciplinary proceedings pending or threatened against the Company, any
Company Subsidiary or any of the Members by any Governmental Authority or self-
regulatory organization regulating, licensing or permitting the practice of
public accountancy.
4.26 Disclosure; No Misrepresentation. No representation or warranty of
the Company contained in this Agreement or in any of the certification,
schedules, lists, documents, exhibits, or other instruments delivered or to be
delivered to Centerprise as contemplated by any provision hereof contains any
untrue statement regarding a material fact or omits to state a material fact
necessary in order to make the statements made herein or therein not misleading.
To the Knowledge of the Company, there is no fact or circumstance that has not
been disclosed to Centerprise herein that has or is reasonably expected to have
a Company Material Adverse Effect.
ARTICLE V
[Reserved]
ARTICLE VI
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REPRESENTATIONS AND WARRANTIES OF CENTERPRISE
Centerprise represents and warrants to the Company as of March 31, 1999
and, subject to Section 7.3, as of the date on which Centerprise and the lead
Underwriter execute and deliver the Underwriting Agreement related to the IPO
and as of the Closing Date as follows:
6.1 Organization And Qualification. Each of Centerprise and Mergersub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted. True, accurate and complete copies of each of Centerprise's and
Mergersub's Certificate of Incorporation and By-laws, as in effect on the date
hereof, including all amendments thereto, have heretofore been delivered to the
Company.
6.2 Capitalization.
6.2.1 The authorized capital stock of Centerprise consists of 20,000
shares of Centerprise Common Stock, of which 17,500 shares are outstanding
as of the date hereof. All of the issued and outstanding shares of
Centerprise Common Stock are validly issued and are fully paid,
nonassessable and free of preemptive rights. Immediately prior to the
Closing Date, the authorized capital stock of Centerprise will consist of
50,000,000 shares of Centerprise Common Stock, of which the number of
shares set forth in the Form S-1 will be issued and outstanding, and
10,000,000 shares of Preferred Stock, par value $0.01 per share, none of
which will be issued and outstanding. Other than (i) shares of Centerprise
Common Stock issued pursuant to a split of the shares outstanding as of the
date of this Agreement, (ii) shares of Centerprise Common Stock issued in
accordance with the Acquisition and the Other Acquisitions, and (iii)
shares of Centerprise Common Stock that may be issued to new members of
management in lieu of shares previously issued to current members of
management, but which will not increase the number of shares of outstanding
Centerprise Common Stock, no shares of Centerprise Common Stock will be
issued prior to the consummation of the IPO. Mergersub's authorized capital
stock consists solely of 1,000 shares of common stock, par value $.01 per
share (the "Mergersub Stock"), all of which are issued and outstanding, are
owned free and clear of any Liens by Centerprise, and are fully paid,
nonassessable and free of preemptive rights.
6.2.2 Except as set forth on Schedule 6.2, as of the date hereof,
there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement obligating Centerprise
to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of Centerprise or obligating
Centerprise to grant, extend or enter into any such agreement or
commitment. There are no voting trusts, proxies or other agreements or
understandings to which Centerprise is a party or is bound with respect to
the voting of any shares of capital stock of Centerprise. The shares of
Centerprise
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Common Stock issued to the Company's stockholders in the Acquisition will
at the Closing Date be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights and issued pursuant to a
registration statement as required by the 1933 Act or an exemption
therefrom.
6.3 No Subsidiaries. Except for Centerprise's ownership of 100% of the
capital stock of Professional Service Group, Inc., a Delaware corporation, and
Mergersub (and similar entities created for similar purposes with respect to the
Other Agreements) Centerprise has no subsidiaries and it does not own any
capital stock of any corporation or any equity or other interest of any nature
whatsoever in any Person.
6.4 Authority; Non-Contravention; Approvals.
6.4.1 Each of Centerprise and Mergersub has all requisite right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been approved by the
Boards of Directors of Centerprise and Mergersub, and no other corporate
proceedings on the part of Centerprise or Mergersub are necessary to
authorize the execution and delivery of this Agreement or the consummation
by Centerprise and Mergersub of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Centerprise and Mergersub
and, assuming the due authorization, execution and delivery hereof by the
Company constitutes a valid and legally binding agreement of Centerprise
and Mergersub, enforceable against each of them in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
6.4.2 The execution and delivery of this Agreement by Centerprise and
Mergersub does not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of
any Lien upon any of the properties or assets of Centerprise and Mergersub
under any of the terms, conditions or provisions of (i) the Certificate of
Incorporation or By-laws of Centerprise or Mergersub, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or Governmental Authority applicable
to Centerprise or Mergersub or any of their respective properties or
assets, or (iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Centerprise or
Mergersub is now a party or by which Centerprise, Mergersub or any of their
respective properties or assets, may be bound or affected, except those
items described in clause (ii) relating to regulating, licensing or
permitting the practice of public accountancy. The consummation by
Centerprise and Mergersub of the transactions contemplated hereby will not
result in any violation, conflict, breach, right of termination or
acceleration or creation
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of Liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the immediately preceding
sentence, subject, in the case of the terms, conditions or provisions of
the items described in clause (ii) above, to obtaining (prior to the
Closing Date) Centerprise Required Statutory Approvals and except for those
items described in (ii) above relating to regulating, licensing or
permitting the practice of public accountancy.
6.4.3 Except with respect to (i) the declaration of the effectiveness
of the Registration Statements by the SEC and filings, if required, with
various state securities or "blue sky" authorities, (ii) any filing which
may be required under the HSR Act, (iii) any filing which may be required
by any Governmental Authority or self-regulatory organization regulating,
licensing or permitting the practice of public accountancy (the filings and
approvals referred to in clauses (i) through (iii) are collectively
referred to as the "Centerprise Required Statutory Approvals") no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by Centerprise
or Mergersub or the consummation by Centerprise or Mergersub of the
transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not
made or obtained, as the case may be, are not reasonably expected to, in
the aggregate, have a material adverse effect on the business operations,
properties, assets, condition (financial or other), results of operations
or prospects of Centerprise and its subsidiaries, taken as a whole (a
"Centerprise Material Adverse Effect").
6.5 Absence of Undisclosed Liabilities. Except as set forth on Schedule
6.5, neither Centerprise nor Mergersub has incurred any liabilities or
obligations (whether known or unknown, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise) of any nature. Except as set
forth on Schedule 6.5, neither Centerprise nor Mergersub has engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is it bound by any obligation or undertaking.
6.6 Litigation. There are no claims, suits, actions or proceedings pending
or, to the Knowledge of Centerprise, threatened against, relating to or
affecting Centerprise or Mergersub, before any court, Governmental Authority or
any arbitrator that seek to restrain or enjoin the consummation of the
Acquisition or the IPO or which could reasonably be expected, either alone or in
the aggregate with all such claims, actions or proceedings, to have a
Centerprise Material Adverse Effect. Centerprise is not subject to any
unsatisfied or continuing judgment, order or decree of any court or Governmental
Authority. Centerprise is not a party to any legal action to recover monies due
it or for damages sustained by it.
6.7 Compliance with Applicable Laws. Each of Centerprise and Mergersub has
complied in all material respects with all Laws applicable to it, and has not
received any notice of any alleged claim or threatened claim, violation of or
liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability
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and, to the Knowledge of Centerprise, no event has occurred or circumstances
exist that (with or without notice or lapse of time) may constitute or result in
a violation by Centerprise or Mergersub of any Law or may give rise to any
liability on the part of the Centerprise or Mergersub under any Law.
6.8 No Misrepresentation. None of the representations and warranties of
Centerprise or Mergersub set forth in this Agreement or in any of the
certificates, schedules, lists, documents, exhibits, or other instruments
delivered or to be delivered to the Company as contemplated by any provision
hereof contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. To the Knowledge of Centerprise, there is no fact or circumstance
that has not been disclosed to the Company herein that has or is reasonably
expected to have a Company Material Adverse Effect.
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS
7.1 Conduct of Business by the Company Pending the Acquisition.
7.1.1 Except as otherwise contemplated by this Agreement, after the
date hereof and prior to the Closing Date or earlier termination of this
Agreement, unless Centerprise shall otherwise agree in writing, the Company
shall, and shall cause each Company Subsidiary to:
(a) in all material respects conduct the Business in the
ordinary and usual course and consistent with past customs and
practices;
(b) not (i) amend its Organizational Documents except as
necessary to complete the Conversion, (ii) split, combine or
reclassify its outstanding capital stock or (iii) declare, set aside
or pay any dividend or distribution payable in cash, stock, property
or otherwise except dividends or distributions which (A) are
consistent with past customs and practices and (B) do not result in a
Company Material Adverse Effect;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
options, warrants or rights of any kind to acquire any shares of, its
capital stock or equity interests of any class, (ii) any debt with
voting rights or (iii) any debt or equity securities convertible into
or exchangeable for, or any rights, warrants, calls, subscriptions, or
options to acquire, any such capital stock, debt with voting rights or
convertible securities;
(d) not (i) incur or become contingently liable with respect
to any indebtedness for borrowed money other than (A) borrowings in
the ordinary course
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of business in a manner consistent with past customs and practices or
(B) borrowings to refinance existing indebtedness on commercially
reasonable terms, (ii) redeem, purchase, acquire or offer to purchase
or acquire any shares of its capital stock or equity interests or any
options, warrants or rights to acquire any of its capital stock or
equity interests or any security convertible into or exchangeable for
its capital stock or equity interests, (iii) sell, pledge, dispose of
or encumber any assets or businesses other than dispositions in the
ordinary course of business in a manner consistent with past customs
and practices (iv) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(e) use commercially reasonable efforts to (i) preserve intact
its business organizations and goodwill, (ii) keep available the
services of its present officers and key employees, and (iii) preserve
the goodwill and business relationships with clients and others having
business relationships with it and not engage in any action, directly
or indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of Centerprise to report operational matters of
materiality and the general status of ongoing operations;
(g) except as contemplated by Schedule 4.9, not (i) increase in
any manner the base compensation of, or enter into any new bonus or
incentive agreement or arrangement with, any of its employees,
partners, members or owners, except in the ordinary course of business
in a manner consistent with past customs and practices of the Company
or any Company Subsidiary, as applicable, (ii) pay or agree to pay any
additional pension, retirement allowance or other employee benefit
under any Employee Plan to any such Person, whether past or present,
(iii) enter into any new employment, severance, consulting, or other
compensation agreement with any of its existing employees, partners,
members or owners, (iv) amend or enter into a new Employee Plan
(except as required by Law) or amend or enter into a new collective
bargaining agreement, or (v) engage in any new Affiliate Transaction;
(h) comply in all material respects with all applicable Laws;
(i) not make any material investment in, directly or indirectly,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any businesses or any Person or
division thereof or otherwise acquire or agree to acquire any assets
in each case which are material to it other than in the ordinary
course of business in a manner consistent with past customs and
practices;
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(j) not sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, license, encumber or otherwise dispose of,
any of its assets other than in the ordinary course of business,
consistent with past customs and practices;
(k) maintain with financially responsible insurance companies
insurance on its tangible assets and its businesses in such amounts
and against such risks and losses in a manner consistent with past
customs and practices in all material respects; and
(l) collect and bill receivables in the ordinary and usual
course and consistent with past custom and practices.
7.1.2 [Reserved]
7.1.3 Notwithstanding the fact that such action might otherwise be
permitted pursuant to this Article, the Company shall not take, or permit
any Company Subsidiary to take, any action that would or is reasonably
likely to result in any of the representations or warranties of the Company
set forth in this Agreement being untrue or in any of the conditions to the
consummation of the transactions contemplated hereunder set forth in
Article X not being satisfied.
7.1.4 Prior to the Closing, (i) the Company shall terminate, without
any liability to the Company or the Company Subsidiaries, all agreements
relating to the voting of the Company's capital stock, and all agreements
and obligations of the Company and the Company Subsidiaries relating to
borrowed money and/or involving payments to or for the benefit of a present
or former stockholder of the Company, or an Affiliate or family member of a
Member or present or former stockholder of the Company, including without
limitation those set forth on Schedule 7.1.4(i), but excluding (A) debt
reflected on Schedule 2.1 as Debt Assumed By Centerprise, (B) items
reflected on Schedule 2.5, (C) agreements and obligations to the extent
such agreements and obligations result in Indirect Costs under the
Incentive Compensation Agreement, (D) that certain lease agreement dated
July 11, 1996, by and between the Company and BDM&P, Limited Liability
Company, and (E) items approved by Centerprise in writing; and (ii)
notwithstanding anything contained in this Section 7.1 to the contrary, the
Company will sell, transfer and distribute the assets listed on Schedule
7.1.4(ii) (the "Excluded Assets") to the Persons listed on Schedule
7.1.4(ii), subject to all liabilities and obligations of any nature
(whether known or unknown, accrued, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise) relating to the Excluded
Assets (collectively, the "Excluded Liabilities"); provided, however, that
prior to the Closing, the Company shall obtain novations or other releases
or agreements discharging the Company from all Excluded Liabilities (so
that the respective Excluded Liabilities will become direct liabilities and
obligations, of the assignee), and provide copies thereof to Centerprise.
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7.1.5 From and after the date hereof, the Company shall use its best
efforts to acquire, effective on or before the Closing, all of the
outstanding interests in BDM&P Decision Development, LLC which are not
owned by the Company, on terms and conditions satisfactory to Centerprise.
7.2 No-Shop.
(a) After the date hereof and prior to the Closing Date or earlier
termination of this Agreement, the Company shall (i) not, and the Company
shall use its diligent efforts to cause the Company Subsidiaries and any
officer, director or employee of, or any attorney, accountant, investment
banker, financial advisor or other agent retained by the Company or any
Company Subsidiary not to, initiate, solicit, negotiate, encourage, or
provide non-public or confidential information to facilitate, any proposal
or offer to acquire all or any substantial part of the business and
properties of the Company or any Company Subsidiary, or any capital stock
or other equity interests the Company or any Company Subsidiary, whether by
merger, purchase of assets or otherwise, whether for cash, securities or
any other consideration or combination thereof, or enter into any joint
venture or partnership or similar arrangement, and (ii) promptly advise
Centerprise of the terms of any communications the Company may receive or
become aware of relating to any bid for part or all of the Company or any
Company Subsidiary. Notwithstanding the foregoing, if the underwriters'
internal sales force presentation or "road show" for the IPO has not
started by October 15, 1999, then from and after such date, the Company may
(through its authorized agents) conduct limited discussions with potential
acquirers of the Company for the sole purpose of assessing the potential
terms and conditions of an acquisition proposal involving the Company.
Notwithstanding the preceding sentence, the Company shall not (i) disclose
any non-public or confidential information regarding the Company to any
such third party or (ii) enter into any agreement (including a letter of
intent or term sheet) with such third party unless this Agreement has been
terminated pursuant to Article XI.
(b) The Company (i) acknowledges that a breach of any of its
covenants contained in this Section 7.2 will result in irreparable harm to
Centerprise which will not be compensable in money damages; and (ii) agrees
that such covenant shall be specifically enforceable and that specific
performance and injunctive relief shall be a remedy properly available to
the other party for a breach of such covenant.
7.3 Schedules. Each party hereto agrees that with respect to the
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement or amend and deliver to the other parties all the schedules to this
Agreement (the "Schedules") to correct any matter which would constitute a
breach of any such party's representations and warranties herein; provided,
however, that no amendment or supplement to a Schedule that constitutes or
reflects a Company Material Adverse Effect or affects Schedule 4.2, Schedule 4.4
or Schedule 8.8 may be made unless Centerprise and a majority of the Founding
Companies consent to such amendment or supplement. No amendment
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of or supplement to a Schedule shall be made later than three (3) business days
prior to the anticipated effectiveness of the Form S-1. For all purposes of this
Agreement, including, without limitation, for purposes of determining whether
the conditions set forth in Sections 10.2 and 10.3 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 7.3. In the event that (i) one of the other Founding
Companies seeks to amend or supplement a Schedule pursuant to Section 7.3 of one
of the Other Agreements, (ii) such amendment or supplement constitutes or
reflects a Company Material Adverse Effect (as defined in such Other Agreement)
or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8 of such Other Agreement,
and (iii) Centerprise and a majority of the Founding Companies consent to such
amendment or supplement, but the Company does not, the Company may terminate
this Agreement at any time prior to the Closing Date. In the event that (i) the
Company seeks to amend or supplement a Schedule pursuant to this Section 7.3,
(ii) such amendment or supplement constitutes or reflects a Company Material
Adverse Effect or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8, and (iii)
Centerprise and a majority of the Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section 7.3,
unless this Agreement is so terminated in connection with an amendment of or
supplement to a Schedule relating to the Company's breach of a representation or
warranty as of March 31, 1999 in which case the Company shall pay to
Centerprise, as Centerprise's exclusive remedy (notwithstanding anything to the
contrary) and as liquidated damages, and not as a penalty, an amount equal to
$2,000,000 (the "Liquidated Damages Amount"). The Company agrees that in the
case of such termination Centerprise and the Founding Companies (excluding the
Company) will sustain immediate and irreparable economic harm and loss of
goodwill and that actual losses suffered by such parties will be difficult, if
not impossible, to ascertain, but the Liquidated Damages Amount set forth herein
is reasonable and has been arrived at after a good faith effort to estimate such
losses. Payment of the Liquidated Damages Amount shall be made in cash to
Centerprise within thirty (30) days of a termination pursuant to this Section
7.3 in connection with an amendment of or supplement to a Schedule relating to a
breach of a representation or warranty as of the date of this Agreement.
7.4 Company Stockholders Meeting. The Company shall take all action in
accordance with applicable Laws and its Organizational Documents necessary to
duly call, give notice of, convene and hold a meeting of the Company's
stockholders to be held on the earliest practicable date determined in
consultation with Centerprise to consider and vote upon approval of the Merger,
this Agreement and the transactions contemplated hereby. The Company shall
solicit the approval of the Merger, this Agreement and the transactions
contemplated hereby by the Company's stockholders, and the Company's Board of
Directors shall recommend approval of the Merger, this Agreement and the
transactions contemplated hereby by the Company's stockholders. If the Merger,
this Agreement and the transactions contemplated hereby are approved by the
Company's stockholders, the Company shall not call, give notice of, convene or
hold any other meeting of its stockholders to rescind or modify such approval or
to consider any other transaction.
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7.5 Conversion. Prior to the Closing, the Company shall complete the
Conversion pursuant to applicable law and present such evidence of the
Conversion at the Closing, as Centerprise or its counsel may require.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Access to Information.
8.1.1 The Company shall and shall cause the Company Subsidiaries to
afford to Centerprise and its accountants, counsel, financial advisors and
other representatives, including without limitation the underwriters
engaged in connection with the IPO (each an "Underwriter" and collectively,
the "Underwriters") and their counsel (collectively, the "Centerprise
Representatives"), and to the other Founding Companies and their
accountants, counsel, financial advisors and other representatives, and
Centerprise shall afford to the Company and their accountants, counsel,
financial advisors and other representatives (the "Company
Representatives"), upon reasonable notice, full access during normal
business hours throughout the period prior to the Closing Date to all of
its respective properties, books, contracts, commitments and records
(including, but not limited to, financial statements and Tax Returns) and,
during such period, shall furnish promptly to one another all due diligence
information requested by the other party. Centerprise shall hold and shall
use its best efforts to cause the Centerprise Representatives to hold, and
the Company shall hold and shall use their best efforts to cause the
Company Representatives to hold, in strict confidence all non-public
information furnished to it in connection with the transactions
contemplated by this Agreement, except that each of Centerprise and the
Company may disclose any information that it is required by law or judicial
or administrative order to disclose. In addition, Centerprise will cause
each of the other Founding Companies and their members and stockholders to
enter into a provision similar to this Section 8.1 requiring each such
Founding Company to keep confidential any information obtained by such
Founding Company in connection with the transactions contemplated by this
Agreement.
8.1.2 In the event that this Agreement is terminated in accordance
with its terms, each party shall promptly return to the disclosing party
all non-public written material provided pursuant to this Section 8.1 or
pursuant to the Other Agreements and shall not retain any copies, extracts
or other reproductions of such written material. In the event of such
termination, all documents, memoranda, notes and other writings prepared by
Centerprise or the Company based on the information in such material shall
be destroyed (and Centerprise and the Company shall use their respective
reasonable best efforts to cause their advisors and representatives to
similarly destroy such documents, memoranda and notes), and such
destruction (and reasonable best efforts) shall be certified in writing by
an authorized officer supervising such destruction.
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8.2 Registration Statements.
8.2.1 Centerprise has filed the Registration Statements with the SEC
and shall use all reasonable efforts to have the Registration Statements
declared effective by the SEC as promptly as practicable. Centerprise shall
also take any action required to be taken under applicable state "blue sky"
or securities laws in connection with the issuance of Centerprise Common
Stock. Centerprise and the Company shall promptly furnish to each other all
information, and take such other actions, as may reasonably be requested in
connection with making such filings. All information provided and to be
provided by Centerprise and the Company, respectively, for use in the
Registration Statements shall be true and correct in all material respects
without omission of any material fact which is required to make such
information not false or misleading as of the date thereof and in light of
the circumstances under which given or made. The Company agrees promptly to
advise Centerprise if at any time during the period in which a prospectus
relating to the offering or the Merger is required to be delivered under
the Securities Act, any information contained in the prospectus concerning
the Company or the Company Subsidiaries becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy or remedy such incompletion.
8.2.2 Centerprise agrees that it will provide to the Company and its
counsel copies of drafts of the Registration Statements (and any amendments
thereto) containing material changes to the information therein as they are
prepared and will not (i) file with the SEC, (ii) request the acceleration
of the effectiveness of or (iii) circulate any prospectus forming a part
of, the Registration Statements (or any amendment thereto) unless the
Company and its counsel (x) have had at least two days to review the
revised information contained therein (which changes shall be highlighted
by computer generated marks indicating the additions and deletions made
from the prior draft reviewed by the Company's counsel) and (y) have not
objected to the substance of the information contained therein. Any
objections posed by the Company or its counsel shall be in writing and
state with specificity the material in question, the reason for the
objection, and the Company's proposed alternative. If the objection is
founded upon a rule promulgated under the Securities Act, the objection
shall cite the rule. Notwithstanding the foregoing, during the five (5)
business days immediately preceding the date scheduled for the filing of
the Registration Statements and any amendment thereto, the Company and its
counsel shall be obligated to respond to proposed changes electronically
transmitted to them within two (2) hours from the time the proposed changes
(in the case of the initial filing of the Registration Statements, from the
last circulated draft of the Registration Statements; and, in the case of
any subsequent filing of the Registration Statements or any amendment
thereof, from the most recently filed Registration Statements or amendment
thereof) are transmitted to the Company's counsel; provided, that,
Centerprise has provided to the Company or its counsel reasonable advance
notice of such proposed changes; provided, further, that such changes are
highlighted by computer generated marks indicating the additions and
deletions made from the prior draft reviewed by the Company's counsel.
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8.2.3 Centerprise will advise the Member Representative of the
effectiveness of the Registration Statements, advise the Member Representative
of the entry of any stop order suspending the effectiveness of the Registration
Statements or the initiation of any proceeding for that purpose, and, if such
stop order shall be entered, use its best efforts promptly to obtain the lifting
or removal thereof. Upon the written request of the Company, Centerprise will
furnish to the Company a reasonable number of copies of the final prospectus
associated with the IPO.
8.3 Expenses and Fees. Centerprise shall pay the fees and expenses of the
independent public accountants and legal counsel to Centerprise and all filing,
printing and other reasonable, documented fees and expenses associated with the
IPO and Form S-4. The Company and its stockholders will not be liable for any
portion of the above expenses in the event the IPO is not completed. Centerprise
shall also pay the underwriting discounts and commissions payable in connection
with the sale of Centerprise Common Stock in the IPO. All other costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
8.4 Agreement to Cooperate. Subject to the terms and conditions herein
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
8.5 Public Statements. Except as may be required by law, no party hereto
nor any Affiliate of any party hereto shall issue any press release or any
written public statement with respect to this Agreement or the transactions
contemplated by this Agreement or the Other Agreements without the prior written
consent of Centerprise and the Company.
8.6 [Reserved]
8.7 Centerprise Covenants. After the date hereof and prior to the Closing
Date or earlier termination of this Agreement in accordance with its terms,
Centerprise shall comply in all material respects with all applicable Laws.
Centerprise shall not take any action that would or is reasonably likely to
result in any of the representations or warranties of Centerprise set forth in
this Agreement being untrue or in any of the conditions to the consummation of
the transactions contemplated hereunder set forth in Article X not being
satisfied.
8.8 Release of Guarantees. Centerprise shall use all commercially
reasonable efforts and good faith to have the Company's stockholders released
from any and all guarantees on any indebtedness and leases that they personally
guaranteed for the benefit of the Company as set forth on Schedule 8.8, with all
such guarantees on indebtedness and leases being assumed by Centerprise, if
necessary to achieve such releases. If any guaranteed indebtedness is repaid in
full with proceeds from the IPO and the Company's stockholders' guarantees
thereafter shall have no further force or effect, then Centerprise shall not be
obligated to use any efforts to obtain a release of such guarantee. In the event
that Centerprise cannot obtain such releases from the lenders of any such
guaranteed indebtedness or lessors of any guaranteed leases, Centerprise agrees
to
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indemnify, defend and hold harmless the Company's stockholders against any and
all claims made by lenders or landlords under such guarantees.
8.9 [Reserved]
8.10 Preparation and Filing of Tax Returns.
8.10.1 The Company shall be responsible for causing the timely
filing of the final pre-Closing Returns for the Company and the Company
Subsidiaries; provided, however, that Centerprise and its advisors shall
have the right to review and approve such returns prior to filing, which
approval shall not be unreasonably withheld. Centerprise shall, and shall
cause its Affiliates to, provide to the Company such cooperation and
information reasonably requested in filing any return, amended return or
claim for refund, determining a liability for Taxes or a right to refund of
Taxes or in conducting any audit or other proceeding in respect of Taxes.
The Company shall bear all costs of filing such returns.
8.10.2 Each of the Company and Centerprise shall comply with the tax
reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and shall treat the transaction as subject to
the provisions of Section 351 of the Code.
8.11 Maintenance of Insurance. The Company covenants and agrees that all
insurance policies listed, or required to be listed, on Schedule 4.20 will be
maintained in full force and effect through the Closing Date.
8.12 Administration. After the Closing, at the request of the Member
Representative, Centerprise shall, directly or through one or more of its
subsidiaries, administer and manage the collection of amounts referred to on
Schedule 7.1.4(ii) using reasonable care and in accordance with the Company's
policies in effect at Closing.
8.13 Member Representative. The Company appoints Charles H. Roscoe (the
"Member Representative") as its agent and representative with full power and
authority to agree, contest or settle any claim or dispute affecting the Company
made under Article II and to otherwise act on behalf of the Company and its
stockholders in accordance with the terms of this Agreement.
ARTICLE IX
[Reserved]
ARTICLE X
CLOSING CONDITIONS
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10.1 Conditions to Each Party's Obligation to Effect the Acquisition. The
respective obligations of each party to effect the Acquisition shall be subject
to the fulfillment at or prior to the Closing of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have been
executed and the closing of the sale of Centerprise Common Stock to the
Underwriters pursuant thereto shall have occurred simultaneously with the
Closing hereunder;
(b) the closings of the transactions contemplated under each of the
Other Agreements shall have occurred simultaneously with the Closing
hereunder, unless terminated in accordance with Section 7.3 of the
applicable Other Agreement;
(c) the Registration Statements shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect
and no proceeding for that purpose shall have been instituted by the SEC or
any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or decree
shall be pending before or issued by any federal or state court which seeks
to prevent or prevents the consummation of the IPO, the Acquisition or any
of the Other Acquisitions shall have been issued and remain in effect;
(e) the minimum price condition set forth on Schedule 2.1 shall have
been satisfied;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the
consummation of the Acquisition or any of the Other Acquisitions or make
the consummation of the Acquisition or any of the Other Acquisitions
illegal;
(g) all material governmental and third party waivers, consents and
approvals required for the consummation of the Acquisition or any of the
Other Acquisitions and the transactions contemplated hereby and by the
Other Agreements (including, without limitation, any consents listed on
Schedules 4.3.2 or 4.12) shall have been obtained and be in effect;
(h) no action, suit or proceeding with respect to the Acquisition has
been filed or threatened by a third party and remains threatened or remains
pending before any court, Governmental Authority or regulatory Person;
(i) this Agreement, the Merger and the transactions contemplated
hereby shall have been approved and adopted by the Company's stockholders
in the manner required
38
<PAGE>
by any applicable Law and the Company's Organizational Documents and such
approval shall remain in full force and effect;
(j) Centerprise shall have entered into one or more credit facilities
providing for aggregate commitments of not less than $75 million; and
(k) A separate entity shall have been formed to conduct the
Attestation Practice, and such entity shall have secured all licenses,
permits, approvals and authorizations necessary to conduct the Attestation
Practice in accordance with applicable laws and regulations.
10.2 Conditions to Obligation of the Company to Effect the Acquisition.
Unless waived by the Company, the obligation of the Company to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing of
the following additional conditions:
(a) Centerprise, Mergersub and each of the other Founding Companies
shall have performed in all material respects their respective agreements
contained in this Agreement and each Other Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of Centerprise contained in this Agreement and each Other
Agreement shall be true and correct in all material respects on and as of
the date made and on and as of the Closing Date as if made at and as of
such date, and the Company shall have received a certificate of the Chief
Executive Officer or President of Centerprise to that effect;
(b) no Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy
shall have promulgated or formally proposed any statute, rule or regulation
which, when taken together with all such promulgations, would materially
impair the value to the Company of the Acquisition;
(c) the Company shall have received an opinion from Katten Muchin &
Zavis, dated as of the Closing Date, containing the substantive opinions
set forth in Exhibit 10.2(c), the final form of such opinion to be in form
and substance reasonably acceptable to the Company;
(d) each of the members of Holdings shall have been afforded the
opportunity to enter into an incentive compensation agreement (the
"Incentive Compensation Agreement") with Centerprise substantially in the
form attached hereto as Exhibit 10.2(d);
(e) Centerprise shall have delivered to the Company a certificate,
dated as of a date no later than ten days prior to the Closing Date, duly
issued by the Delaware Secretary of State, showing that Centerprise is in
good standing;
(f) each of the members of Holdings, the partners, members and
stockholders of the other Founding Companies who are to receive shares of
Centerprise Common Stock pursuant to the Other Agreements, and the other
stockholders of Centerprise other than
39
<PAGE>
those acquiring stock in the IPO shall have entered into an agreement (the
"Stockholders Agreement") substantially in the form attached hereto as
Exhibit 10.2(f);
(g) all conditions to the Acquisitions of the other Founding
Companies, on substantially the same terms as provided herein, shall have
been satisfied or waived by the applicable party and the Company;
(h) the Company shall have been afforded the opportunity to review
the executed employment agreement by and between Centerprise and Robert C.
Basten; and
(i) the Company shall have received an opinion of Katten Muchin &
Zavis, dated as of the Closing Date and based upon certain factual
representations and assumptions, that for federal income tax purposes there
will be no gain or loss recognized with respect to the Centerprise Common
Stock received in exchange for Company Stock in the Merger pursuant to
Section 351 of the Code, the final form of such opinion to be in form and
substance reasonably acceptable to the Company.
10.3 Conditions to Obligation of Centerprise to Effect the Acquisition.
Unless waived by Centerprise, the obligation of Centerprise and Mergersub to
effect the Acquisition shall be subject to the fulfillment at or prior to the
Closing of the additional following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects on and as of the date made and on and as of the Closing Date as if
made at and as of such date, and Centerprise and the Underwriters shall
have received a Certificate of the Chief Executive Officer or President of
the Company to that effect;
(b) [Reserved];
(c) Centerprise and the Underwriters shall have received an opinion
from Jensen Baird Gardner & Henry, counsel to the Company, dated the
Closing Date, in the form attached hereto as Exhibit 10.3(c), the final
form of such opinion to be in form and substance reasonably acceptable to
the Underwriters and Centerprise;
(d) the Company and the other parties thereto, as applicable, shall
have executed and delivered the Separate Practice Agreement substantially
in the form attached hereto as Exhibit 10.3(d)(A) and the Services
Agreement substantially in the form attached hereto as Exhibit 10.3(d)(B);
(e) each member of Holdings shall have executed and delivered the
Incentive Compensation Agreement substantially in the form attached hereto
as Exhibit 10.2(d);
40
<PAGE>
(f) Centerprise and the Underwriters shall have received "Comfort"
letters in customary form from the Company's independent public
accountants, dated the effective date of the Form S-1 and the Closing Date
(or such other date reasonably acceptable to Centerprise), with respect to
certain financial statements and other financial information included in
the Form S-1 and any subsequent changes in specified balance sheet and
income statement items, including total assets, working capital, total
stockholders' equity, total revenues and the total and per share amounts of
net income;
(g) the Company shall have delivered to Centerprise and the
Underwriters a certificate, dated as of a date no later than ten days prior
to the Closing Date, duly issued by the appropriate Governmental Authority
in the state of organization of the Company and each Company Subsidiary
and, unless waived by Centerprise, in each state in which the Company or
any Company Subsidiary is authorized to do business, showing the Company or
Company Subsidiary (as applicable) is in good standing;
(h) no Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy
shall have promulgated or formally proposed any statute, rule or regulation
which, when taken together with all such promulgations, would materially
impair the value to Centerprise of the Acquisition;
(i) the members of Holdings shall have executed the Stockholders
Agreement;
(j) the Company's stockholders and the members of Holdings shall have
delivered to Centerprise an instrument in the form attached hereto as
Exhibit 10.3(j), dated the Closing Date, releasing the Company and the
Company Subsidiaries from any and all claims of such persons against the
Company and the Company Subsidiaries and obligations of the Company and the
Company Subsidiaries to such persons;
(k) all documents relating to the sale, distribution, transfer,
assignment and novation of Excluded Assets and Excluded Liabilities shall
be in form and substance satisfactory to Centerprise;
(l) the Company shall have presented evidence satisfactory to
Centerprise of its compliance with the provisions of Section 7.1.4 hereof,
including, without limitation, that as of the Closing the amount of debt of
the Company and the Company Subsidiaries shall not exceed the amount
reflected on Schedule 2.1 as Debt Assumed By Centerprise;
(m) the Company shall have terminated or have caused the termination
of any voting trusts, proxies or other agreements or understandings to
which the Company is a party or is bound with respect to any shares of
capital stock or other equity interests of the Company and the Company
Subsidiaries and shall have provided Centerprise evidence of such
termination that is acceptable to Centerprise's counsel;
41
<PAGE>
(n) the Company shall have completed the Conversion and have
presented evidence of such conversion in accordance with Section 7.5;
(o) the Company shall have become the sole member of BDM&P Decision
Development LLC on terms and conditions acceptable to Centerprise;
(p) the Company shall have delivered payoff letters including a
statement of per diem interest amounts and other applicable release
documents from all institutional lenders and creditors of the Company and
the Company Subsidiaries regarding the payment in full of indebtedness at
Closing, in each case in form and substance satisfactory to Centerprise
(including, without limitation, applicable UCC-3 termination statements);
(q) the secretary of the Company shall have delivered certified
copies of the resolutions of the board of directors and shareholders of the
Company approving execution and delivery of this Agreement, the Conversion,
the Merger and the other actions, agreements and documents, necessary or
desirable to complete the transactions contemplated herein; and
(r) the Company's stockholders (including the members of Holdings)
shall have executed and delivered the Company Stockholder Agreement in the
form of Exhibit 10.3(r) attached hereto.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date:
(a) pursuant to Section 7.3;
(b) by the Company,
(i) if the Acquisition is not completed by November 15, 1999
other than on account of delay or default on the part of the Company
or any of its affiliates or associates;
(ii) if the Acquisition is enjoined by a final, unappealable
court order not entered at the request or with the support of the
Company or any of its affiliates or associates;
(iii) if Centerprise (A) fails to perform in any material respect
any of its material covenants in this Agreement and (B) does not cure
such default in all
42
<PAGE>
material respects within thirty (30) days after written notice of such
default is given to Centerprise; or
(c) by Centerprise,
(i) if the Acquisition is not completed by November 15, 1999
other than on account of delay or default on the part of Centerprise
or any of its stockholders or any of their affiliates or associates;
(ii) if the Acquisition is enjoined by a final, unappealable
court order not entered at the request or with the support of
Centerprise or any of its stockholders or any of their affiliates or
associates;
(iii) if the Company (A) fails to perform in any material respect
any of its material covenants in this Agreement and (B) does not cure
such default in all material respects within thirty (30) days after
written notice of such default is given to the Company by Centerprise;
or
(d) by mutual consent of the Company and the Board of Directors of
Centerprise.
11.2 Effect of Termination. In the event of termination of this Agreement
by either Centerprise or the Company, as provided in Section 11.1, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of the Company, Centerprise, Mergersub or their respective officers
or directors (except the obligations set forth in this Section 11.2 and in
Sections 8.1, 8.3, and 8.5, all of which shall survive the termination). Nothing
in this Section 11.2 shall relieve any party from liability for any breach of
this Agreement.
11.3 Amendment. This Agreement may not be amended except by action taken by
the Boards of Directors of Centerprise and the Company or duly authorized
committees thereof and then only by an instrument in writing signed on behalf of
each of the parties hereto and in compliance with applicable law. Centerprise
covenants and agrees that it shall not amend, modify or supplement the material
terms of any Other Agreement following the Closing without the prior written
consent of at least two thirds (2/3rds) of the members of Centerprise's Board of
Directors; provided that no waiver of any restriction set forth in Article XII
shall be of any effect unless consented to by a majority of the members of
Centerprise's Board of Directors who do not at the time of such proposed waiver
hold Restricted Shares within the meaning of this Agreement, any Other Agreement
or the Stockholders Agreement.
11.4 Waiver. At any time prior to the Closing Date, the parties hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant thereto
and (c) waive compliance with any of the agreements or conditions
43
<PAGE>
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE XII
[Reserved]
ARTICLE XII
[Reserved]
ARTICLE XIV
[Reserved]
ARTICLE XV
GENERAL PROVISIONS
15.1 Brokers. The Company represents and warrants that no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee (except
for any fee described in Schedule 15.1) or commission in connection with the
Acquisition or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. Centerprise represents and
warrants that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
Acquisition or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Centerprise or its stockholders (other than
underwriting discounts and commission to be paid in connection with the IPO).
15.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
given in accordance with this Section):
15.2.1 If to Centerprise or Mergersub, to:
Centerprise Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert Basten
44
<PAGE>
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
15.2.2 If to the Company, to:
c/o Berry, Dunn, McNeil & Parker, Chartered
100 Middle Street
Portland, Maine 04104
Attn: Charles Roscoe
Facsimile No.: (207) 774-2375
with a copy to:
Jensen Baird Gardner & Henry
10 Free Street
P.O. Box 4510
Portland, Maine 04112
Attn: Frank Frye
Facsimile No.: (207) 775-7935
15.2.3 If to the Member Representative, to:
Charles H. Roscoe
Berry, Dunn, McNeil & Parker, Chartered
100 Middle Street
Portland, Maine 04104
Facsimile No.: (207) 774-2375
15.3 Interpretation. The table of contents and headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
15.4 Certain Definitions. As used in this Agreement, (i) the term
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated association,
45
<PAGE>
corporation, entity, firm, association, organization or other business in any
form whatsoever or government (whether Federal, state, county, city or
otherwise, including, without limitation, any instrumentality, division, agency
or department thereof), (ii) the term "Affiliate" shall have the meaning given
for that term in Rule 405 under the Securities Act, and shall include each past
and present Affiliate of a Person and the members of such Affiliate's immediate
family or their spouses or children and any trust the beneficiaries of which are
such individuals or relatives, and (iii) an individual will be deemed to have
"Knowledge" of a particular fact or other matter if: (a) such individual is
actually aware of such fact or matter, or (b) a prudent individual could be
expected to discover or otherwise become aware of such fact or other matter in
the course of conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter and a prudent individual would conduct
such investigation; a Person, other than an individual, will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is a
partner, member or shareholder of such Person or who is otherwise serving, or
who has served, as a director, officer, or trustee (or any capacity) of such
Person has, or at any time had, Knowledge of such fact or other matter.
15.5 Entire Agreement; Assignment. This Agreement (including the documents
and instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof and
(b) shall not be assigned by operation of law or otherwise, except that
Centerprise may assign this Agreement to any wholly-owned subsidiary of
Centerprise.
15.6 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Illinois applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
15.7 Counterparts. This Agreement may be executed via facsimile or
otherwise in two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
15.8 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and their respective successors,
permitted assigns, heirs, legal representatives and executors and except as
expressly set forth in herein, nothing in this Agreement, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
CENTERPRISE ADVISORS, INC.
By: /s/ Robert C. Basten
------------------------------------------
Name:
----------------------------------------
<PAGE>
Its:
-----------------------------------------
BERRY DUNN MERGERSUB INC.
By: /s/ Robert C. Basten
------------------------------------------
Name:
----------------------------------------
Its:
-----------------------------------------
BERRY, DUNN, McNEIL & PARKER, CHARTERED
By: /s/ Charles H. Roscoe
------------------------------------------
Name:
----------------------------------------
Its:
-----------------------------------------
<PAGE>
Exhibit 2.40
------------------------------
AMENDED AND RESTATED
MERGER AGREEMENT
by and among
CENTERPRISE ADVISORS, INC.,
UKW MERGERSUB INC.,
and
URBACH, KAHN & WERLIN, P.C.
September 24, 1999
------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
THE MERGER.........................................................2
1.1 The Merger...........................................2
1.2 Effects of the Merger................................2
1.3 Directors and Officers of the Surviving
Corporation..........................................3
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT................................3
2.1 Merger Consideration.................................3
2.1.1 Basic Purchase Consideration...................3
2.1.2 Treasury Stock.................................3
2.1.3 Dissenters.....................................3
2.1.4 Conversion of Mergersub Stock..................4
2.1.5 Exchange of Certificates.......................4
2.2 Post-Closing Adjustments to Basic Purchase
Consideration........................................4
2.2.1 Adjustments for Net Working Capital
Shortfall/Excess...............................4
2.2.2 Preliminary Balance Sheet and Adjustment.......4
2.2.3 Interim Adjustment.............................4
2.2.4 Final Adjustment...............................4
2.2.5 Disputes.......................................5
2.2.6 Payment of Adjustments.........................5
2.3 Post-Closing Management of AR........................5
2.4 Assignment of Uncollected AR.........................6
2.5 Definitions..........................................6
ARTICLE III
THE CLOSING AND CONSUMMATION DATE..................................7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................7
4.1 Organization and Qualification.......................7
4.2 Company Subsidiaries.................................7
4.3 Authority; Non-Contravention; Approvals..............8
4.4 Capitalization.......................................9
4.5 Year 2000...........................................10
4.6 Financial Statements................................10
4.7 Absence of Undisclosed Liabilities..................10
(i)
<PAGE>
Page
----
4.8 Unbilled Fees and Expenses..........................11
4.9 Absence of Certain Changes or Events................11
4.10 Litigation..........................................13
4.11 Compliance with Applicable Laws.....................14
4.12 Licenses............................................14
4.13 Material Contracts..................................15
4.14 Properties..........................................17
4.15 Intellectual Property...............................19
4.16 Taxes...............................................19
4.17 Employee Benefit Plans; ERISA.......................20
4.18 Labor Matters.......................................22
4.19 Environmental Matters...............................23
4.20 Insurance...........................................23
4.21 Interest in Customers and Suppliers; Affiliate
Transactions........................................24
4.22 Business Relationships..............................24
4.23 Compensation........................................24
4.24 Bank Accounts.......................................25
4.25 Professional Credentials............................25
4.26 Disclosure; No Misrepresentation....................25
ARTICLE V
[RESERVED]........................................................25
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE.....................25
6.1 Organization And Qualification......................25
6.2 Capitalization......................................26
6.3 No Subsidiaries.....................................26
6.4 Authority; Non-Contravention; Approvals.............27
6.5 Absence of Undisclosed Liabilities..................28
6.6 Litigation..........................................28
6.7 Compliance with Applicable Laws.....................28
6.8 No Misrepresentation................................28
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS.................................29
7.1 Conduct of Business by the Company Prior to the
Effective Time......................................29
7.2 No-Shop.............................................31
7.3 Schedules...........................................32
7.4 Company Stockholders Meeting........................33
(ii)
<PAGE>
Page
----
7.5 Conversion..........................................33
ARTICLE VIII
ADDITIONAL AGREEMENTS.............................................33
8.1 Access to Information...............................33
8.2 Registration Statements.............................34
8.3 Expenses and Fees...................................35
8.4 Agreement to Cooperate..............................35
8.5 Public Statements...................................36
8.7 Centerprise Covenants. ............................36
8.8 Release of Guarantees...............................36
8.9 [Reserved]..........................................36
8.10 Preparation and Filing of Tax Returns...............36
8.11 Maintenance of Insurance............................37
8.12 Administration......................................37
8.13 ....................................................37
ARTICLE IX
[RESERVED]........................................................37
ARTICLE X
CLOSING CONDITIONS................................................37
10.1 Conditions to Each Party's Obligation to Effect
the Merger..........................................37
10.2 Conditions to Obligation of the Company to Effect
the Merger..........................................38
10.3 Conditions to Obligation of Centerprise to Effect
the Merger..........................................39
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER.................................42
11.1 Termination.........................................42
11.2 Effect of Termination...............................43
11.3 Amendment...........................................43
11.4 Waiver..............................................43
ARTICLE XII
[RESERVED]........................................................43
(iii)
<PAGE>
Page
----
ARTICLE XIII
[RESERVED]........................................................44
ARTICLE XIV
[RESERVED]........................................................44
ARTICLE XV
GENERAL PROVISIONS................................................44
15.1 Brokers.............................................44
15.2 Notices.............................................44
15.3 Interpretation......................................45
15.4 Certain Definitions.................................45
15.5 Entire Agreement; Assignment........................46
15.6 Applicable Law......................................46
15.7 Counterparts........................................46
15.8 Parties in Interest.................................46
(iv)
<PAGE>
LIST OF SCHEDULES
-----------------
Schedule 2.1 Consideration
Schedule 2.5 Net Working Capital Adjustment Items
Schedule 4.2 Company Subsidiaries
Schedule 4.3.2 Required Consents
Schedule 4.4 Capitalization
Schedule 4.7 Liabilities
Schedule 4.9 Certain Changes and Events
Schedule 4.10 Litigation
Schedule 4.11 Noncompliance with Applicable Laws
Schedule 4.12 Licenses and Permits
Schedule 4.13 Material Contracts
Schedule 4.14.1-1 Real Property
Schedule 4.14.1-2(a) Exceptions Regarding Owned Property
Schedule 4.14.1-2(b) Exceptions Regarding Leased Property
Schedule 4.14.2 Tangible Personal Property; Liens
Schedule 4.15 Intellectual Property
Schedule 4.16.1-1 Taxes
Schedule 4.16.1-2 Tax Audits
Schedule 4.17.1 Employee Plans
Schedule 4.17.2 Unwritten Employee Plans
Schedule 4.18 Labor Matters
Schedule 4.19 Environmental Matters
(v)
<PAGE>
Schedule 4.20 Insurance
Schedule 4.21 Affiliate Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 6.2 Centerprise's Capitalization
Schedule 6.5 Liabilities
Schedule 7.1.4(i) Terminated Agreements
Schedule 7.1.4(ii) Excluded Assets
Schedule 8.8 Release of Guarantees
Schedule 15.1 Brokers
(vi)
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit 10.2(c) Form of Opinion of Centerprise's Counsel
Exhibit 10.2(d) Form of Incentive Compensation Agreement
Exhibit 10.2(f) Form of Stockholders Agreement
Exhibit 10.3(c) Form of Opinion of Counsel to the Company
Exhibit 10.3(d)(A) Form of Separate Practice Agreement
Exhibit 10.3(d)(B) Form of Services Agreement
Exhibit 10.3(j) Form of Release
Exhibit 10.3(k)(1) Form of LSAG Purchase Agreement
Exhibit 10.3(k)(2) Form of Word Purchase Agreement
Exhibit 10.3(m) Form of Conversion Merger Agreement
Exhibit 10.3(s) Form of Company Stockholder Agreement
(vii)
<PAGE>
DEFINED TERMS
-------------
Accounting Licenses.............................................Section 4.12
Actions.......................................................Section 4.10.1
Affiliate.......................................................Section 15.4
Affiliate Transactions..........................................Section 4.21
Agreement.......................................................Introduction
AR............................................................Section 2.5(a)
Arbitrator.....................................................Section 2.2.5
Attestation Practice............................................Introduction
Basic Purchase Consideration...................................Section 2.1.1
Business........................................................Introduction
Cash Consideration.............................................Section 2.1.1
Centerprise.....................................................Introduction
Centerprise Accountants........................................Section 2.2.2
Centerprise Common Stock.......................................Section 2.1.1
Centerprise Material Adverse Effect............................Section 6.4.3
Centerprise Representatives....................................Section 8.1.1
Centerprise Required Statutory Approvals.......................Section 6.4.3
Closing..........................................................Article III
Closing Balance Sheet..........................................Section 2.2.2
Closing Date.....................................................Article III
Code............................................................Introduction
Company.........................................................Introduction
Company Material Adverse Effect................................Section 4.3.3
Company Representatives........................................Section 8.1.1
(viii)
<PAGE>
Company Stock..................................................Section 2.1.1
Company Stockholder Agreement................................Section 10.3(s)
Company Subsidiary(ies)..........................................Section 4.2
Contracts.......................................................Section 4.13
Conversion..................................................... Introduction
Copyrights......................................................Section 4.15
DGCL.............................................................Section 1.1
Disputed Item..................................................Section 2.2.5
Dissenting Shares..............................................Section 2.1.3
Effective Time...................................................Section 1.1
Employee Plan..............................................Section 4.17.5(a)
Environmental and Safety Requirements...........................Section 4.19
ERISA......................................................Section 4.17.5(b)
Excluded Assets................................................Section 7.1.4
Excluded Liabilities...........................................Section 7.1.4
Final Adjustment...............................................Section 2.2.4
Financial Statements.............................................Section 4.6
First Person...............................................Section 4.17.5(c)
Form S-1.......................................................Section 4.3.3
Form S-4.......................................................Section 4.3.3
Founding Companies..............................................Introduction
GAAP.............................................................Section 4.6
general increase................................................Section 4.23
Governmental Authority.........................................Section 4.3.2
Hazardous Materials.............................................Section 4.19
(ix)
<PAGE>
herein..........................................................Section 15.3
hereof..........................................................Section 15.3
hereunder.......................................................Section 15.3
HSR Act........................................................Section 4.3.3
Incentive Compensation Agreement.............................Section 10.2(d)
Intellectual Property...........................................Section 4.15
Intellectual Property Licenses..................................Section 4.15
Interim Adjustment.............................................Section 2.2.3
IPO.............................................................Introduction
Knowledge.......................................................Section 15.4
Latest Balance Sheet.............................................Section 4.6
Laws............................................................Section 4.11
Leased Property...............................................Section 4.14.1
Licenses........................................................Section 4.12
Lien(s)........................................................Section 4.3.2
Liquidated Damages Amount........................................Section 7.3
LSAG.........................................................Section 10.3(k)
Management......................................................Introduction
Marks...........................................................Section 4.15
Mass PC.........................................................Introduction
Material Contracts..............................................Section 4.13
MBCL.............................................................Section 1.1
Member Representative...........................................Section 8.13
Merger..........................................................Introduction
Merger Documents.................................................Section 1.1
(x)
<PAGE>
Mergersub.......................................................Introduction
Mergersub Stock................................................Section 2.1.4
Net Working Capital...........................................Section 2.5(b)
1933 Act.......................................................Section 4.3.3
Organizational Documents.........................................Section 4.1
Other Agreements................................................Introduction
Other Mergers...................................................Introduction
Owned Property................................................Section 4.14.1
Patents.........................................................Section 4.15
Person..........................................................Section 15.4
Plan Affiliate.............................................Section 4.17.5(c)
Real Property.................................................Section 4.14.1
Registration Statements........................................Section 4.3.3
Resolution Period..............................................Section 2.2.5
Returns.......................................................Section 4.16.1
Schedules........................................................Section 7.3
SEC............................................................Section 4.3.3
Securities Act.................................................Section 4.3.3
Special Bonus Plan............................................Section 2.5(c)
Stock Consideration............................................Section 2.1.1
Stockholders Agreement.......................................Section 10.2(f)
Surviving Corporation............................................Section 1.2
Target........................................................Section 2.5(d)
Tax Accrual...................................................Section 2.5(e)
Taxes.........................................................Section 4.16.2
(xi)
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Territory....................................................Section 13.1(a)
Trade Secrets...................................................Section 4.15
Underwriters...................................................Section 8.1.1
Word.........................................................Section 10.3(k)
(xii)
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AMENDED AND RESTATED
MERGER AGREEMENT
THIS AMENDED AND RESTATED MERGER AGREEMENT (this "Agreement") is made as of
September 24, 1999, by and among Centerprise Advisors, Inc., a Delaware
corporation ("Centerprise"), UKW Mergersub Inc., a Delaware corporation and
wholly-owned subsidiary of Centerprise ("Mergersub"), and Urbach, Kahn & Werlin,
P.C., a New York professional corporation (together with its permitted
successors and assigns, the "Company").
WITNESSETH:
WHEREAS, the Company engages directly, and indirectly through the Company
Subsidiaries, in the business of providing accounting, tax and other related
services (such business provided by the Company is referred to as the
"Business");
WHEREAS, prior to, and in anticipation of, completion of the transactions
contemplated hereby (a) the Company will cease to provide services related to
the practice of accounting that, pursuant to applicable laws and regulations,
may only be conducted by certified public accountants (the "Attestation
Practice") and (b) the Company will be converted from a professional corporation
to a business corporation by merging with Urbach, Kahn & Werlin, P.C., a
Massachusetts professional corporation ("Mass PC"), with Mass PC surviving and
amending its Organizational Documents (as defined in Section 4.1) such that it
converts to a business corporation (the "Conversion");
WHEREAS, upon completion of the Conversion and prior to the transactions
contemplated hereby, UKW Management LLC, a Delaware limited liability company
("Management"), will acquire all of the issued and outstanding capital stock of
the Company from the Company's stockholders in exchange for issuing such
stockholders proportional membership interests in Management;
WHEREAS, the Boards of Directors of the Company, Centerprise and Mergersub
deem it advisable and in the best interests of their respective shareholders to
approve and consummate the business combination transactions provided herein in
which Mergersub would merge with and into the Company, with the Company being
the surviving corporation in the merger (the "Merger");
WHEREAS, the Voting Agreement, dated as of March 31, 1999, among
Centerprise and certain of the stockholders of the Company has been terminated
and is no longer in force and effect;
WHEREAS, Centerprise is entering into other agreements (the "Other
Agreements") substantially similar to this Agreement with each of Reznick Fedder
& Silverman, P.C., Robert F. Driver Company, Inc., Mann Frankfort Stein & Lipp,
P.C., The Reppond Company, Inc., Reppond Administrators, LLC, Verasource Excess
Risk Ltd., Berry, Dunn, McNeil & Parker,
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Chartered, Self Funded Benefits, Inc. d/b/a Insurance Design Administrators,
Grace & Company, P.C., Simione, Scillia, Larrow & Dowling LLC and Follmer
Rudzewicz & Co., P.C., (which companies together with the Company are
collectively referred to herein as the "Founding Companies"), which agreements
provide for the merger of a wholly-owned subsidiary of Centerprise with each
such Founding Company (the "Other Mergers") simultaneously with the Merger;
Centerprise has provided a side letter to each holder of equity interests of the
Company to such effect;
WHEREAS, simultaneously with the consummation of the Merger,
Centerprise will close an initial public offering (the "IPO") of Centerprise
Common Stock (as defined in Section 2.1.1); and
WHEREAS, the parties intend the acquisition of Centerprise Common Stock
pursuant to the terms hereof to be tax-free under the provisions of Section 351
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the
mutual representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement and in reliance upon the representations and warranties set
forth herein, Mergersub shall be merged with and into the Company, the result of
which will cause the separate corporate existence of Mergersub to cease and the
Company to continue under the laws of the Commonwealth of Massachusetts. As
promptly as possible on the Closing Date, the parties shall cause the Merger to
be completed by filing articles of merger and a certificate of merger, as
applicable (the "Merger Documents"), with the Secretary of State of the
Commonwealth of Massachusetts, as provided in the Massachusetts Business
Corporation Law, as amended (the "MBCL"), and with the Secretary of State of the
State of Delaware, as provided in the General Corporation Law of the State of
Delaware (the "DGCL"). The Merger shall become effective (the "Effective Time")
upon the filing of the Merger Documents with the Secretary of State of the
Commonwealth of Massachusetts and the Secretary of State of the State of
Delaware or at such later time, contemporaneously with the closing of the IPO,
as agreed by Centerprise and the Company and specified in the Merger Documents.
1.2 Effects of the Merger. At the Effective Time (i) the separate
existence of Mergersub shall cease and Mergersub shall be merged with and into
the Company, with the Company being the surviving corporation in the Merger (the
Company is sometimes referred to herein as the "Surviving Corporation"), (ii)
the Articles of Incorporation and By-laws of the
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Surviving Corporation shall be amended in form and substance acceptable to
Centerprise and as specified in the Merger Documents, (iii) the Merger shall
have all the effects provided by applicable law, and (iv) the Surviving
Corporation shall be a wholly-owned subsidiary of Centerprise.
1.3 Directors and Officers of the Surviving Corporation. From and after
the Effective Time, the directors and officers of Mergersub shall be the
directors and officers of the Surviving Corporation until their successors are
duly elected and qualified.
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2.1 Merger Consideration.
2.1.1 Basic Purchase Consideration. At the Closing, by virtue
of the Merger and without any action on the part of the holders thereof, the
outstanding shares of capital stock, consisting of 18,830 shares of common
stock, par value $0.01 per share, of the Company (the "Company Stock") shall be
converted into the right to receive: (a) that number of shares of Centerprise
common stock, par value $.01 per share (the "Centerprise Common Stock") shown on
line T of Schedule 2.1; provided, however, that if the initial public offering
price of the Centerprise Common Stock is below $11.90 per share, the number of
shares of Centerprise Common Stock received at the Closing shall be increased
such that the value of the shares, using the actual public offering price,
equals the amounts shown on line U of Schedule 2.1 (the "Stock Consideration")
and (b) the amount of cash shown on line S of Schedule 2.1 (the "Cash
Consideration"). The sum of the Cash Consideration and the Stock Consideration
is herein referred to as "Basic Purchase Consideration."
2.1.2 Treasury Stock. Each share of capital stock of the
Company held in treasury of the Company shall be canceled and retired and no
payment shall be made in respect thereof.
2.1.3 Dissenters. Each outstanding share of capital stock of
the Company held by a Person that has perfected the right to dissent under
applicable law and has not effectively withdrawn or lost such right as of the
Effective Time (the "Dissenting Shares") shall not be converted into the right
to receive Basic Purchase Consideration, and the holder thereof shall be
entitled only to such rights as are granted by applicable law. The Company shall
give Centerprise prompt notice upon receipt by the Company of any such written
demands for payment of fair value of shares of the Company Stock and any other
instruments provided pursuant to applicable law. Any payments made in respect of
Dissenting Shares shall be made by the Surviving Corporation.
2.1.4 Conversion of Mergersub Stock. At the Effective Time,
each share of the capital stock of Mergersub (the "Mergersub Stock") issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder
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thereof, be converted into and become one validly issued, fully paid and
non-assessable share of the Surviving Corporation. Such newly issued shares
shall thereafter constitute all of the issued and outstanding capital stock of
the Surviving Corporation.
2.1.5 Exchange of Certificates. At the Closing, Centerprise
shall receive the original Company Stock certificates, duly endorsed in blank by
the Company's stockholder(s) or accompanied by blank stock powers, in exchange
for the allocated share of (a) Centerprise Common Stock certificates
representing the Stock Consideration and (b) payment of the Cash Consideration
by certified check, cashier's check or wire transfer of immediately available
funds to a bank account or bank accounts in the amounts and manner specified by
the Company in a writing delivered to Centerprise at least three (3) business
days prior to the Closing Date. The shares represented by certificates for
Company Stock so delivered shall be canceled. Until surrendered as contemplated
by this Section 2.1.5, each certificate representing shares of Company Stock
represents only the right to receive Basic Purchase Consideration, as adjusted
in accordance with this Article II.
2.2 Post-Closing Adjustments to Basic Purchase Consideration.
2.2.1 Adjustments for Net Working Capital Shortfall/Excess.
The Basic Purchase Consideration shall be (a) reduced dollar-for-dollar
to the extent Net Working Capital on the Closing Date is less than the
Target or (b) increased dollar-for-dollar to the extent Net Working
Capital on the Closing Date is greater than the Target.
2.2.2 Preliminary Balance Sheet and Adjustment. At or about
the Closing, the Company will prepare, and the firm of
PricewaterhouseCoopers LLP (the "Centerprise Accountants") will review,
a balance sheet of the Company, as of the Closing Date, in accordance
with GAAP and consistent with the accounting policies and practices
used in connection with the preparation of the Financial Statements
(the "Closing Balance Sheet") along with a preliminary calculation of
any excess or shortfall of Net Working Capital as compared to the
Target.
2.2.3 Interim Adjustment. As soon as practicable, the Company
will prepare and deliver to Centerprise a revised calculation of Net
Working Capital reflecting all collections of AR up to the date 90 days
from the Closing Date. Within 10 days of receipt of such calculation,
Centerprise will deliver to the Member Representative a written report
indicating the amount and nature of any adjustment to the Basic
Purchase Consideration determined in accordance with Section 2.2.1 (the
"Interim Adjustment").
2.2.4 Final Adjustment. As soon as practicable, the Company
will prepare and deliver to Centerprise a final calculation of Net
Working Capital revised to reflect all collections of AR up to the date
180 days from the Closing Date. Centerprise will review such
calculation and any records, work papers and other documents related
thereto. Within 10 days of receipt of such calculation, Centerprise
will deliver to the Member Representative a written report indicating
the amount and nature of any adjustment to the
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Basic Purchase Consideration determined in accordance with Section
2.2.1 (the "Final Adjustment").
2.2.5 Disputes. The parties hereto shall not object to the
Interim Adjustment which shall be binding on the parties hereto, and
shall withhold all objections until delivery of the Final Adjustment
report. If the Member Representative does not object (or otherwise
respond) in writing to the Final Adjustment report within 30 days after
its delivery, the Final Adjustment shall automatically become final,
binding and conclusive on all parties hereto. Any objection to the
Final Adjustment report shall be in writing and shall specify the item
or items in dispute (each a "Disputed Item").
If the Member Representative and Centerprise are unable to
resolve any Disputed Item within 30 days after notice from the Member
Representative that a dispute exists (the "Resolution Period"), then a
representative from the office of a nationally recognized accounting
firm chosen by the Member Representative and Centerprise (the
"Arbitrator") will arbitrate the dispute. The Member Representative and
Centerprise shall, within 20 days after expiration of the Resolution
Period, present their respective positions with respect to any Disputed
Item to the Arbitrator together with such materials as the Arbitrator
deems appropriate. To the extent any Disputed Item is similar to a
disputed item under the Other Agreements, the Arbitrator shall
arbitrate the Disputed Item based on the submitted materials and
without regard to the disputed item under the Other Agreements. The
Arbitrator shall, after the submission of the materials, submit a
written decision on each Disputed Item to the Member Representative and
Centerprise and such determination shall be final and binding on the
parties hereto. The arbitration shall be conducted in Chicago,
Illinois. The parties hereto agree that the cost of the Arbitrator
shall be borne by the non-prevailing party or as determined by the
Arbitrator.
2.2.6 Payment of Adjustments. In the event Net Working Capital
is less than the Target, the Company's stockholders shall pay the
amount of the shortfall to Centerprise. In the event Net Working
Capital is greater than the Target, Centerprise shall pay the amount of
the excess to the Company's stockholders. Any payment required to be
made pursuant to this paragraph shall be made, within ten days of
delivery of the report indicating any adjustment, by wire transfer of
immediately available funds to an account designated in writing by the
party that is to receive payment of such adjustment. In respect of the
Final Adjustment, the party making a payment required by such
adjustment shall make such payment within ten days after the Final
Adjustment becomes final and shall receive credit for or return of any
amount previously paid in connection with the Interim Adjustment.
2.3 Post-Closing Management of AR. Following the Closing, the billing,
servicing, administering and collection of the AR shall be conducted by the
Company. The Company shall take all such actions as may be necessary or
advisable to collect the AR in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in accordance with the
Company's credit and collection policy in effect at Closing. The Company may
modify, adjust or write-off AR from time to time in accordance with the
Company's credit and collection policy
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in effect at Closing. Unless otherwise required by contract or law, payments by
an obligor in respect of services rendered or expenses advanced by the Company
shall be applied as follows: in the event any such payment specifically
references the invoice being paid or clearly relates to an outstanding invoice,
the payment will be applied to the corresponding invoice; and, in any other
case, the payment will be applied to satisfy AR relating to such obligor in the
order that such AR arose. Any adjustment, modification or write-off affecting AR
and fees and expenses receivable and unbilled fees and expenses of the Company
incurred after Closing with respect to the same client engagement shall be
allocated ratably to the pre-Closing and post-Closing periods.
2.4 Assignment of Uncollected AR. If any AR remain uncollected by the
Company as of 180 days after the Closing Date, the Company will assign the
uncollected AR to the Company's stockholders. Notwithstanding the foregoing, the
Company will retain the sole right to service, administer and collect the
uncollected AR in accordance with Section 2.3.
2.5 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) "AR" means any fees and expenses receivable and unbilled
fees and expenses of the Company on the Closing Date.
(b) "Net Working Capital" means an amount determined as of the
Closing Date, whenever calculated, equal to the difference between: (i)
the sum of any AR, prepaid expenses and other current assets less (ii)
the sum of accounts payable, accrued current liabilities, the items
listed on Schedule 2.5, the Tax Accrual and the portion of
employer-paid FICA attributable to Medicare, payable in connection with
deferred compensation and the Special Bonus Plan. For purposes of this
Section 2.5(b), the Special Bonus Plan accrual shall not constitute a
current liability.
(c) "Special Bonus Plan" means the Company's Special Bonus
Plan, dated March 1, 1999.
(d) "Target" means an amount equal to 1% of the Company's net
revenues for the four quarter period ending on the last day of the
calendar quarter prior to Closing.
(e) "Tax Accrual" means an amount equal to the product of (i)
Net Working Capital (calculated before deduction of the Tax Accrual)
less an amount equal to any tax deductions realized by Centerprise as a
result of any payments pursuant to the Special Bonus Plan and (ii) the
sum of 34% plus the effective state tax rate on the Company (net of any
federal tax benefit). A negative Tax Accrual shall be treated as a
current asset for purposes of Section 2.5(b)(i).
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ARTICLE III
THE CLOSING AND CONSUMMATION DATE
The consummation of the Merger and the other transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Katten
Muchin & Zavis, Chicago, Illinois, contemporaneously with the closing of the
IPO, or at such other time and date as the parties hereto may mutually agree
(the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Centerprise, as of March 31,
1999 and, subject to Section 7.3, as of the date on which Centerprise and the
lead Underwriter (as defined in Section 8.1.1) execute and deliver the
Underwriting Agreement related to the IPO and as of the Closing Date, as
follows:
4.1 Organization and Qualification. As of March 31, 1999 and until the
completion of the Conversion, the Company is a professional corporation duly
organized, validly existing and in good standing under the laws of the State of
New York. Following the Conversion, the Company will be a business corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. Each Company Subsidiary (as defined in Section
4.2) is duly organized, validly existing and in good standing under the laws of
the state of its organization set forth on Schedule 4.2. Each of the Company and
the Company Subsidiaries has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted, and is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary. True,
accurate and complete copies of the Company's and each Company Subsidiary's
Organizational Documents, in each case as in effect on March 31, 1999 have
heretofore been delivered to Centerprise. "Organizational Documents" means (a)
the articles or certificate of incorporation and the bylaws of a corporation
(professional or otherwise), (b) the partnership agreement and any statement of
partnership of a general partnership, (c) the limited partnership agreement and
the certificate of limited partnership of any limited partnership, (d) the
operating or limited liability company agreement and certificate of formation of
any limited liability company, (e) any charter or similar document adopted and
filed in connection with the creation, formation, organization or governance (as
applicable) of any Person and (f) any amendment to any of the foregoing.
4.2 Company Subsidiaries. Schedule 4.2 sets forth the name (including
any assumed names), jurisdiction of organization and ownership of the issued and
outstanding equity interests of each Person in which the Company owns, directly
or indirectly, securities or other interests having the power to elect a
majority of such Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of such Person
(each a
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"Company Subsidiary" and collectively, the "Company Subsidiaries"). Except as
set forth on Schedule 4.2, the Company does not, directly or indirectly, own, of
record or beneficially, or control any capital stock, securities convertible
into capital stock or any other equity interest in any Person.
4.3 Authority; Non-Contravention; Approvals.
4.3.1 The Company has full right, power and authority to enter
into this Agreement and, subject to the approval of the Merger and the
transactions contemplated hereby by the Company's stockholders, to
consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by the Company have been
duly authorized by all necessary corporate action on the part of the
Company, subject to the approval of the Merger and the transactions
contemplated hereby by the Company's stockholders. This Agreement has
been duly executed and delivered by the Company, and, assuming the due
authorization, execution and delivery hereof by Centerprise,
constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and (ii) general
equitable principles.
4.3.2 The execution and delivery of this Agreement by the
Company does not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in
the creation of any claim, lien, privilege, mortgage, charge,
hypothecation, assessment, security interest, pledge or other
encumbrance, conditional sales contract, equity charge, restriction, or
adverse claim of interest of any kind or nature whatsoever (each a
"Lien" and collectively, the "Liens"), upon any of the properties or
assets of the Company or any Company Subsidiary under, any of the
terms, conditions or provisions of (i) the Organizational Documents of
the Company or any Company Subsidiary, (ii) following completion of the
Conversion, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or
federal, state, provincial, local or foreign government, or any
subdivision, agency or authority of any thereof ("Governmental
Authority") applicable to the Company, any Company Subsidiary, or the
Business, properties or assets of the Company or any Company
Subsidiary, except for those items discussed in (ii) above relating to
regulating, licensing or permitting the practice of public accountancy,
or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which the Company or any Company
Subsidiary is a party or by which the Company, any Company Subsidiary
or any of the properties or assets of the Company or any Company
Subsidiary may be bound or affected. The consummation by the Company of
the transactions contemplated hereby will not result in a violation,
conflict, breach, right of termination, creation or acceleration of
Liens under the terms, conditions or provisions of the items described
in clauses (i) through (iii) of the immediately preceding sentence,
subject in the
8
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case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Closing Date) such
consents required from third parties set forth on Schedule 4.3.2 and
except for those items described in (ii) and (iii) above, relating to
regulating, licensing or permitting the practice of public accountancy
and any filing which may be required under the HSR Act.
4.3.3 Except for (i) the declaration of effectiveness of a
registration statement on Form S-1 (the "Form S-1") and a
post-effective amendment to the registration statement on Form S-4 (the
"Form S-4") (Form S-1 and Form S-4 are collectively the "Registration
Statements") with the Securities and Exchange Commission (the"SEC")
pursuant to the Securities Act of 1933, as amended (the "Securities
Act"or the "1933 Act"), and filings, if required, with various state
securities or "blue sky" authorities, (ii) any filing which may be
required under the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as amended (the "HSR Act"), and (iii) any filing which may be required
by any Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy,
no declaration, filing or registration with, notice to, or
authorization, consent or approval of, any Governmental Authority is
necessary for the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions
contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if
not made or obtained, as the case may be, would not, individually or in
the aggregate, have a "Company Material Adverse Effect," which, for
purposes of this Agreement means a material adverse effect on the
operations, assets, condition (financial or other), operating results,
employee or client relations, or prospects of the Company or any
Company Subsidiary.
4.4 Capitalization.
4.4.1 As of March 31,1999, the authorized capital stock of the
Company consists of 101,000 shares of common stock, par value $0.01 per
share, of which 18,830 shares are issued and outstanding. After the
Conversion, the authorized capital stock of the Company shall consist
of 20,000 shares of common stock, par value $0.01 per share, of which
18,830 shares shall be issued and outstanding. The authorized capital
stock of each of the Company Subsidiaries, if any, and the number of
such shares issued and outstanding is completely and accurately set
forth in Schedule 4.4. The Company stockholders own beneficially and of
record all of the issued and outstanding shares of Company Stock, which
shares constitute all of the outstanding shares of capital stock of the
Company. The Company owns all shares of the Company Subsidiaries as
indicated on Schedule 4.4, in each case free and clear of all Liens,
and the Company has good and marketable title to such shares of the
Company Subsidiaries. All of the issued and outstanding shares
described in this Section 4.4.1 are, or will be prior to the Closing,
validly issued, fully paid, nonassessable and free of preemptive
rights.
4.4.2 Except as set forth on Schedule 4.4 or in connection
with the Conversion, there are no outstanding subscriptions, options,
calls, contracts, commitments,
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undertakings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of the capital stock of
the Company or any Company Subsidiary or obligating the Company or any
Company Subsidiary to grant, extend or enter into any such agreement or
commitment or obligating the Company or any Company Subsidiary to
convey or transfer any Company Stock or Company Subsidiary stock, as
the case may be. As of the Closing Date, there will be no voting
trusts, proxies or other agreements or understandings to which the
Company or any Company Subsidiary is a party or is bound with respect
to the voting of any shares of capital stock or other equity interests
of the Company or any Company Subsidiary.
4.5 Year 2000. To the Knowledge of the Company, all of the computer
software, computer firmware, computer hardware (whether general or special
purpose), and other similar or related items of automated, computerized, and/or
software system(s) that are used or relied on by the Company or any Company
Subsidiary in the conduct of the Business will not malfunction, will not cease
to function, will not generate incorrect data, and will not produce incorrect
results when processing, providing, and/or receiving (i) date-related data into
and between the twentieth (20th) and twenty-first (21st) centuries and (ii)
date-related data in connection with any valid date in the twentieth (20th) and
twenty-first (21st) centuries, except for any malfunctions or generations of
incorrect data or results that would not individually or in the aggregate have a
Company Material Adverse Effect. Nothing in this Section 4.5 is intended or
shall be construed as a representation or warranty with respect to embedded
systems.
4.6 Financial Statements. The Company has previously furnished to
Centerprise copies of the audited consolidated balance sheet of the Company as
of October 31 in each of the years 1997 and 1998 and an unaudited consolidated
balance sheet of the Company for the three (3) month period ending January 31,
1999 (the "Latest Balance Sheet"), and the related audited consolidated
statements of income, stockholders' equity and cash flow for each of the years
in the three (3) year period ended October 31, 1998, including all notes
thereto, and related unaudited consolidated statements of income, stockholders'
equity and cash flow for the three month period ending January 31, 1999,
including all notes thereto (collectively, the "Financial Statements"). Each of
the Financial Statements is accurate and complete in all material respects, is
consistent with the books and records of the Company and the Company
Subsidiaries (which, in turn, are accurate and complete in all material
respects), and fairly presents in all material respects the financial condition,
assets and liabilities of the Company and the Company Subsidiaries as of its
date and the results of operations and cash flows for the periods related
thereto, in each case in accordance with generally accepted accounting
principles, applied on a consistent basis ("GAAP").
4.7 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
4.7, neither the Company nor any Company Subsidiary had, as of the date of the
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent clearly and accurately reflected or accrued or fully
reserved against in the Financial Statements or (ii) liabilities and obligations
which have arisen after the date of the Latest
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Balance Sheet in the ordinary course of business and consistent with past custom
and practices (none of which is a liability resulting from a breach of contract,
breach of warranty, tort, infringement claim, legal violation or lawsuit).
4.8 Unbilled Fees and Expenses. At the Closing, all unbilled fees and
expenses at net realizable value reflected in the records of the Company and the
Company Subsidiaries arose in the ordinary course of business and will be
billable in the ordinary course of business using normal billing practices and
adjustments employed as of the date of this Agreement by the Company and each
Company Subsidiary. Upon such billing any such amounts will be collectible in
the ordinary course of business using normal collection practices and policies
employed by the Company and each Company Subsidiary (net of any allowance for
doubtful accounts determined in accordance with the Company's and the Company
Subsidiaries' past practice and custom).
4.9 Absence of Certain Changes or Events. Except as set forth on
Schedule 4.9, since the date of the Latest Balance Sheet, each of the Company
and the Company Subsidiaries has conducted its business only in the ordinary
course consistent with past custom and practices. Except as set forth on
Schedule 4.9, since the date of the Latest Balance Sheet, there has not been
any:
(a) material adverse change in the operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee or client relations or prospects of the Company or any Company
Subsidiary;
(b) damage, destruction or loss of any property owned by the
Company or any Company Subsidiary, or used in the operation of the
Business, whether or not covered by insurance, having a replacement
cost or fair market value in excess of five percent (5%) of the amount
of net property, plant and equipment shown on the Latest Balance Sheet,
in the aggregate;
(c) voluntary or involuntary sale, transfer, surrender,
cancellation, abandonment, waiver, release or other disposition of any
kind by the Company or any Company Subsidiary of any right, power,
claim, or debt, except the collection of accounts and billing of
work-in-process, each in the ordinary course of business consistent
with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination or other labor dispute or similar occurrence that is
reasonably expected to adversely affect the Company, a Company
Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary
to any Person, other than as a result of services performed for, or
expenses properly and reasonably advanced for the benefit of, customers
in the ordinary course of business consistent with past custom and
practices;
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(f) notice (formal or otherwise) of any liability, potential
liability or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or
other distribution in respect of the Company's capital stock or other
equity interests or any direct or indirect redemption, purchase, or
other acquisition of the Company's or any Company Subsidiary's capital
stock or other equity interests, or the payment of principal or
interest on any note, bond, debt instrument or debt to any Affiliate
(as defined in Section 15.4) of the Company or any Company Subsidiary,
except bonuses and distributions to employees and stockholders of the
Company disclosed to Centerprise in writing that are consistent with
the Company's past custom and practices or as otherwise contemplated by
this Agreement;
(h) incurrence by the Company or any Company Subsidiary of
debts, liabilities or obligations except current liabilities incurred
in connection with or for services rendered or goods supplied in the
ordinary course of business consistent with past custom and practices,
liabilities on account of taxes and governmental charges (but not
penalties, interest or fines in respect thereof), and obligations or
liabilities incurred by virtue of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any
notes, bonds, or other debt securities or any equity securities or
securities convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or
amendment or termination of, any material commitment, contract,
agreement, or transaction, other than in the ordinary course of
business and other than expiration of contracts in accordance with
their terms;
(k) loss or threatened loss of, or any material reduction or
threatened material reduction in revenues from, any client of the
Company or any Company Subsidiary that accounted for revenues during
the last twelve months in excess of one percent (1%) of the
consolidated net revenues of the Company and the Company Subsidiaries,
or change in the relationship of the Company or any Company Subsidiary
with any client or Governmental Authority that is reasonably expected
to adversely affect the Company, any Company Subsidiary or the
Business;
(l) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or
amortization policies or rates) utilized by the Company or any Company
Subsidiary;
(m) discharge or satisfaction by the Company or any Company
Subsidiary of any material liability or encumbrance or payment by the
Company or any Company Subsidiary of any material obligation or
liability, other than current liabilities paid in the ordinary course
of its business consistent with past custom and practices;
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(n) sale, lease or other disposition by the Company or any
Company Subsidiary of any tangible assets (having an aggregate
replacement cost or fair market value in excess of five percent (5%) of
the amount of net property, plant and equipment shown on the Latest
Balance Sheet) other than in the ordinary course of business, or the
sale, assignment or transfer by the Company or any Company Subsidiary
of any trademarks, service marks, trade names, corporate names,
copyright registrations, trade secrets or other intangible assets, or
disclosure of any proprietary confidential information of the Company
or any Company Subsidiary to any Person other than an employee, agent,
attorney, accountant or other representative of the Company that has
agreed to maintain the confidentiality of any such proprietary
confidential information;
(o) capital expenditures or commitments therefor by the
Company or any Company Subsidiary in excess of $50,000 individually or
$100,000 in the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the
Company or any Company Subsidiary or creation of any easements, Liens
or other interests against or on any of the Real Property (as defined
in Section 4.14.1);
(q) adoption, amendment or termination of any Employee Plan
(as defined in Section 4.17.5(a)) or increase in the benefits provided
under any Employee Plan, or promise or commitment to undertake any of
the foregoing in the future; or
(r) an occurrence or event not included in clauses (a) through
(q) that has resulted or, based on information of which the Company has
Knowledge, is reasonably expected to result in a Company Material
Adverse Effect.
4.10 Litigation. Except as set forth on Schedule 4.10 (which shall
disclose the parties to, nature of and relief sought for each matter to be
disclosed on Schedule 4.10):
4.10.1 There is no suit, action, proceeding, investigation,
claim or order pending or, to the Knowledge of the Company, threatened
against the Company or any Company Subsidiary, or with respect to the
Merger, or with respect to any Employee Plan, or any fiduciary of any
such plan (or pending or, to the Knowledge of the Company, threatened
against any of the officers, directors, stockholders, members, partners
or employees of the Company or any Company Subsidiary with respect to
its business or proposed business activities), or to which the Company
or any Company Subsidiary is otherwise a party, or that is reasonably
expected to have a Company Material Adverse Effect, before any court,
or before any Governmental Authority (each an "Action" and
collectively, the "Actions"); nor, to the Knowledge of the Company, is
there any basis for any such Action.
4.10.2 Neither the Company nor any Company Subsidiary is
subject to any unsatisfied or continuing judgment, order or decree of
any court or Governmental Authority. Neither the Company nor any
Company Subsidiary, to the Knowledge of the Company, is otherwise
exposed, from a legal standpoint, to any liability or disadvantage that
is reasonably expected to result in a Company Material Adverse Effect,
and neither
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the Company nor any Company Subsidiary is a party to any legal action
to recover monies due it or for damages sustained by it, other than
collection of past due charges for services rendered or expenses
incurred by the Company.
4.10.3 Schedule 4.10 lists the insurer for each Action covered
by insurance or designates such Action, or a portion of such Action, as
uninsured and lists the individual and aggregate policy limits for the
insurance covering each insured Action and the applicable policy
deductibles for each insured Action.
4.10.4 Schedule 4.10 sets forth all material closed litigation
matters to which the Company or any Company Subsidiary was a party
during the five (5) year period preceding the Closing Date, the date
such litigation was commenced and concluded, and the nature of the
resolution thereof (including amounts paid in settlement or judgment).
4.11 Compliance with Applicable Laws. Except as set forth on Schedules
4.11 and 4.19, each of the Company and the Company Subsidiaries has complied in
all material respects with all laws, rules, regulations, writs, injunctions,
decrees, and orders (collectively, the "Laws") applicable to it or to the
operation of the Business, and neither the Company nor any Company Subsidiary
has received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of the Company, no event has occurred or circumstances exist that
(with or without notice or lapse of time) is reasonably expected to constitute
or result in a violation by the Company or any Company Subsidiary of any Law
that gives rise to any liability on the part of the Company or any Company
Subsidiary under any Law.
4.12 Licenses. Schedule 4.12 lists all Licenses used by the Company and
the Company Subsidiaries that are material to the conduct of the Business.
"Licenses" means all notifications, licenses, permits, franchises, certificates,
approvals, exemptions, classifications, registrations and other similar
documents and authorizations, and applications therefor, held by the Company or
any Company Subsidiary and issued by, or submitted by the Company or any Company
Subsidiary to, any Governmental Authority or other Person, other than those
relating to the practice of public accountancy. Section B of Schedule 4.12 lists
all licenses, certificates, approvals, registrations and other similar documents
and authorizations, and applications therefor, relating to the practice of
public accountancy (the "Accounting Licenses") held by the Company or a Company
Subsidiary and issued by, or submitted by the Company or any Company Subsidiary
to, any Governmental Authority or other Person. All such Licenses and Accounting
Licenses are valid, binding and in full force and effect. Except as described on
Schedule 4.12, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not adversely affect
any such Licenses. To the Knowledge of the Company, the Company and the Company
Subsidiaries have taken all necessary action to maintain such Licenses. Except
as set forth on Schedule 4.12, no loss or expiration of any such License is
pending or, to the Company's Knowledge, threatened or reasonably foreseeable.
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4.13 Material Contracts. Except as listed or described on Schedule 4.13
(such contracts, or those which should have been listed on Schedule 4.13, are
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments (each a
"Contract" and collectively, the "Contracts") relating to or in any way
affecting the operation or ownership of the Business that are of a type
described below and no such agreements are currently in negotiation or proposed:
(a) any consulting agreement pursuant to which the Company or
a Company Subsidiary is to receive consulting services (other than
consulting agreements that may be terminated by the Company or a
Company Subsidiary on not more than 30 days notice without penalty),
employment agreement, change-in-control agreement, or collective
bargaining arrangement with any labor union;
(b) any Contract for capital expenditures or the acquisition
or construction of fixed assets in excess of $50,000;
(c) any Contract for the purchase, maintenance or acquisition,
or the sale or furnishing, of materials, supplies, merchandise,
machinery, equipment, parts or other property or services (except if
such Contract is made in the ordinary course of business and requires
aggregate future payments of less than $25,000);
(d) any Contract, other than trade payables in the ordinary
course of business, relating to the borrowing of money, or the guaranty
of another Person's borrowing of money, including, without limitation,
any notes, mortgages, indentures and other obligations, guarantees of
performance, agreements and instruments for or relating to any lending
or borrowing, including assumed indebtedness;
(e) any Contract granting any Person a Lien on all or any part
of the assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions
in connection with Hazardous Materials (as defined in Section 4.19),
the remediation of any existing environmental liabilities or relating
to the performance of any environmental audit or study;
(g) any Contract granting to any Person an option, first
refusal, first-offer or similar preferential right to purchase or
acquire any material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative
which is not terminable by the Company or a Company Subsidiary upon
ninety (90) calendar days or less notice without penalty;
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(i) any Contract under which the Company or any Company
Subsidiary is (A) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property, or (B) a lessor of any
tangible personal property owned by the Company or any Company
Subsidiary, in either case having an original purchase price or
requiring aggregate lease payments in excess of $50,000;
(j) any Contract under which the Company or any Company
Subsidiary has granted or received a license or sublicense or under
which it is obligated to pay or has the right to receive a royalty,
license fee or similar payment, in any case which provides for payments
over the life of such Contract in excess of $25,000;
(k) any Contract concerning an Affiliate Transaction (as
defined in Section 4.21);
(l) any Contract providing for the indemnification or holding
harmless of any officer, director, employee or other Person;
(m) any Contract (A) for purchase or sale by the Company or
any Company Subsidiary of any real property on which the Company or any
Company Subsidiary conducts any aspect of the Business, (B) granting
any options to lease or purchase all or any portion of the Real
Property, or (C) providing for labor, services or materials to the Real
Property (including, without limitation, brokerage or management
services) involving aggregate future payments of more than $25,000;
(n) any Contract limiting, restricting or prohibiting the
Company or any Company Subsidiary from conducting business anywhere in
the United States or elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to
the Leased Property (as defined in Section 4.14.1);
(q) any Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the
Company or any Company Subsidiary, which, if amended, modified or
terminated as a result of, relating to or in connection with a failure
to provide prior notice, or gain such consent or approval, would result
in a Company Material Adverse Effect; or
(r) any other Contract, whether or not made in the ordinary
course of business, which involves future payments by the Company or
any Company Subsidiary in excess of $25,000.
The Company has provided Centerprise with a true and complete copy of
each written Material Contract and a true and complete summary of each oral
Material Contract, in each case
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including all amendments or other modifications thereto. Except as set forth on
Schedule 4.13, each Material Contract is a valid and binding obligation of, and
enforceable in accordance with its terms against, the Company or a Company
Subsidiary, as applicable, and, to the Knowledge of the Company, the other
parties thereto, and is in full force and effect, subject only to bankruptcy,
reorganization, receivership and other laws affecting creditors' rights
generally and equitable principles. Except as set forth on Schedule 4.13, the
Company or one of the Company Subsidiaries, as applicable, has performed in all
material respects all obligations required to be performed by it as of the date
hereof and will have performed in all material respects all obligations required
to be performed by it as of the Closing Date under each Material Contract and
neither the Company nor any Company Subsidiary, as applicable, nor, to the
Knowledge of the Company, any other party to any Material Contract is in breach
or default thereunder, and, to the Knowledge of the Company, there exists no
condition which would, with or without the lapse of time or the giving of
notice, or both, constitute a breach or default thereunder. The Company has not
been notified that any party to any Material Contract intends to cancel,
terminate, not renew, or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
4.14 Properties.
4.14.1 Schedule 4.14.1-1 is a correct and complete list, and a
brief description of, all real estate in which the Company or any of
the Company Subsidiaries has an ownership interest (the "Owned
Property") and all real property leased by the Company (the "Leased
Property"). Except as lessee of Leased Property, neither the Company
nor any Company Subsidiary is a lessee under or otherwise a party to
any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which another Person has granted to the
Company or any Company Subsidiary the right to use or occupy all or any
portion of any real property.
The Company or one or more of the Company Subsidiaries has
good and marketable fee simple title to the Owned Property and,
assuming good title in the landlord, a valid leasehold interest in the
Leased Property (the Owned Property and the Leased Property being
sometimes referred to herein as "Real Property"), in each case free and
clear of all Liens, assessments or restrictions (including, without
limitation, inchoate liens arising out of the provision of labor,
services or materials to any such real estate) other than (a) mortgages
shown on the Financial Statements as securing specified liabilities or
obligations, with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default) exists,
(b) Liens for current taxes not yet due, (c) (i) minor imperfections of
title, including utility and access easements depicted on subdivision
plats for platted lots that do not impair the intended use of the
property, if any, none of which materially impairs the current
operations of the Company, any Company Subsidiary or the Business, and
(ii) zoning laws and other land use restrictions or restrictive
covenants that do not materially impair the present use of the property
subject thereto and (d) Liens, assessments and restrictions pursuant to
and by virtue of the terms of the lease of the Leased Property. The
Real Property constitutes all real properties reflected on the
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Financial Statements or used or occupied by the Company or any Company
Subsidiary in connection with the Business or otherwise.
With respect to the Owned Property, except as reflected on
Schedule 4.14.1-2(a):
(a) the Company or one of the Company Subsidiaries is in
exclusive possession thereof and no easements, licenses or rights are
necessary to conduct the Business thereon in addition to those which
exist as of the date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority
materially adverse to the Owned Property and, to the Knowledge of the
Company, there is no threatened condemnation or proceeding with respect
thereto;
(c) there is no violation of any covenant, condition,
restriction, easement or agreement of any Governmental Authority that
affects the Owned Property or the ownership, operation, use or
occupancy thereof;
(d) no portion of any parcel of the Owned Property is subject
to any roll-back tax, dual or exempt valuation tax, and no portion of
any Owned Property is omitted from the appropriate tax rolls; and
(e) all assessments and taxes currently due and payable on
such Owned Property have been paid.
With respect to the Leased Property, except as reflected on Schedule
4.14.1-2(b):
(i) the Company and/or one of the Company
Subsidiaries is in exclusive, peaceful and undisturbed possession
thereof and, to the Knowledge of the Company, no easements, licenses or
rights are necessary to conduct the Business thereon in addition to
those which exist as of the date hereof; and
(ii) to the Knowledge of the Company, no portion
thereof is subject to any pending condemnation proceeding or proceeding
by any public or quasi-public authority materially adverse to the
Leased Property and there is no threatened condemnation or proceeding
with respect thereto.
4.14.2 The Latest Balance Sheet and/or Schedule 4.14.2 reflect
all material tangible personal property owned by the Company or any
Company Subsidiary, except as sold or otherwise disposed of or acquired
in the ordinary course of business. Except as set forth on Schedule
4.14.2, the Company or one of the Company Subsidiaries has good and
marketable title to, or a valid leasehold interest in, or valid license
of, such personal property (including, without limitation, machinery,
equipment and computers), in each case free and clear of any Liens
(other than Liens that are part of such leasehold or license), and each
such asset is in working order and has been maintained in a
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commercially reasonable manner and does not contain, to the Knowledge
of the Company, any material defect. Except as set forth in Schedule
4.14.2, no personal property (including, without limitation, software
and databases maintained on off-premises computers) used by the Company
or any Company Subsidiary in connection with the Business is held under
any lease, security agreement, conditional sales contract or other
title retention or security arrangement or is located other than on the
Real Property.
4.15 Intellectual Property. The (i) patents, patent applications,
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered trademarks, trade names, company names, assumed
business names and service marks (collectively, the "Marks"), (iii) copyrights
(the "Copyrights"), and (iv) know how, trade secrets, confidential information,
client lists, software, technical information, data, process technology, plans
and drawings (collectively, the "Trade Secrets") owned, used or licensed by the
Company or any Company Subsidiary (collectively, the "Intellectual Property")
are all those necessary to enable the Company and the Company Subsidiaries to
conduct and to continue to conduct the Business substantially as it is currently
conducted. Schedule 4.15 contains a complete and accurate list of all material
Patents, Marks and Copyrights and a brief description of all material Trade
Secrets owned, used by or directly licensed to the Company or any Company
Subsidiary, and a list of all material license agreements and arrangements with
respect to any of the Intellectual Property to which the Company or any Company
Subsidiary is a party, whether as licensee, licensor or otherwise (collectively,
the "Intellectual Property Licenses"). Except as set forth on Schedule 4.15, (i)
all of the Intellectual Property is owned or, to the Knowledge of the Company,
used under a valid Intellectual Property License, by the Company or one of the
Company Subsidiaries, and is free and clear of all Liens and other adverse
claims; (ii) neither the Company nor any Company Subsidiary has received any
written notice that it is or has infringed on, misappropriated or otherwise
conflicted with, or otherwise has Knowledge that it is infringing on,
misappropriating, or otherwise conflicting with the intellectual property rights
of any third parties; (iii) there is no claim pending or, to the Knowledge of
the Company, threatened against the Company or any Company Subsidiary with
respect to the alleged infringement or misappropriation by the Company or any
Company Subsidiary, or a conflict with, any intellectual property rights of
others; (iv) the operation of any aspect of the Business in the manner in which
it has heretofore been operated or is presently operated does not give rise to
any such infringement or misappropriation; and (v) there is no infringement or
misappropriation of the Intellectual Property by a third party or claim, pending
or, to the Knowledge of the Company, threatened, against any third party with
respect to the alleged infringement or misappropriation of the Intellectual
Property.
4.16 Taxes.
4.16.1 Except as set forth on Schedule 4.16.1-1, each of the
Company and the Company Subsidiaries has timely and accurately prepared
and filed or been included in or will timely and accurately prepare and
file or be included in all federal, state, local and foreign returns,
declarations and reports, information returns and statements
(collectively, the "Returns") for Taxes (as defined in Section 4.16.2)
required to be filed by or with respect to the Company or the Company
Subsidiaries before the Closing Date, and has paid
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or caused to be paid, or has made adequate provision or set up an
adequate accrual or reserve for the payment of, all Taxes required to
be paid in respect of the periods for which Returns are due on or prior
to the Closing Date, and will establish an adequate accrual or reserve
for the payment of all Taxes payable in respect of the period,
including portions thereof, subsequent to the last of said periods
required to be so accrued or reserved, in each case in accordance with
GAAP up to and including the Closing Date. All such Returns are or will
be true and correct in all material respects. The Company has delivered
to Centerprise true and complete copies of all Returns referred to in
the first sentence of this Section 4.16.1 (including any amendments
thereof) for the five (5) most recent taxable years. Neither the
Company nor any Company Subsidiary is delinquent in the payment of any
Tax, and no material deficiencies for any Tax, assessment or
governmental charge have been threatened, claimed, proposed or
assessed, in each case in writing. No waiver or extension of time to
assess any Taxes has been given or requested. No written claim, or any
other claim, by any taxing authority in any jurisdiction where the
Company or any Company Subsidiary does not file Tax returns is pending
pursuant to which the Company or Company Subsidiary, as applicable, is
or may be subject to taxation by that jurisdiction. The Company's and
the Company Subsidiaries' Returns were last audited by the Internal
Revenue Service or comparable state, local or foreign agencies on the
dates set forth on Schedule 4.16.1-2.
4.16.2 For purposes of this Agreement, the term "Taxes" shall
mean all taxes, charges, withholdings, fees, levies, penalties,
additions, interest or other assessments, including, without
limitation, income, gross receipts, excise, property, sales,
employment, withholding, social security, occupation, use, service,
service use, license, payroll, franchise, transfer and recording taxes,
fees and charges, windfall profits, severance, customs, import, export,
employment or similar taxes, charges, fees, levies or other
assessments, imposed by the United States, or any state, local, foreign
or provincial government or subdivision or any agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other
basis.
4.17 Employee Benefit Plans; ERISA.
4.17.1 Except as described in Schedule 4.17.1, neither the
Company nor any Company Subsidiary has or is reasonably expected to
have any liability (including contingent liability) whether direct or
indirect (and regardless of whether it would be derived from a current
or former Plan Affiliate, as defined in Section 4.17.5(c)) with respect
to any of the following (whether written, unwritten or terminated): (i)
any employee welfare benefit plan, as defined in Section 3(1) of ERISA
(as defined in Section 4.17.5(b)), including, but not limited to, any
medical plan, life insurance plan, short-term or long-term disability
plan or dental plan; (ii) any "employee pension benefit plan," as
defined in Section 3(2) of ERISA, including, but not limited to, any
excess benefit plan, top hat plan or deferred compensation plan or
arrangement, nonqualified retirement plan or arrangement, qualified
defined contribution or defined benefit arrangement; or (iii) any other
benefit plan, policy, program, arrangement or agreement, including, but
not limited to, any material fringe benefit plan or program, personnel
policy, bonus or incentive plan,
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stock option, restricted stock, stock bonus, holiday pay, vacation pay,
sick pay, bonus program, service award, moving expense, reimbursement
program, tool allowance, safety equipment allowance, deferred bonus
plan, salary reduction agreement, change-of-control agreement,
employment agreement or consulting agreement.
4.17.2 A complete copy of each written Employee Plan (as
defined in Section 4.17.5(a)) as amended to the Closing, together with
audited financial statements, if any, for the three (3) most recent
plan years; a copy of each trust agreement or other funding vehicle
with respect to each such plan; a copy of any and all determination
letters, rulings or notices issued by a Governmental Authority with
respect to such plan; a copy of the Form 5500 Annual Report for the
three (3) most recent plan years; and a copy of each and any general
explanation or communication which was required to be distributed or
otherwise provided to participants in such plan and which describes all
or any relevant aspect of each plan, including summary plan
descriptions and/or summary of material modifications, have been
delivered to Centerprise. A description of each unwritten Employee
Plan, including a description of eligibility, participation, benefits,
funding arrangements and assets or other relevant aspects of the
obligation, is set forth in Schedule 4.17.2.
4.17.3 Except as is not reasonably expected to give rise to
any liability (including contingent liability), whether direct or
indirect, to the Company or any Company Subsidiary, each Employee Plan
(i) has been and is operated and administered in compliance with its
terms; (ii) has been and is operated, administered, maintained and
funded in compliance with the applicable requirements of the Code in
such a manner as to qualify, where appropriate and intended, for both
Federal and state purposes, for income tax exclusions, tax-exempt
status, and the allowance of deductions and credits with respect to
contributions thereto; (iii) where appropriate, has received a
favorable determination letter from the Internal Revenue Service upon
which the sponsor of the plan may currently rely; (iv) has been and
currently complies in form and in operation in all respects with all
applicable requirements of ERISA and the Code and any applicable
reporting and disclosure requirements of Federal and state laws,
including but not limited to the requirement of Part 6 of subtitle B of
Title I of ERISA and Section 4980B of the Code. With respect to each
Employee Plan, no Person has: (i) entered into any nonexempt
"prohibited transaction," as such terms are defined in ERISA or the
Code; (ii) breached a fiduciary obligation or (iii) any liability for
any failure to act or comply in connection with the administration or
investment of the assets of such plan; and no Employee Plan has any
liability and there is no liability in connection with any Employee
Plan, other than a liability (i) which is expressly and adequately
reflected in the Latest Balance Sheets, (ii) which is discretionary or
terminable at will by the Company or one of the Company Subsidiaries
without incurring any such liability, or (iii) which is adequately
funded under a funding arrangement separate from the assets of the
Company, any Company Subsidiary or a Plan Affiliate (and only to the
extent of such funding). Any contribution made or accrued with respect
to any Employee Plan is fully deductible by the Company, a Company
Subsidiary or a Plan Affiliate.
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4.17.4 Neither the Company nor any Company Subsidiary or Plan
Affiliate has ever sponsored, maintained, contributed to or been
required to contribute to, or has any liability, whether direct or
indirect, with respect to any Employee Plan which is or has ever been
(i) a "multiemployer plan" as defined in Section 4001 of ERISA, (ii) a
"multi employer plan" within the meaning of Section 3(37) of ERISA,
(iii) a "multiple employer plan" within the meaning of Code Section
413(c), (iv) a "multiple employer welfare arrangement" within the
meaning of Section 3(40) of ERISA, (v) subject to the funding
requirements of Section 412 of the Code or to Title IV of ERISA, or
(vi) provides for post-retirement medical, life insurance or other
welfare-type benefits.
4.17.5 As used in this Agreement, the following terms shall
have the following respective meanings:
(a) the term "Employee Plan" shall mean any plan,
policy, program, arrangement or agreement described in Section
4.17.1, whether or not scheduled;
(b) the term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended; and
(c) with respect to any Person ("First Person"), the
term "Plan Affiliate" shall mean any other Person with whom
the First Person constitutes or has constituted all or part of
a controlled group, or which would be treated or have been
treated with the First Person as under common control or whose
employees would be or have been treated as employed by the
First Person, under Section 414 of the Code or Section 4001(b)
of ERISA and any regulations, administrative rulings and case
law interpreting the foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no,
and within the last three (3) years neither the Company nor any Company
Subsidiary has experienced any, strike, picketing, boycott, work stoppage or
slowdown or other similar labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor pending or,
to the Knowledge of the Company, threatened against the Company or any Company
Subsidiary, or that is reasonably expected to affect the Company or any Company
Subsidiary; nor, to the Knowledge of the Company, is there any basis for any
such allegation, charge, or complaint. There is no request for representation
pending and, to the Knowledge of the Company, no question concerning
representation has been raised. There is no grievance pending that is reasonably
expected to result in a Company Material Adverse Effect nor any arbitration
proceeding arising out of a union agreement. To the Knowledge of the Company, no
employee who is key to the Business and no group of employees has announced or
otherwise indicated any plans to terminate employment with the Company or any
Company Subsidiary. Each of the Company and any Company Subsidiary has complied
with all applicable laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes. Neither the
Company nor any Company Subsidiary is liable for
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any arrears of wages or any taxes or penalties for failure to comply with any
such laws, ordinances or regulations.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19,
(i) each of the Company and the Company Subsidiaries is operating and has
operated its business in compliance with all applicable Environmental and Safety
Requirements (as defined later in this Section); (ii) to the actual knowledge of
the Officers of the Company, without any duty to inquire (notwithstanding the
definition of "Knowledge" in Section 15.4), there are no Hazardous Materials (as
defined later in this Section) present at, on or under any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
(other than those present in office supplies and cleaning/maintenance materials)
for which the Company or a Company Subsidiary is or is reasonably expected to be
responsible, or otherwise have any liability, for response costs under any
Environmental and Safety Requirements; (iii) each of the Company and the Company
Subsidiaries has disposed of all waste materials generated by the Company or
such Company Subsidiary at any real property currently or formerly owned, leased
or used by the Company or Company Subsidiary in compliance with applicable
Environmental and Safety Requirements; and (iv) there are and have been no
facts, events, occurrences or conditions at or related to any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
that is reasonably expected to cause or give rise to liabilities or response
obligations of the Company or any Company Subsidiary under any Environmental and
Safety Requirements. The term "Environmental and Safety Requirements" means any
federal, state and local laws, statutes, regulations or other requirements
relating to the protection, preservation or conservation of the environment or
worker health and safety, all as amended or reauthorized. The term "Hazardous
Materials" means "hazardous substances," as defined by the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq., "hazardous wastes," as defined by the Resource Conservation Recovery
Act, 42 U.S.C. Section 6901 et seq., asbestos in any form or condition,
polychlorinated biphenyls and any other material, substance or waste to which
liability or standards of conduct may be imposed under any Environmental and
Safety Requirement.
4.20 Insurance. Each of the Company and the Company Subsidiaries has in
full force and effect commercially reasonable amounts of insurance to protect
the Company's and Company Subsidiaries' ownership or interest in, and operation
of, its assets against the types of liabilities, including professional
malpractice, customarily insured against in connection with operations similar
to the Business, and all premiums due on such policies have been paid. To the
Company's Knowledge, each of the Company and the Company Subsidiaries has
complied with the provisions of all such policies and is not in default under
any of such policies. Schedule 4.20 contains a complete and correct list of all
such insurance policies. Neither the Company nor any Company Subsidiary has
received any notice of cancellation or intent to cancel or increase premiums
with respect to such insurance policies. Schedule 4.20 also contains a list of
all claims or asserted claims reported to insurers under such policies relating
to the ownership or interest in the Company's and the Company Subsidiaries'
assets, or operation of the Business, including all professional malpractice
claims and similar types of claims, actions or proceedings asserted against the
Company or any Company Subsidiary arising out of the Business at any time within
the past three (3) years.
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4.21 Interest in Customers and Suppliers; Affiliate Transactions.
Except as described on Schedule 4.21 and except for ownership as an investment
of not more than one percent (1%) of any class of capital stock of any
publicly-traded company, none of the Company, any of its stockholders, any
Affiliate of its stockholders, any Affiliate of the Company nor any Company
Subsidiary (i) possesses, directly or indirectly, any financial interest in, or
is a director, officer, employee or affiliate of, any Person that is a client,
supplier, customer, lessor, lessee or competitor of the Company or any Company
Subsidiary, (ii) owns, directly or indirectly, in whole or in part, or has any
interest in any tangible or intangible property used in the conduct of the
Business, or (iii) is a party to an agreement or relationship, that involves the
receipt by such Person of compensation or property from the Company or any
Company Subsidiary other than through a customary employment relationship or
through distributions made with respect to the Company Stock or equity interests
in any Company Subsidiary (provided such distributions have been made consistent
with the Company's or any Company Subsidiary's, as the case may be, past custom
and practices). Schedule 4.21 sets forth the parties to and the date, nature and
amount of each transaction during the last five years involving the transfer of
any cash, property or rights to or from the Company or any Company Subsidiary
from, to or for the benefit of any Affiliates (other than customary employment
relationships or distributions made with respect to the Company Stock)
("Affiliate Transactions"), and any existing commitments of the Company or any
Company Subsidiary to engage in the future in any Affiliate Transactions. Except
as disclosed, each Affiliate Transaction and each transaction with former
Affiliates of the Company or any Company Subsidiary was effected on terms
equivalent to those that would have been established in an arm's-length
transaction.
4.22 Business Relationships. Schedule 4.22 lists all clients of the
Company and each Company Subsidiary representing one percent (1%) or more of the
Company's consolidated net revenues for the twelve (12) months ended December
31, 1998. Except as set forth on Schedule 4.22, since December 31, 1998, none of
such clients has canceled or substantially reduced its business with the Company
or Company Subsidiary, as applicable, nor are any of such clients threatening to
do so. To the Knowledge of the Company, no client that accounts for one percent
(1%) or more of the Company's consolidated net revenue, or supplier of the
Company or any Company Subsidiary, will cease to do business with, or
substantially reduce its business with, the Company or any Company Subsidiary,
as applicable, after the consummation of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
names and current total compensation, including, without limitation, salary and
bonuses paid to employees and draws or other distributions paid to partners,
members or owners of each Person who earned from the Company or a Company
Subsidiary in 1998 total compensation in excess of $100,000. Except as set forth
in Schedule 4.23, no Person listed thereon has received any bonus or increase in
compensation and there has been no "general increase" in the compensation or
rate of compensation payable to any employees, partners, members or owners of
the Company or any Company Subsidiary since the date of the Latest Balance
Sheet, other than in the Company's and Company Subsidiaries' ordinary course of
business, consistent with past custom and practices, nor since that date has
there been any oral or written promise to employees, partners, members or owners
of any bonus or increase in compensation, other than in the Company's ordinary
course
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of business, consistent with past custom and practices. The term "general
increase" as used herein means any increase generally applicable to a class or
group, but does not include increases granted to individuals for merit, length
of service or change in position or responsibility made on the basis of the
custom and past practices of the Company or any Company Subsidiary. Schedule
4.23 includes the date and amount of the last bonus or similar distribution or
increase in compensation for each listed individual.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each
bank in which the Company or any Company Subsidiary has an account or safe
deposit box, the number of each such account or box, and the names of all
Persons authorized to draw thereon or to have access thereto.
4.25 Professional Credentials. Each Company stockholder is a Certified
Public Accountant in good standing in one of the States of the United States or
the District of Columbia, and entitled to practice in one of the jurisdictions
in which the Company or any Company Subsidiary maintains an office, and there
are no disciplinary proceedings pending or threatened against the Company, any
Company Subsidiary or any of the stockholders by any Governmental Authority or
self-regulatory organization regulating, licensing or permitting the practice of
public accountancy.
4.26 Disclosure; No Misrepresentation. No representation or warranty of
the Company contained in this Agreement or in any of the certification,
schedules, lists, documents, exhibits, or other instruments delivered or to be
delivered to Centerprise as contemplated by any provision hereof contains any
untrue statement regarding a material fact or omits to state a material fact
necessary in order to make the statements made herein or therein not misleading.
To the Knowledge of the Company, there is no fact or circumstance that has not
been disclosed to Centerprise herein that has or is reasonably expected to have
a Company Material Adverse Effect.
ARTICLE V
[RESERVED]
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE
Centerprise represents and warrants to the Company as of March 31, 1999
and, subject to Section 7.3, as of the date on which Centerprise and the lead
Underwriter execute and deliver the Underwriting Agreement related to the IPO
and as of the Closing Date as follows:
6.1 Organization And Qualification. Each of Centerprise and Mergersub
is a corporation duly organized, validly existing and in good standing under the
laws of the State of
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Delaware and has the requisite power and authority to own, lease and operate its
assets and properties and to carry on its business as it is now being conducted.
True, accurate and complete copies of each of Centerprise's and Mergersub's
Certificate of Incorporation and By-laws, as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to the Company.
6.2 Capitalization.
6.2.1 The authorized capital stock of Centerprise consists of
20,000 shares of Centerprise Common Stock, of which 17,500 shares are
outstanding as of the date hereof. All of the issued and outstanding
shares of Centerprise Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights. Immediately prior to
the Closing Date, the authorized capital stock of Centerprise will
consist of 50,000,000 shares of Centerprise Common Stock, of which the
number of shares set forth in the Form S-1 will be issued and
outstanding, and 10,000,000 shares of Preferred Stock, par value $0.01
per share, none of which will be issued and outstanding. Other than (i)
shares of Centerprise Common Stock issued pursuant to a split of the
shares outstanding as of the date of this Agreement, (ii) shares of
Centerprise Common Stock issued in accordance with the Merger and the
Other Mergers, and (iii) shares of Centerprise Common Stock that may be
issued to new members of management in lieu of shares previously issued
to current members of management, but which will not increase the
number of shares of outstanding Centerprise Common Stock, no shares of
Centerprise Common Stock will be issued prior to the consummation of
the IPO. Mergersub's authorized capital stock consists solely of 1,000
shares of common stock, par value $.01 per share, all of which are
issued and outstanding, are owned free and clear of any Liens by
Centerprise, and are fully paid, nonassessable and free of preemptive
rights.
6.2.2 Except as set forth on Schedule 6.2, as of the date
hereof, there are no outstanding subscriptions, options, calls,
contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under
any outstanding security, instrument or other agreement obligating
Centerprise to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock of Centerprise or
obligating Centerprise to grant, extend or enter into any such
agreement or commitment. There are no voting trusts, proxies or other
agreements or understandings to which Centerprise is a party or is
bound with respect to the voting of any shares of capital stock of
Centerprise. The shares of Centerprise Common Stock issued to the
Company's stockholders pursuant to this Agreement will at the Closing
Date be duly authorized, validly issued, fully paid and nonassessable
and free of preemptive rights and issued pursuant to a registration
statement as required by the 1933 Act or an exemption therefrom.
6.3 No Subsidiaries. Except for Centerprise's ownership of 100% of the
capital stock of each of Professional Service Group, Inc., a Delaware
corporation, and Mergersub (and similar entities created for similar purposes
with respect to the Other Agreements), Centerprise has no
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subsidiaries and it does not own any capital stock of any corporation or any
equity or other interest of any nature whatsoever in any Person.
6.4 Authority; Non-Contravention; Approvals.
6.4.1 Each of Centerprise and Mergersub has all requisite
right, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has
been approved by the Boards of Directors of Centerprise and Mergersub,
and no other corporate proceedings on the part of Centerprise or
Mergersub are necessary to authorize the execution and delivery of this
Agreement or the consummation by Centerprise and Mergersub of the
transactions contemplated hereby. This Agreement has been duly executed
and delivered by Centerprise and Mergersub and, assuming the due
authorization, execution and delivery hereof by the Company constitutes
a valid and legally binding agreement of Centerprise and Mergersub,
enforceable against each of them in accordance with its terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and (ii) general
equitable principles.
6.4.2 The execution and delivery of this Agreement by
Centerprise and Mergersub does not violate, conflict with or result in
a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any of
the properties or assets of Centerprise and Mergersub under any of the
terms, conditions or provisions of (i) the Certificate of Incorporation
or By-laws of Centerprise or Mergersub, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or Governmental Authority applicable to
Centerprise, Mergersub or any of their respective properties or assets,
or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which Centerprise or Mergersub
is now a party or by which Centerprise, Mergersub or any of their
respective properties or assets, may be bound or affected, except those
items described in clause (ii) relating to regulating, licensing or
permitting the practice of public accountancy. The consummation by
Centerprise and Mergersub of the transactions contemplated hereby will
not result in any violation, conflict, breach, right of termination or
acceleration or creation of Liens under any of the terms, conditions or
provisions of the items described in clauses (i) through (iii) of the
immediately preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (ii) above,
to obtaining (prior to the Closing Date) Centerprise Required Statutory
Approvals and except for those items described in (ii) above relating
to regulating, licensing or permitting the practice of public
accountancy.
6.4.3 Except with respect to (i) the declaration of the
effectiveness of the Registration Statements by the SEC and filings, if
required, with various state securities
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or "blue sky" authorities, (ii) any filing which may be required under
the HSR Act, (iii) any filing which may be required by any Governmental
Authority or self-regulatory organization regulating, licensing or
permitting the practice of public accountancy (the filings and
approvals referred to in clauses (i) through (iii) are collectively
referred to as the "Centerprise Required Statutory Approvals") no
declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory
body or authority is necessary for the execution and delivery of this
Agreement by Centerprise or Mergersub or the consummation by
Centerprise or Mergersub of the transactions contemplated hereby, other
than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained,
as the case may be, are not reasonably expected to, in the aggregate,
have a material adverse effect on the business operations, properties,
assets, condition (financial or other), results of operations or
prospects of Centerprise and its subsidiaries, taken as a whole (a
"Centerprise Material Adverse Effect").
6.5 Absence of Undisclosed Liabilities. Except as set forth on Schedule
6.5, neither Centerprise nor Mergersub has incurred any liabilities or
obligations (whether known or unknown, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise) of any nature. Except as set
forth on Schedule 6.5, neither Centerprise nor Mergersub has engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is it bound by any obligation or undertaking.
6.6 Litigation. There are no claims, suits, actions or proceedings
pending or, to the Knowledge of Centerprise, threatened against, relating to or
affecting Centerprise or Mergersub, before any court, Governmental Authority or
any arbitrator that seek to restrain or enjoin the consummation of the Merger or
the IPO or which could reasonably be expected, either alone or in the aggregate
with all such claims, actions or proceedings, to have a Centerprise Material
Adverse Effect. Centerprise is not subject to any unsatisfied or continuing
judgement, order or decree of any court or Governmental Authority. Centerprise
is not a party to any legal action to recover monies due it or for damages
sustained by it.
6.7 Compliance with Applicable Laws. Each of Centerprise and Mergersub
has complied in all material respects with all Laws applicable to it, and has
not received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of Centerprise, no event has occurred or circumstances exist that
(with or without notice or lapse of time) may constitute or result in a
violation by Centerprise or Mergersub of any Law or may give rise to any
liability on the part of the Centerprise or Mergersub under any Law.
6.8 No Misrepresentation. None of the representations and warranties of
Centerprise or Mergersub set forth in this Agreement or in any of the
certificates, schedules, lists, documents, exhibits, or other instruments
delivered or to be delivered to the Company as contemplated by any provision
hereof contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. To the Knowledge
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of Centerprise, there is no fact or circumstance that has not been disclosed to
the Company herein that has or is reasonably expected to have a Company Material
Adverse Effect.
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS
7.1 Conduct of Business by the Company Prior to the Effective Time.
7.1.1 Except as otherwise contemplated by this Agreement,
after the date hereof and prior to the Closing Date or earlier
termination of this Agreement, unless Centerprise shall otherwise agree
in writing, the Company shall, and shall cause each Company Subsidiary
to:
(a) in all material respects conduct the Business in
the ordinary and usual course and consistent with past customs
and practices;
(b) not (i) amend its Organizational Documents except
as necessary to complete the Conversion, (ii) split, combine
or reclassify its outstanding capital stock or (iii) declare,
set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise except dividends or distributions
which (A) are consistent with past customs and practices, (B)
do not result in a Company Material Adverse Effect and (C) as
set forth on Schedule 7.1.4(ii);
(c) not issue, sell, pledge or dispose of, or agree
to issue, sell, pledge or dispose of (i) any additional shares
of, or any options, warrants or rights of any kind to acquire
any shares of, its capital stock or equity interests of any
class, (ii) any debt with voting rights or (iii) any debt or
equity securities convertible into or exchangeable for, or any
rights, warrants, calls, subscriptions, or options to acquire,
any such capital stock, debt with voting rights or convertible
securities;
(d) not (i) incur or become contingently liable with
respect to any indebtedness for borrowed money other than (A)
borrowings in the ordinary course of business in a manner
consistent with past customs and practices or (B) borrowings
to refinance existing indebtedness on commercially reasonable
terms, (ii) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or equity interests or
any options, warrants or rights to acquire any of its capital
stock or equity interests or any security convertible into or
exchangeable for its capital stock or equity interests, (iii)
sell, pledge, dispose of or encumber any assets or businesses
other than dispositions in the ordinary course of business in
a manner consistent with past customs and practices (iv) enter
into any contract, agreement, commitment or arrangement with
respect to any of the foregoing;
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(e) use commercially reasonable efforts to (i)
preserve intact its business organizations and goodwill, (ii)
keep available the services of its present officers and key
employees, and (iii) preserve the goodwill and business
relationships with clients and others having business
relationships with it and not engage in any action, directly
or indirectly, with the intent to adversely impact the
transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one
or more representatives of Centerprise to report operational
matters of materiality and the general status of ongoing
operations;
(g) except as contemplated on Schedule 4.9, not (i)
increase in any manner the base compensation of, or enter into
any new bonus or incentive agreement or arrangement with, any
of its employees, partners, members or owners, except in the
ordinary course of business in a manner consistent with past
customs and practices of the Company or any Company
Subsidiary, as applicable, (ii) pay or agree to pay any
additional pension, retirement allowance or other employee
benefit under any Employee Plan to any such Person, whether
past or present, (iii) enter into any new employment,
severance, consulting, or other compensation agreement with
any of its existing employees, partners, members or owners,
(iv) amend or enter into a new Employee Plan (except as
required by Law) or amend or enter into a new collective
bargaining agreement, or (v) engage in any new Affiliate
Transaction;
(h) comply in all material respects with all
applicable Laws;
(i) not make any material investment in, directly or
indirectly, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any
other manner, any businesses or any Person or division thereof
or otherwise acquire or agree to acquire any assets in each
case which are material to it other than in the ordinary
course of business in a manner consistent with past customs
and practices;
(j) other than as set forth on Schedule 7.1.4(ii),
not sell, lease, license, encumber or otherwise dispose of, or
agree to sell, lease, license, encumber or otherwise dispose
of, any of its assets other than in the ordinary course of
business, consistent with past customs and practices;
(k) maintain with financially responsible insurance
companies insurance on its tangible assets and its businesses
in such amounts and against such risks and losses in a manner
consistent with past customs and practices in all material
respects; and
(l) collect and bill receivables in the ordinary and
usual course and consistent with past custom and practices.
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7.1.2 [Reserved]
7.1.3 Notwithstanding the fact that such action might
otherwise be permitted pursuant to this Article, the Company shall not
take, or permit any Company Subsidiary to take, any action that would
or is reasonably likely to result in any of the representations or
warranties of the Company set forth in this Agreement being untrue or
in any of the conditions to the consummation of the transactions
contemplated hereunder set forth in Article X not being satisfied.
7.1.4 Prior to the Closing, (i) the Company shall terminate,
without any liability to the Company or the Company Subsidiaries, all
agreements relating to the voting of the Company's capital stock, and
all agreements and obligations of the Company and the Company
Subsidiaries relating to borrowed money and/or involving payments to or
for the benefit of a present or former stockholder of the Company, or
an Affiliate or family member of a present or former stockholder of the
Company, including, without limitation, those set forth on Schedule
7.1.4(i), but excluding (A) debt reflected on Schedule 2.1 as Debt
Assumed By Centerprise, (B) items reflected on Schedule 2.5, (C)
agreements and obligations to the extent such agreements and
obligations result in Indirect Costs under the Incentive Compensation
Agreement and (D) items approved by Centerprise in writing, and (ii)
notwithstanding anything contained in this Section 7.1 to the contrary,
the Company will transfer and distribute the assets listed on Schedule
7.1.4(ii) including, without limitation, any AR not necessary to meet
the Target or otherwise satisfy the obligations of the Company
hereunder (the "Excluded Assets") to the Persons listed on Schedule
7.1.4(ii), subject to all liabilities and obligations of any nature
(whether known or unknown, accrued, absolute, contingent, direct,
indirect, perfected, inchoate, unliquidated or otherwise) relating to
the Excluded Assets (collectively, the "Excluded Liabilities");
provided, however, that prior to the Closing, the Company shall obtain
novations or other releases or agreements discharging the Company from
all Excluded Liabilities (so that the respective Excluded Liabilities
will become direct liabilities and obligations of the assignee), and
provide copies thereof to Centerprise.
7.2 No-Shop.
(a) After the date hereof and prior to the Closing Date or
earlier termination of this Agreement, the Company shall (i) not, and
the Company shall use its diligent efforts to cause the Company
Subsidiaries and any officer, director or employee of, or any attorney,
accountant, investment banker, financial advisor or other agent
retained by the Company or any Company Subsidiary not to, initiate,
solicit, negotiate, encourage, or provide non-public or confidential
information to facilitate, any proposal or offer to acquire all or any
substantial part of the business and properties of the Company or any
Company Subsidiary, or any capital stock or other equity interest of
the Company or any Company Subsidiary, whether by merger, purchase of
assets or otherwise, whether for cash, securities or any other
consideration or combination thereof, or enter into any joint venture
or partnership or similar arrangement, and (ii) promptly advise
Centerprise of the terms of any communications the Company may receive
or become aware of relating to any bid
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for part or all of the Company or any Company Subsidiary.
Notwithstanding the foregoing, if the underwriters' internal sales
force presentation or "road show" for the IPO has not started by
October 15, 1999, then from and after such date, the Company may
(through its authorized agents) conduct limited discussions with
potential acquirers of the Company for the sole purpose of assessing
the potential terms and conditions of an acquisition proposal involving
the Company. Notwithstanding the preceding sentence, the Company shall
not (i) disclose any non-public or confidential information regarding
the Company to any such third party or (ii) enter into any agreement
(including, without limitation, any letter of intent or term sheet)
with such third party unless this Agreement has been terminated
pursuant to Article XI.
(b) The Company (i) acknowledges that a breach of any of its
covenants contained in this Section 7.2 will result in irreparable harm
to Centerprise which will not be compensable in money damages, and (ii)
agrees that such covenant shall be specifically enforceable and that
specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
7.3 Schedules. Each party hereto agrees that with respect to the
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement or amend and deliver to the other parties all the schedules to this
Agreement (the "Schedules") to correct any matter which would constitute a
breach of any such party's representations and warranties herein; provided,
however, that no amendment or supplement to a Schedule that constitutes or
reflects a Company Material Adverse Effect or affects Schedule 4.2, Schedule 4.4
or Schedule 8.8 may be made unless Centerprise and a majority of the Founding
Companies consent to such amendment or supplement. No amendment of or supplement
to a Schedule shall be made later than three (3) business days prior to the
anticipated effectiveness of the Form S-1. For all purposes of this Agreement,
including, without limitation, for purposes of determining whether the
conditions set forth in Sections 10.2 and 10.3 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 7.3. In the event that (i) one of the other Founding
Companies seeks to amend or supplement a Schedule pursuant to Section 7.3 of one
of the Other Agreements, (ii) such amendment or supplement constitutes or
reflects a Company Material Adverse Effect (as defined in such Other Agreement)
or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8 of such Other Agreement,
and (iii) Centerprise and a majority of the Founding Companies consent to such
amendment or supplement, but the Company does not, the Company may terminate
this Agreement at any time prior to the Closing Date. In the event that (i) the
Company seeks to amend or supplement a Schedule pursuant to this Section 7.3,
(ii) such amendment or supplement constitutes or reflects a Company Material
Adverse Effect or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8, and (iii)
Centerprise and a majority of the Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section 7.3,
unless this Agreement is so terminated in connection with an amendment of or
supplement to a Schedule relating to the Company's breach
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of a representation or warranty as of March 31, 1999, in which case the Company
shall pay to Centerprise, as Centerprise's exclusive remedy (notwithstanding
anything to the contrary) and as liquidated damages, and not as a penalty, an
amount equal to $2,000,000 (the "Liquidated Damages Amount"). The Company agrees
that in the case of such termination Centerprise and the Founding Companies
(excluding the Company) will sustain immediate and irreparable economic harm and
loss of goodwill and that actual losses suffered by such parties will be
difficult, if not impossible, to ascertain, but the Liquidated Damages Amount
set forth herein is reasonable and has been arrived at after a good faith effort
to estimate such losses. Payment of the Liquidated Damages Amount shall be made
in cash to Centerprise within thirty (30) days of a termination pursuant to this
Section 7.3 in connection with an amendment of or supplement to a Schedule
relating to a breach of a representation or warranty as of the date of this
Agreement.
7.4 Company Stockholders Meeting. The Company shall take all action in
accordance with applicable Laws and its Organizational Documents necessary to
duly call, give notice of, convene and hold a meeting of the Company's
stockholders to be held on the earliest practicable date determined in
consultation with Centerprise to consider and vote upon approval of the
Conversion, the Merger, this Agreement and the transactions contemplated hereby.
The Company shall solicit the approval of the Conversion, the Merger, this
Agreement and the transactions contemplated hereby by Company's stockholders,
and the Company's Board of Directors shall recommend approval of the Conversion,
the Merger, this Agreement and the transactions contemplated hereby by the
Company's stockholders. If the Conversion, the Merger, this Agreement and the
transactions contemplated hereby are approved by the Company's stockholders, the
Company shall not call, give notice of, convene or hold any other meeting of its
stockholders to rescind or modify such approval or to consider any other
transaction.
7.5 Conversion. Prior to the Closing but effective only if, as and when
the Closing occurs, the Company shall complete the Conversion pursuant to
applicable law and present such evidence of the Conversion at the Closing, as
Centerprise or its counsel may require.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Access to Information.
8.1.1 The Company shall and shall cause the Company
Subsidiaries to afford to Centerprise and its accountants, counsel,
financial advisors and other representatives, including without
limitation the underwriters engaged in connection with the IPO (each an
"Underwriter" and collectively, the "Underwriters") and their counsel
(collectively, the "Centerprise Representatives"), and to the other
Founding Companies and their accountants, counsel, financial advisors
and other representatives, and Centerprise shall afford to the Company
and their accountants, counsel, financial advisors and other
representatives (the "Company Representatives"), upon reasonable
notice, full access during normal business hours throughout the period
prior to the Closing Date to all of its
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respective properties, books, contracts, commitments and records
(including, but not limited to, financial statements and Tax Returns)
and, during such period, shall furnish promptly to one another all due
diligence information requested by the other party. Centerprise shall
hold and shall use its best efforts to cause the Centerprise
Representatives to hold, and the Company shall hold and shall use their
best efforts to cause the Company Representatives to hold, in strict
confidence all non-public information furnished to it in connection
with the transactions contemplated by this Agreement, except that each
of Centerprise, the Company may disclose any information that it is
required by law or judicial or administrative order to disclose. In
addition, Centerprise will cause each of the other Founding Companies
and their members and stockholders to enter into a provision similar to
this Section 8.1 requiring each such Founding Company to keep
confidential any information obtained by such Founding Company in
connection with the transactions contemplated by this Agreement.
8.1.2 In the event that this Agreement is terminated in
accordance with its terms, each party shall promptly return to the
disclosing party all non-public written material provided pursuant to
this Section 8.1 or pursuant to the Other Agreements and shall not
retain any copies, extracts or other reproductions of such written
material. In the event of such termination, all documents, memoranda,
notes and other writings prepared by Centerprise or the Company based
on the information in such material shall be destroyed (and Centerprise
and the Company shall use their respective reasonable best efforts to
cause their advisors and representatives to similarly destroy such
documents, memoranda and notes), and such destruction (and reasonable
best efforts) shall be certified in writing by an authorized officer
supervising such destruction.
8.2 Registration Statements.
8.2.1 Centerprise has filed the Registration Statements with
the SEC and shall use all reasonable efforts to have the Registration
Statements declared effective by the SEC as promptly as practicable.
Centerprise shall also take any action required to be taken under
applicable state "blue sky" or securities laws in connection with the
issuance of Centerprise Common Stock. Centerprise and the Company shall
promptly furnish to each other all information, and take such other
actions, as may reasonably be requested in connection with making such
filings. All information provided and to be provided by Centerprise and
the Company, respectively, for use in the Registration Statements shall
be true and correct in all material respects without omission of any
material fact which is required to make such information not false or
misleading as of the date thereof and in light of the circumstances
under which given or made. The Company agrees promptly to advise
Centerprise if at any time during the period in which a prospectus
relating to the offering or the Merger is required to be delivered
under the Securities Act, any information contained in the prospectus
concerning the Company or the Company Subsidiaries becomes incorrect or
incomplete in any material respect, and to provide the information
needed to correct such inaccuracy or remedy such incompletion.
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8.2.2 Centerprise agrees that it will provide to the Company
and its counsel copies of drafts of the Registration Statements (and
any amendments thereto) containing material changes to the information
therein as they are prepared and will not (i) file with the SEC, (ii)
request the acceleration of the effectiveness of or (iii) circulate any
prospectus forming a part of, the Registration Statements (or any
amendment thereto) unless the Company and its counsel (x) have had at
least two days to review the revised information contained therein
(which changes shall be highlighted by computer generated marks
indicating the additions and deletions made from the prior draft
reviewed by the Company's counsel) and (y) have not objected to the
substance of the information contained therein. Any objections posed by
the Company or its counsel shall be in writing and state with
specificity the material in question, the reason for the objection, and
the Company's proposed alternative. If the objection is founded upon a
rule promulgated under the Securities Act, the objection shall cite the
rule. Notwithstanding the foregoing, during the five (5) business days
immediately preceding the date scheduled for the filing of the
Registration Statements and any amendment thereto, the Company and its
counsel shall be obligated to respond to proposed changes
electronically transmitted to them within two (2) hours from the time
the proposed changes (in the case of the initial filing of the
Registration Statements, from the last circulated draft of the
Registration Statements; and, in the case of any subsequent filing of
the Registration Statements or any amendment thereof, from the most
recently filed Registration Statements or amendment thereof) are
transmitted to the Company's counsel; provided, that, Centerprise has
provided to the Company or its counsel reasonable advance notice of
such proposed changes; provided, further, that such changes are
highlighted by computer generated marks indicating the additions and
deletions made from the prior draft reviewed by the Company's counsel.
8.2.3 Centerprise will advise the Member Representative of the
effectiveness of the Registration Statements, advise the Member
Representative of the entry of any stop order suspending the
effectiveness of the Registration Statements or the initiation of any
proceeding for that purpose, and, if such stop order shall be entered,
use its best efforts promptly to obtain the lifting or removal thereof.
Upon the written request of the Company, Centerprise will furnish to
the Company a reasonable number of copies of the final prospectus
associated with the IPO.
8.3 Expenses and Fees. Centerprise shall pay the fees and expenses of
the independent public accountants and legal counsel to Centerprise and all
filing, printing and other reasonable, documented fees and expenses associated
with the IPO and Form S-4. The Company and its stockholders will not be liable
for any portion of the above expenses in the event the IPO is not completed.
Centerprise shall also pay the underwriting discounts and commissions payable in
connection with the sale of Centerprise Common Stock in the IPO. All other costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
8.4 Agreement to Cooperate. Subject to the terms and conditions herein
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to
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do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement.
8.5 Public Statements. Except as may be required by law, no party
hereto nor any Affiliate of any party hereto shall issue any press release or
any written public statement with respect to this Agreement or the transactions
contemplated by this Agreement or the Other Agreements without the prior written
consent of Centerprise and the Company.
8.6 [Reserved]
8.7 Centerprise Covenants. After the date hereof and prior to the
Closing Date or earlier termination of this Agreement in accordance with its
terms, Centerprise shall comply in all material respects with all applicable
Laws. Centerprise shall not take any action that would or is reasonably likely
to result in any of the representations or warranties of Centerprise set forth
in this Agreement being untrue or in any of the conditions to the consummation
of the transactions contemplated hereunder set forth in Article X not being
satisfied.
8.8 Release of Guarantees. Centerprise shall use all commercially
reasonable efforts and good faith to have the Company's stockholders released
from any and all guarantees on any indebtedness and leases that they personally
guaranteed for the benefit of the Company as set forth on Schedule 8.8, with all
such guarantees on indebtedness and leases being assumed by Centerprise, if
necessary to achieve such releases. If any guaranteed indebtedness is repaid in
full with proceeds from the IPO and the Company's stockholders' guarantees
thereafter shall have no further force or effect, then Centerprise shall not be
obligated to use any efforts to obtain a release of such guarantee. In the event
that Centerprise cannot obtain such releases from the lenders of any such
guaranteed indebtedness or lessors of any guaranteed leases, Centerprise agrees
to indemnify, defend and hold harmless the Company's stockholders against any
and all claims made by lenders or landlords under such guarantees.
8.9 [Reserved]
8.10 Preparation and Filing of Tax Returns.
8.10.1 The Company shall be responsible for causing the timely
filing of the final pre-Closing Returns for the Company and the Company
Subsidiaries; provided, however, that Centerprise and its advisors
shall have the right to review and approve such returns prior to
filing, which approval shall not be unreasonably withheld. Centerprise
shall, and shall cause its Affiliates to, provide to the Company such
cooperation and information reasonably requested in filing any return,
amended return or claim for refund, determining a liability for Taxes
or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. The Company shall bear all costs of
filing such returns.
8.10.2 Each of the Company and Centerprise shall comply with
the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction
as subject to the provisions of Section 351 of the Code.
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8.11 Maintenance of Insurance. The Company covenants and agrees that
all insurance policies listed, or required to be listed, on Schedule 4.20 will
be maintained in full force and effect through the Closing Date.
8.12 Administration. After the Closing, at the request of the Member
Representative, Centerprise shall, directly or through one or more of its
subsidiaries, administer and manage the collection of amounts referred to on
Schedule 7.1.4(ii) using reasonable care and in accordance with the Company's
policies in effect at Closing.
8.13 Member Representative. The stockholders of the Company has
appointed the Management Committee established by a Management Committee
Agreement, dated as of March 31, 1999 (the "Member Representative"), as its
agent and representative with full power and authority to agree, contest or
settle any claim or dispute affecting the Company made under Article II and to
otherwise act on behalf of the Company and its stockholders in accordance with
the terms of this Agreement.
ARTICLE IX
[RESERVED]
ARTICLE X
CLOSING CONDITIONS
10.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have
been executed and the closing of the sale of Centerprise Common Stock
to the Underwriters pursuant thereto shall have occurred simultaneously
with the Closing hereunder;
(b) the closings of the transactions contemplated under each
of the Other Agreements shall have occurred simultaneously with the
Closing hereunder, unless terminated in accordance with Section 7.3 of
the applicable Other Agreement;
(c) the Registration Statements shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in
effect and no proceeding for that purpose shall have been instituted by
the SEC or any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or
decree shall be pending before or issued by any federal or state court
which seeks to prevent or prevents
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the consummation of the IPO, the Merger or any of the Other Mergers
shall have been issued and remain in effect;
(e) the minimum price condition set forth on Schedule 2.1
shall have been satisfied;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government
or governmental agency in the United States which would prevent the
consummation of the Merger or any of the Other Mergers or make the
consummation of the Merger or any of the Other Mergers illegal;
(g) all material governmental and third party waivers,
consents and approvals required for the consummation of the Merger or
any of the Other Mergers and the transactions contemplated hereby and
by the Other Agreements (including, without limitation, any consents
listed on Schedules 4.3.2 or 4.12) shall have been obtained and be in
effect;
(h) no action, suit or proceeding with respect to the Merger
has been filed or threatened by a third party and remains threatened or
remains pending before any court, Governmental Authority or regulatory
Person;
(i) this Agreement, the Merger and the transactions
contemplated hereby shall have been approved and adopted by the
Company's stockholders in the manner required by any applicable Law and
the Company's Organizational Documents and such approval shall remain
in full force and effect; and
(j) Centerprise shall have entered into one or more credit
facilities providing for aggregate commitments of not less than $75
million;
10.2 Conditions to Obligation of the Company to Effect the Merger.
Unless waived by the Company, the obligation of the Company to effect the Merger
shall be subject to the fulfillment at or prior to the Closing of the following
additional conditions:
(a) Centerprise, Mergersub and each of the other Founding
Companies shall have performed in all material respects their
respective agreements contained in this Agreement and each Other
Agreement required to be performed on or prior to the Closing Date and
the representations and warranties of Centerprise contained in this
Agreement and each Other Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and the Company shall
have received a certificate of the Chief Executive Officer or President
of Centerprise to that effect;
(b) no Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy
shall have promulgated or
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formally proposed any statute, rule or regulation which, when taken
together with all such promulgations, would materially impair the value
to the Company of the Merger;
(c) the Company shall have received an opinion from Katten
Muchin & Zavis, dated as of the Closing Date, containing the
substantive opinions set forth in Exhibit 10.2(c), the final form of
such opinion to be in form and substance reasonably acceptable to the
Company;
(d) each of the members of Management shall have been afforded
the opportunity to enter into an incentive compensation agreement (the
"Incentive Compensation Agreement") with Centerprise substantially in
the form attached hereto as Exhibit 10.2(d);
(e) Centerprise shall have delivered to the Company a
certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State, showing
that Centerprise is in good standing;
(f) each of the members of Management, the partners, members
and stockholders of the other Founding Companies who are to receive
shares of Centerprise Common Stock pursuant to the Other Agreements,
and the other stockholders of Centerprise other than those acquiring
stock in the IPO shall have entered into an agreement (the
"Stockholders Agreement") substantially in the form attached hereto as
Exhibit 10.2(f);
(g) all conditions to the Other Mergers, on substantially the
same terms as provided herein, shall have been satisfied or waived by
the applicable party and the Company;
(h) the Company shall have been afforded the opportunity to
review the executed employment agreement by and between Centerprise and
Robert C. Basten; and
(i) the Company shall have received an opinion from Katten
Muchin & Zavis, dated as of the Closing Date and based on certain
factual representations and assumptions, that for federal income tax
purposes there will be no gain or loss recognized with respect to the
Centerprise Common Stock received in exchange for Company Stock in the
Merger pursuant to Section 351 of the Code, the final form of such
opinion to be in form and substance reasonably acceptable to the
Company.
10.3 Conditions to Obligation of Centerprise to Effect the Merger.
Unless waived by Centerprise, the obligation of Centerprise and Mergersub to
effect the Merger shall be subject to the fulfillment at or prior to the Closing
of the additional following conditions:
(a) the Company shall have performed in all material respects
its agreements contained in this Agreement required to be performed on
or prior to the Closing Date and the representations and warranties of
the Company contained in this Agreement shall be
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true and correct in all material respects on and as of the date made
and on and as of the Closing Date as if made at and as of such date,
and Centerprise and the Underwriters shall have received a Certificate
of the Chief Executive Officer or President of the Company to that
effect;
(b) [Reserved];
(c) Centerprise and the Underwriters shall have received an
opinion from Cooper, Erving, Savage, Nolan & Heller, LLP, counsel to
the Company, dated as of the Closing Date, in the form attached hereto
as Exhibit 10.3(c), the final form of such opinion to be in form and
substance reasonably acceptable to the Underwriters and Centerprise;
(d) the Company and the other parties thereto, as applicable,
shall have executed and delivered the Separate Practice Agreement
substantially in the form attached hereto as Exhibit 10.3(d)(A) and the
Services Agreement substantially in the form attached hereto as Exhibit
10.3(d)(B);
(e) each member of Management shall have executed and
delivered the Incentive Compensation Agreement substantially in the
form attached hereto as Exhibit 10.2(d);
(f) Centerprise and the Underwriters shall have received
"Comfort" letters in customary form from the Company's independent
public accountants, dated the effective date of the Form S-1 and the
Closing Date (or such other date reasonably acceptable to Centerprise),
with respect to certain financial statements and other financial
information included in the Form S-1 and any subsequent changes in
specified balance sheet and income statement items, including total
assets, working capital, total stockholders' equity, total revenues and
the total and per share amounts of net income;
(g) the Company shall have delivered to Centerprise and the
Underwriters a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the appropriate Governmental
Authority in the state of organization of the Company and each Company
Subsidiary and, unless waived by Centerprise, in each state in which
the Company or any Company Subsidiary is authorized to do business,
showing each of the Company and Company Subsidiary (as applicable) is
in good standing;
(h) no Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy
shall have promulgated or formally proposed any statute, rule or
regulation which, when taken together with all such promulgations,
would materially impair the value to Centerprise of the Merger;
(i) the members of Management shall have executed the
Stockholders Agreement;
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(j) the Company's stockholders and the members of Management
shall have delivered to Centerprise an instrument in the form attached
hereto as Exhibit 10.3(j), dated the Closing Date, releasing the
Company and the Company Subsidiaries from any and all claims of such
Persons against the Company and the Company Subsidiaries and
obligations of the Company and the Company Subsidiaries to such
Persons;
(k) The Company shall have acquired all of the issued and
outstanding capital stock or other equity interests, as applicable, of
Legal Scientific Analysis Group, Inc. ("LSAG") and Word Computer
Support, LLC ("Word") pursuant to acquisition agreements by and between
the Company and each of LSAG and Word in substantially the forms
attached as Exhibits 10.3(k)(1) and 10.3(k)(2);
(l) Management, Mass PC, the Company and the members of the
Management, as applicable, shall have terminated or have caused the
termination of any voting trusts, proxies or other agreements or
understandings to which Management, Mass PC, the Company or any Member
is a party or is bound with respect to any shares of capital stock or
other equity interests of the Company and the Company Subsidiaries and
shall have provided Centerprise evidence of such termination that is
acceptable to Centerprise's counsel;
(m) Management, Mass PC, the Company and the members of
Management shall have completed the Conversion pursuant to the
Conversion Agreement attached as Exhibit 10.3(m) and have presented
evidence of such conversion in accordance with Section 7.5;
(n) the Company shall have presented evidence satisfactory to
Centerprise of its compliance with the provisions of Section 7.1.4
hereof including, without limitation, that as of the Closing the amount
of debt of the Company and the Company Subsidiaries shall not exceed
the amount reflected on Schedule 2.1 as Debt Assumed by Centerprise;
(o) the Company shall have paid in full any indebtedness owed
by the Company to any present or former stockholder of the Company
except as relates to the deferred compensation liabilities to those
individuals listed on Schedule 2.5 and shall have provided Centerprise
evidence of such termination that is acceptable to Centerprise's
counsel;
(p) the Company shall have delivered to Centerprise a payoff
letter including a statement of per diem interest amounts and other
applicable release documents from all such institutional lenders or
creditors of the Company and the Company Subsidiaries regarding the
payment in full of such indebtedness at Closing, in each case in form
and substance satisfactory to Centerprise (including, without
limitation, applicable UCC-3 termination statements);
(q) the secretary of the Company shall have delivered
certified copies of the resolutions of the board of directors and the
shareholders of the Company approving execution and delivery of this
Agreement, the Conversion, the Merger and the other
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actions, agreements and documents necessary or desirable to complete
the transactions contemplated herein;
(r) the Company shall have liquidated and distributed to the
Company's stockholders the Company's investment with each of First
Union and ALAC and shall have provided Centerprise evidence of such
liquidation and distribution that is acceptable to Centerprise's
counsel; and
(s) the Company's stockholders (including the members of
Management) shall have executed and delivered to Centerprise a
stockholder agreement (the "Company Stockholder Agreement") in the form
of Exhibit 10.3(s) attached hereto.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) pursuant to Section 7.3;
(b) by the Company,
(i) if the Merger is not completed by November 15,
1999 other than on account of delay or default on the part of
the Company or any of its affiliates or associates;
(ii) if the Merger is enjoined by a final,
unappealable court order not entered at the request or with
the support of the Company or any of its affiliates or
associates;
(iii) if Centerprise (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
respects within thirty (30) days after written notice of such
default is given to Centerprise; or
(c) by Centerprise,
(i) if the Merger is not completed by November 15,
1999 other than on account of delay or default on the part of
Centerprise or any of its stockholders or any of their
affiliates or associates;
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(ii) if the Merger is enjoined by a final,
unappealable court order not entered at the request or with
the support of Centerprise or any of its stockholders or any
of their affiliates or associates;
(iii) if the Company (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
respects within thirty (30) days after written notice of such
default is given to the Company by Centerprise; or
(d) by mutual consent of the Company and the Board of
Directors of Centerprise.
11.2 Effect of Termination. In the event of termination of this
Agreement by either Centerprise or the Company, as provided in Section 11.1,
this Agreement shall forthwith become void and there shall be no further
obligation on the part of the Company, Centerprise, Mergersub or their
respective officers or directors (except the obligations set forth in this
Section 11.2 and in Sections 8.1, 8.3 and 8.5, all of which shall survive the
termination). Nothing in this Section 11.2 shall relieve any party from
liability for any breach of this Agreement.
11.3 Amendment. This Agreement may not be amended except by action
taken by the Boards of Directors of Centerprise and the Company or duly
authorized committees thereof and then only by an instrument in writing signed
on behalf of each of the parties hereto and in compliance with applicable law.
Centerprise covenants and agrees that it shall not amend, modify or supplement
the material terms of any Other Agreement following the Closing without the
prior written consent of at least two thirds (2/3rds) of the members of
Centerprise's Board of Directors; provided, that, no waiver of any restriction
set forth in Article XII shall be of any effect unless consented to by a
majority of the members of Centerprise's Board of Directors who do not at the
time of such proposed waiver hold Restricted Shares within the meaning of this
Agreement, any Other Agreement or the Stockholders Agreement.
11.4 Waiver. At any time prior to the Closing Date, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE XII
[RESERVED]
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ARTICLE XIII
[RESERVED]
ARTICLE XIV
[RESERVED]
ARTICLE XV
GENERAL PROVISIONS
15.1 Brokers. The Company represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
(except for any fee described in Schedule 15.1) or commission in connection with
the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. Centerprise represents and
warrants that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Centerprise or its stockholders (other than underwriting
discounts and commission to be paid in connection with the IPO).
15.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
given in accordance with this Section):
15.2.1 If to Centerprise or Mergersub, to:
Centerprise Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert Basten
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with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
15.2.2 If to the Company, to:
Urbach, Kahn & Werlin, P.C.
66 State Street
Albany, NY 12207
Attn: Steve Fischer
Facsimile No: (518) 449-5832
with a copy to:
Cooper, Erving, Savage, Nolan & Heller
39 North Pearl Street
Albany, NY 12207
Attn: Mark Heller
Facsimile No: (518) 432-3100
15.2.3 If to the Member Representative, to:
Management Committee
c/o Urbach, Kahn & Werlin, P.C.
66 State Street
Albany, NY 12207
Attn: Steve Fischer
Facsimile No: (518) 449-5832
15.3 Interpretation. The table of contents and headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
15.4 Certain Definitions. As used in this Agreement, (i) the term
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated association, corporation, entity, firm,
association, organization or other business in any form whatsoever or
45
<PAGE>
government (whether Federal, state, county, city or otherwise, including,
without limitation, any instrumentality, division, agency or department
thereof), (ii) the term "Affiliate" shall have the meaning given for that term
in Rule 405 under the Securities Act, and shall include each past and present
Affiliate of a Person and the members of such Affiliate's immediate family or
their spouses or children and any trust the beneficiaries of which are such
individuals or relatives, and (iii) an individual will be deemed to have
"Knowledge" of a particular fact or other matter if: (a) such individual is
actually aware of such fact or matter, or (b) a prudent individual could be
expected to discover or otherwise become aware of such fact or other matter in
the course of conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter and a prudent individual would conduct
such investigation; a Person, other than an individual, will be deemed to have
"Knowledge" of a particular fact or other matter if any Person who is a partner,
member or shareholder of such Person or who is otherwise serving, or who has
served, as a director, officer, partner, member or trustee (or any capacity) of
such Person has, or at any time had, knowledge of such fact or other matter.
15.5 Entire Agreement; Assignment. This Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof and (b) shall not be assigned by operation of law or otherwise,
except that Centerprise may assign this Agreement to any wholly-owned subsidiary
of Centerprise.
15.6 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Illinois applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
15.7 Counterparts. This Agreement may be executed via facsimile or
otherwise in two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
15.8 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and their respective
successors, permitted assigns, heirs, legal representatives and executors and
except as expressly set forth in herein, nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
* * *
[remainder of page intentionally left blank]
46
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
as of the date first written above.
CENTERPRISE ADVISORS, INC.
By: /s/ Robert C. Basten
-------------------------------
Name: Robert C. Basten
------------------------------
Its: President and Chief Executive
Officer
-------------------------------
UKW MERGERSUB INC.
By: /s/ Robert C. Basten
-------------------------------
Name: Robert C. Basten
------------------------------
Its: President
-------------------------------
URBACH, KAHN, WERLIN, P.C.
By: /s/ Steven Fischer
-------------------------------
Name:
------------------------------
Its:
-------------------------------
<PAGE>
Exhibit 2.41
------------------------------
AMENDED AND RESTATED
MERGER AGREEMENT
by and among
CENTERPRISE ADVISORS, INC.,
IDA MERGERSUB INC.
and
SELF FUNDED BENEFITS, INC., D/B/A/
INSURANCE DESIGN ADMINISTRATORS
September 24, 1999
------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I THE MERGER...........................................2
1.1 The Merger...........................................2
1.2 Effects of the Merger................................2
1.3 Directors and Officers of the Surviving
Corporation..........................................2
ARTICLE II CONSIDERATION AND MANNER OF PAYMENT..................2
2.1 Merger Consideration.................................2
2.1.1 Basic Purchase Consideration...................2
2.1.2 Treasury Stock.................................3
2.1.3 Dissenters.....................................3
2.1.4 Conversion of Mergersub Stock..................3
2.1.5 Exchange of Certificates.......................3
2.2 Post-Closing Adjustments to Basic Purchase
Consideration........................................4
2.3.1 Adjustments for Net Working Capital
Shortfall/Excess...............................4
2.3.2 Preliminary Balance Sheet and Adjustment.......4
2.2.3 Disputes.......................................4
2.2.4 Payment of Adjustments.........................5
2.3 Contingent Payment Procedures........................5
2.3.1 Contingent Payment.............................5
2.3.2 Financial Statements and Contingent Payment
Report.........................................5
2.3.3 Dispute Notice.................................6
2.3.4 Dispute Resolution.............................6
2.3.5 Definitions....................................6
2.4 Post-Closing Management of AR........................7
2.5 Assignment of Uncollected AR.........................7
2.6 Definitions..........................................7
ARTICLE III THE CLOSING..........................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY........8
4.1 Organization and Qualification.......................8
4.2 Company Subsidiaries.................................9
4.3 Authority; Non-Contravention; Approvals..............9
4.4 Capitalization......................................10
4.5 Year 2000...........................................11
4.6 Financial Statements................................11
4.7 Absence of Undisclosed Liabilities..................12
4.8 Accounts and Notes Receivable.......................12
4.9 Absence of Certain Changes or Events................12
(i)
<PAGE>
Page
----
4.10 Litigation..........................................14
4.11 Compliance with Applicable Laws.....................15
4.12 Licenses............................................15
4.13 Material Contracts..................................16
4.14 Properties..........................................18
4.15 Intellectual Property...............................20
4.16 Taxes...............................................21
4.17 Employee Benefit Plans; ERISA.......................21
4.18 Labor Matters.......................................23
4.19 Environmental Matters...............................24
4.20 Insurance...........................................24
4.21 Interest in Customers and Suppliers; Affiliate
Transactions........................................25
4.22 Business Relationships..............................25
4.23 Compensation........................................25
4.24 Bank Accounts.......................................26
4.25 Disclosure; No Misrepresentation....................26
ARTICLE V [RESERVED]..........................................26
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF CENTERPRISE.......26
6.1 Organization And Qualification......................26
6.2 Capitalization......................................27
6.3 No Subsidiaries.....................................27
6.4 Authority; Non-Contravention; Approvals.............28
6.5 Absence of Undisclosed Liabilities..................29
6.6 Litigation..........................................29
6.7 Compliance with Applicable Laws.....................29
6.8 No Misrepresentation................................29
ARTICLE VII CERTAIN COVENANTS AND OTHER TERMS...................30
7.1 Conduct of Business by the Company Pending the
Acquisition.........................................30
7.2 No-Shop.............................................32
7.3 Schedules...........................................33
7.4 Company Stockholders Meeting........................34
ARTICLE VIII ADDITIONAL AGREEMENTS...............................34
8.1 Access to Information...............................34
8.2 Registration Statements.............................35
8.3 Expenses and Fees...................................36
8.4 Agreement to Cooperate..............................36
8.5 Public Statements...................................36
8.6 [Reserved]..........................................37
8.7 Centerprise Covenants. ............................37
8.8 Release of Guarantees...............................37
8.9 [Reserved]..........................................37
(ii)
<PAGE>
Page
----
8.10 Preparation and Filing of Tax Returns...............37
8.11 Maintenance of Insurance............................37
8.12 Administration......................................38
8.13 Stockholder Representative..........................39
ARTICLE IX [RESERVED]..........................................38
ARTICLE X CLOSING CONDITIONS..................................38
10.1 Conditions to Each Party's Obligation to Effect
the Merger..........................................38
10.2 Conditions to Obligation of the Company to Effect
the Merger..........................................39
10.3 Conditions to Obligation of Centerprise to Effect
the Merger..........................................40
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER...................42
11.1 Termination.........................................42
11.2 Effect of Termination...............................43
11.3 Amendment...........................................43
11.4 Waiver..............................................44
ARTICLE XII [RESERVED]..........................................44
ARTICLE XIII [RESERVED]..........................................44
ARTICLE XIV [RESERVED]..........................................44
ARTICLE XV GENERAL PROVISIONS..................................44
15.1 Brokers.............................................44
15.2 Notices.............................................44
15.3 Interpretation......................................45
15.4 Certain Definitions.................................45
15.5 Entire Agreement; Assignment........................46
15.6 Applicable Law......................................46
15.7 Counterparts........................................46
15.8 Parties in Interest.................................46
(iii)
<PAGE>
LIST OF SCHEDULES
-----------------
Schedule 2.1 Consideration
Schedule 2.1(a) Apportionment
Schedule 2.5 Net Working Capital Adjustment Items
Schedule 4.2 Company Subsidiaries
Schedule 4.3.2 Required Consents
Schedule 4.4 Capitalization
Schedule 4.7 Liabilities
Schedule 4.9 Certain Changes and Events
Schedule 4.10 Litigation
Schedule 4.11 Noncompliance with Applicable Laws
Schedule 4.12 Licenses and Permits
Schedule 4.13 Material Contracts
Schedule 4.14.1-1 Real Property
Schedule 4.14.1-2(a) Exceptions Regarding Owned Property
Schedule 4.14.1-2(b) Exceptions Regarding Leased Property
Schedule 4.14.2 Tangible Personal Property; Liens
Schedule 4.15 Intellectual Property
Schedule 4.16.1-1 Taxes
Schedule 4.16.1-2 Tax Audits
Schedule 4.17.1 Employee Plans
Schedule 4.17.2 Unwritten Employee Plans
Schedule 4.18 Labor Matters
Schedule 4.19 Environmental Matters
(iv)
<PAGE>
Schedule 4.20 Insurance
Schedule 4.21 Affiliate Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 6.2 Centerprise's Capitalization
Schedule 6.5 Liabilities
Schedule 7.1.3(i) Terminated Agreements
Schedule 7.1.3(ii) Excluded Assets
Schedule 8.8 Stockholders' Guarantees
Schedule 15.1 Brokers
(v)
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A List of Stockholders of the Company
Exhibit 10.2(c) Form of Opinion of Centerprise's Counsel
Exhibit 10.2(d) Form of Employment Agreement
Exhibit 10.2(f) Form of Stockholders Agreement
Exhibit 10.3(c) Form of Opinion of Counsel to Company and the
Stockholders
Exhibit 10.3(j) Form of Stockholders' Release
Exhibit 10.3(o) Form of Company Stockholder Agreement
(vi)
<PAGE>
DEFINED TERMS
-------------
Actions......................................................Section 4.10.1
Acquisition Transaction........................................Introduction
Affiliate......................................................Section 15.4
Affiliate Transactions.........................................Section 4.21
Agreement......................................................Introduction
Aggregate Basic Purchase Consideration..........................Section 2.1
AR...........................................................Section 2.5(a)
Arbitrator....................................................Section 2.2.5
Arbitrator Report.............................................Section 2.3.4
Business.......................................................Introduction
Cash Consideration............................................Section 2.1.1
Centerprise....................................................Introduction
Centerprise Common Stock........................................Section 2.1
Centerprise Indemnified Party(ies)..............................Section 9.1
Centerprise Material Adverse Effect...........................Section 6.4.3
Centerprise Representatives...................................Section 8.1.1
Centerprise Required Statutory Approvals......................Section 6.4.3
Centerprise Accountants.......................................Section 2.2.2
Closing.........................................................Article III
Closing Balance Sheet.........................................Section 2.3.2
Closing Date....................................................Article III
Code...........................................................Introduction
Company........................................................Introduction
Company Material Adverse Effect...............................Section 4.3.3
(vii)
<PAGE>
Company Representatives.......................................Section 8.1.1
Company Stock.................................................Section 2.1.1
Company Subsidiary(ies).........................................Section 4.2
Consummation Date...............................................Article III
Contingent Payment............................................Section 2.3.1
Contingent Payment Report.....................................Section 2.3.2
Contracts......................................................Section 4.13
Copyrights.....................................................Section 4.15
Defense Notice................................................Section 9.3.1
DGCL............................................................Section 1.1
Direct Claim....................................................Section 9.4
Disputed Item.................................................Section 2.3.5
Dissenting Shares.............................................Section 2.1.3
Effective Time..................................................Section 1.1
Employee Plan.............................................Section 4.17.5(a)
Environmental and Safety Requirements..........................Section 4.19
ERISA.....................................................Section 4.17.5(b)
Excluded Assets...............................................Section 7.1.4
Excluded Liabilities..........................................Section 7.1.4
Final Adjustment..............................................Section 2.3.4
Financial Statements............................................Section 4.6
First Person..............................................Section 4.17.5(c)
Form S-1......................................................Section 4.3.3
Form S-4......................................................Section 4.3.3
Founding Companies.............................................Introduction
GAAP............................................................Section 4.6
general increase...............................................Section 4.23
Governmental Authority........................................Section 4.3.2
(viii)
<PAGE>
Hazardous Materials............................................Section 4.19
HSR Act.......................................................Section 4.3.3
Indemnified Party.............................................Section 9.3.1
Indemnifying Party............................................Section 9.3.1
Intellectual Property..........................................Section 4.15
Intellectual Property Licenses.................................Section 4.15
Interim Adjustment............................................Section 2.3.3
IPO............................................................Introduction
Knowledge......................................................Section 15.4
Latest Balance Sheet............................................Section 4.6
Laws...........................................................Section 4.11
Leased Property..............................................Section 4.14.1
Licenses.......................................................Section 4.12
Lien(s).......................................................Section 4.3.2
Liquidated Damages Amount.......................................Section 7.3
Losses..........................................................Section 9.1
Market Price...................................................Section 9.12
Marks..........................................................Section 4.15
Material Contracts.............................................Section 4.13
Merger.........................................................Introduction
Mergersub......................................................Introduction
Mergersub Stock...............................................Section 6.2.1
Merger Documents................................................Section 1.1
Net Working Capital..........................................Section 2.5(b)
(ix)
<PAGE>
1933 Act......................................................Section 4.3.3
1934 Act........................................................Section 8.7
Organizational Documents........................................Section 4.1
Other Agreements...............................................Introduction
Other Mergers..................................................Introduction
Other Founding Companies........................................Section 9.1
Owned Property...............................................Section 4.14.1
Patents........................................................Section 4.15
Person.........................................................Section 15.4
Plan Affiliate............................................Section 4.17.5(c)
Preliminary Report............................................Section 2.2.2
Real Property................................................Section 4.14.1
Registration Statements.......................................Section 4.3.3
Restricted Shares..............................................Section 12.3
Resolution Period.............................................Section 2.3.5
Returns......................................................Section 4.16.1
Schedules.......................................................Section 7.3
SEC...........................................................Section 4.3.3
Securities Act................................................Section 4.3.3
Stock Consideration...........................................Section 2.1.1
Stockholder Indemnified Party...................................Section 9.2
Stockholder Representative.....................................Section 9.13
Stockholders...................................................Introduction
Stockholders Agreement......................................Section 10.2(f)
Surviving Corporation...........................................Section 1.2
Target..........................................................Section 2.6
Tax Accrual.....................................................Section 2.6
Taxes........................................................Section 4.16.2
Territory...................................................Section 13.1(a)
(x)
<PAGE>
Thrid Party Claim.............................................Section 9.3.1
Trade Secrets..................................................Section 4.15
Underwriters..................................................Section 8.1.1
Voting Agreement...............................................Introduction
(xi)
<PAGE>
AMENDED AND RESTATED
MERGER AGREEMENT
THIS AMENDED AND RESTATED MERGER AGREEMENT (this "Agreement") is made
as of September 24, 1999, by and among Centerprise Advisors, Inc., a Delaware
corporation ("Centerprise"), IDA Mergersub, Inc., a Delaware corporation and
wholly-owned subsidiary of Centerprise ("Mergersub") and Self Funded Benefits,
Inc., d/b/a/ Insurance Design Administrators, a New Jersey corporation (the
"Company").
WITNESSETH:
WHEREAS, the Company engages directly, and indirectly through the
Company Subsidiaries, if any, in the business of providing third party
administration and management of health care benefit services to companies and
governments (such business provided by the Company is referred to as the
"Business");
WHEREAS, the Boards of Directors of the Company, Centerprise and
Mergersub deem it advisable and in the best interests of their respective
shareholders to approve and consummate the business combination transaction
provided for herein in which Mergersub would merge with the Company, with the
Company being the surviving corporation in the merger (the "Acquisition" or the
"Merger");
WHEREAS, Centerprise is entering into other agreements (the "Other
Agreements") substantially similar to this Agreement with each of Reznick Fedder
& Silverman, Certified Public Accountants, a Professional Corporation, Robert F.
Driver Company, Inc., Mann Frankfort Stein & Lipp, P.C., The Reppond Company,
Inc., Reppond Administrators, LLC, Verasource Excess Risk Ltd., Berry, Dunn,
McNeil & Parker, Chartered, Urbach Kahn & Werlin PC, Grace & Company, P.C.,
Simione, Scillia, Larrow & Dowling LLC and Follmer Rudzewicz & Co., P.C., (which
companies together with the Company are collectively referred to herein as the
"Founding Companies"), which agreements provide for the merger of a wholly owned
subsidiary of Centerprise with each such Founding Company (the "Other
Mergers") simultaneously with the Merger which Other Agreements together with
all Schedules and exhibits shall be made available to the Company prior to the
execution of this Agreement;
WHEREAS, simultaneously with the consummation of the Acquisition,
Centerprise will close an initial public offering (the "IPO") of Centerprise
Common Stock (as defined in Section 2.1(a));
WHEREAS, the parties intend the acquisition of Centerprise Common Stock
pursuant to the terms hereof to be tax-free under the provisions of Section 351
of the Internal Revenue Code of 1986, as amended (the "Code"); and
<PAGE>
WHEREAS, the Voting Agreement, dated as of March 31, 1999, among
Centerprise and certain of the stockholders of the Company has been terminated
and is no longer in force and effect.
NOW, THEREFORE, for and in consideration of the premises and of the
mutual representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement and in reliance upon the representations and warranties set
forth herein, Mergersub shall be merged with and into the Company, the result of
which will cause the separate corporate existence of Mergersub to cease and the
Company to continue under the laws of the State of New Jersey. As promptly as
possible on the Closing Date, the parties shall cause the Merger to be completed
by filing articles of merger and a certificate of merger, as applicable (the
"Merger Documents"), with the Secretary of State of the State of New Jersey, as
required by the corporate law of New Jersey, and with the Secretary of State of
the State of Delaware, as provided in the General Corporation Law of the State
of Delaware (the "DGCL"). The Merger shall become effective (the "Effective
Time") upon the filing of the Merger Documents with the Secretary of State of
the State of New Jersey and the Secretary of State of the State of Delaware or
at such later time, contemporaneously with the closing of the IPO, as agreed by
Centerprise and the Company and specified in the Merger Documents.
1.2 Effects of the Merger. At the Effective Time (i) the separate
existence of Mergersub shall cease and Mergersub shall be merged with and into
the Company, with the Company being the surviving corporation in the Merger (the
Company is sometimes referred to herein as the "Surviving Corporation"), (ii)
the Articles of Incorporation and By-laws of the Surviving Corporation shall be
amended in form and substance acceptable to Centerprise and as specified in the
Merger Documents, (iii) the Merger shall have all the effects provided by
applicable law, and (iv) the Company shall be a wholly-owned subsidiary of
Centerprise.
1.3 Directors and Officers of the Surviving Corporation. From and after
the Effective Time, the directors and officers of Mergersub shall be the
directors and officers of the Surviving Corporation until their successors are
duly elected and qualified.
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2
<PAGE>
2.1 Merger Consideration.
2.1.1 Basic Purchase Consideration. At the Closing, by virtue
of the Merger and without any action on the part of the holder thereof, the
outstanding shares of capital stock, consisting of 149 shares, no par value,
Class A Voting common stock and 14,660 shares, no par value, Class B Non-Voting
common stock of the Company (collectively, the "Company Stock") shall be
converted into the right to receive: (a) that number of shares of Centerprise
common stock, par value $.01 per share (the "Centerprise Common Stock") shown on
line T of Schedule 2.1; provided, however, that if the initial public offering
price of the Centerprise Common Stock is below $11.90 per share, the number of
shares of Centerprise Common Stock received at Closing shall be increased such
that the value of the shares, using the initial public offering price, equals
the amounts shown on line U of Schedule 2.1 (the "Stock Consideration") and (b)
the amount of cash shown on line S of Schedule 2.1 (the "Cash Consideration").
The sum of the Cash Consideration and the Stock Consideration is herein referred
to as "Basic Purchase Consideration."
2.1.2 Cancellation of Company Stock. Each share of capital
stock of the Company held in treasury of the Company shall be canceled and
retired and no payment shall be made in respect thereof.
2.1.3 Dissenting Shares. Each outstanding share of capital
stock of the Company the holder of which has perfected his right to dissent
under applicable law and has not effectively withdrawn or lost such right as of
the Effective Time (the "Dissenting Shares") shall not be converted into the
right to receive Basic Purchase Consideration, and the holder thereof shall be
entitled only to such rights as are granted by applicable law. The Company shall
give Centerprise prompt notice upon receipt by the Company of any such written
demands for payment of fair value of shares of capital stock of the Company and
any other instruments provided pursuant to applicable law. Any payments made in
respect of Dissenting Shares shall be made by the Surviving Corporation.
2.1.4 Conversion of Mergersub Stock. At the Effective Time,
each share of Mergersub Stock issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and become one validly issued, fully
paid and non-assessable share of the Surviving Corporation. Such newly issued
shares shall thereafter constitute all of the issued and outstanding capital
stock of the Surviving Corporation.
2.1.5 Exchange of Certificates for Consideration. At the
Closing, Centerprise shall receive the original Company Stock certificates, duly
endorsed in blank by the Company's stockholder(s) or accompanied by blank stock
powers, in exchange for the allocated share of (a) Centerprise Common Stock
certificates representing the Stock Consideration, which shares shall be
registered pursuant to a Registration Statement on Form S-4, and (b) payment
of the Cash Consideration by certified check, cashier's check or wire transfer
of immediately available funds to a bank account or bank accounts in the amounts
and manner specified by the Company in a writing delivered to Centerprise at
least three (3) business days prior to the Closing Date. The shares represented
by the Company Stock certificates so delivered to Centerprise shall be canceled.
Until surrendered as contemplated by this Section 2.1.5, each certificate
representing shares of
3
<PAGE>
Company Stock represents only the right to receive Basic Purchase Consideration,
as adjusted in accordance with this Article II.
2.2 Post-Closing Adjustments to Basic Purchase Consideration.
2.2.1 Adjustments for Net Working Capital Shortfall/Excess.
The Basic Purchase Consideration shall be (a) reduced dollar-for-dollar
to the extent Net Working Capital on the Closing Date is less than the
Target or (b) increased dollar-for-dollar to the extent Net Working
Capital on the Closing Date is greater than the Target.
2.2.2 Preliminary Balance Sheet and Adjustment. At or about
the Closing, the Company will prepare, and the firm
PricewaterhouseCoopers LLP (the "Centerprise Accountants") will review,
a balance sheet of the Company, as of the Closing Date, in accordance
with GAAP and consistent with the accounting policies and practices
used in connection with the preparation of the Financial Statements
(the "Closing Balance Sheet") along with a preliminary calculation of
any excess or shortfall of Net Working Capital as compared to the
Target.
2.2.3 Final Adjustment. As soon as practicable, the Company
will prepare and deliver to Centerprise a final calculation of Net
Working Capital revised to reflect all collections of AR up to the date
180 days from the Closing Date. Centerprise will review such
calculation and any records, work papers and other documents related
thereto. Within 10 days of receipt of such calculation, Centerprise
will deliver to the Stockholder Representative a written report
indicating the amount and nature of any adjustment to the Basic
Purchase Consideration determined in accordance with Section 2.3.1 (the
"Final Adjustment").
2.2.4 Disputes. The parties hereto shall not object to the
Interim Adjustment which shall be binding on the parties hereto, and
shall withhold all objections until delivery of the Final Adjustment
report. If the Stockholder Representative does not object (or otherwise
respond) in writing to the Final Adjustment report within 30 days after
its delivery, the Final Adjustment shall automatically become final,
binding and conclusive on all parties hereto. Any objection to the
Final Adjustment report shall be in writing and shall specify the item
or items in dispute (each a "Disputed Item").
4
<PAGE>
If the Stockholder Representative and Centerprise are unable
to resolve any Disputed Item within 30 days after notice from the
Stockholder Representative that a dispute exists (the "Resolution
Period"), then a representative from the office of a nationally
recognized accounting firm (the "Arbitrator") selected jointly by
Centerprise and the Stockholder Representative will arbitrate the
dispute. The Stockholder Representative and Centerprise shall, within
20 days after expiration of the Resolution Period, present their
respective positions with respect to any Disputed Item to the
Arbitrator together with such materials as the Arbitrator deems
appropriate. To the extent any Disputed Item is similar to a disputed
item under the Other Agreements, the Arbitrator shall arbitrate the
Disputed Item based on the submitted materials and without regard to
the disputed item under the Other Agreements. The Arbitrator shall,
after the submission of the materials, submit a written decision on
each Disputed Item to the Stockholder Representative and Centerprise
and such determination shall be final and binding on the parties
hereto. The arbitration shall be conducted in Chicago, Illinois. The
parties hereto agree that the cost of the Arbitrator shall be borne by
the non-prevailing party or as determined by the Arbitrator.
2.2.5 Payment of Adjustments. In the event Net Working Capital
is less than the Target, the Company's stockholders shall pay the
amount of the shortfall to Centerprise. In the event Net Working
Capital is greater than the Target, Centerprise shall pay the amount of
the excess to the Company's stockholders. Any payment required to be
made pursuant to this paragraph shall be made, within ten days of
delivery of the report indicating any adjustment, by wire transfer of
immediately available funds to an account designated in writing by the
party that is to receive payment of such adjustment. In respect of the
Final Adjustment, the party making a payment required by such
adjustment shall make such payment within ten days after the Final
Adjustment becomes final and shall receive credit for or return of any
amount previously paid in connection with the Interim Adjustment.
2.3 Contingent Payment Procedures.
2.3.1 Contingent Payment. Centerprise agrees to pay to the
stockholders of the Company in the aggregate (each, a "Contingent
Payment") as additional cash consideration for the exchange of the
Company Stock an amount equal to the lesser of (i) 6.75 times Adjusted
EBITDA or (ii) $3,414,500. If Adjusted EBITDA is a negative number,
then CenterPoint shall not be required to make any Contingent Payment
and the stockholders of the Company shall have no obligation to refund
to CenterPoint the amount of such negative calculation expressed as a
positive number. The Contingent Payment, if any, shall be paid to each
stockholder of the Company in proportion to their interests as set
forth on Schedule 2.1(a) no later than five business days after the
earliest to occur of: (1) the determination of the final Contingent
Payment Report (as defined below); or (2) the delivery of the
Arbitrator Report (as defined below). Such payment may be made by check
or wire transfer of immediately available funds to accounts designated
in writing by the party that is to receive such payment.
2.3.2 Financial Statements and Contingent Payment Report. As
promptly as practicable, but no later than March 31, 2001, the Company
shall prepare and deliver to the Stockholder Representative (as defined
in Section 9.13), as representative for the former
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holders of the Company Stock, and Centerprise (i) a copy of the
Company's income statement for the twelve month period ending December
31, 2000, and (ii) a report calculating Adjusted EBITDA and the amount
of any Contingent Payment (the "Contingent Payment Report").
2.3.3 Dispute Notice. The Stockholder Representative shall
have 30 days from the date on which the Contingent Payment Report is
delivered to it to review such documents (the "Review Period"). The
Stockholder Representative shall be provided with full access to the
Company's work papers and reasonable access to the Company's accounting
personnel in connection with such review. If the Stockholder
Representative shall have any objections to the Contingent Payment
Report, on or prior to the last day of the Review Period, it will
deliver a written notice to Centerprise describing in reasonable detail
its objections and the basis for such objections (the "Dispute
Notice"). The Stockholders' Representative may deliver to Centerprise
at any time a written notice accepting the Contingent Payment Report
without objection.
2.3.4 Dispute Resolution. The Stockholder Representative and
Centerprise shall attempt to resolve any objections contained in the
Dispute Notice and upon such resolution will cause the Contingent
Payment Report to be revised to reflect such resolution. Such revised
Contingent Payment Report (or the Contingent Payment Report prepared by
Centerprise, if the Stockholders' Representative does not object
thereto) shall constitute the final Contingent Payment Report and shall
be final and binding upon Centerprise, the Company and the
Stockholders. If the Stockholders' Representative and Centerprise are
unable to resolve any objection raised in the Dispute Notice within 30
days after Centerprise has received the Dispute Notice, then a
representative from the office of a nationally recognized accounting
firm selected jointly by the Stockholders' Representative and
Centerprise will arbitrate the dispute in Chicago, Illinois. The
Stockholder Representative and Centerprise will present their
respective positions with respect to any unresolved objection
identified in the Dispute Notice to the Arbitrator together with such
materials as the Arbitrator deems appropriate. The Arbitrator shall,
after the submission of the materials, submit a written decision on
each unresolved objection to the Stockholder Representative and
Centerprise and such determination shall be final and binding on the
parties hereto (the "Arbitrator Report"). The parties agree that the
cost of the Arbitrator shall be borne by the non-prevailing party or as
determined by the Arbitrator.
2.3.5 Definitions. For purposes of this Section, the following
terms shall have the following meanings:
(a) "Adjusted EBITDA" means EBITDA less any EBITDA
attributable to any entity or portion of such entity acquired
by or merged with or into the Company after the Closing less
$3,155,027.
(b) "Debt" means (a) all indebtedness for borrowed
money, whether or not evidenced by an instrument, (b) notes
payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money,
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(c) any obligation owed for all or part of the deferred
purchase price of property or services (excluding accounts
payable arising in the ordinary course of business) and (d)
any guaranty of a Person with respect to liabilities of a type
described in immediately preceding clauses (a) through (c).
(c) "EBITDA" means for the twelve month period ending
December 31, 2000 the sum of: (a) the net income (or loss) of
the Company excluding extraordinary items, (b) provisions for
taxes based on income, (c) total interest expense of the
Company with respect to Debt, (d) to the extent net income for
the Company has been reduced thereby, depreciation expense,
and (e) to the extent net income for the Company has been
reduced thereby, amortization expense less non-cash items
increasing net income, all as determined in accordance with
GAAP.
(d) "GAAP" means generally accepted accounting
principles set forth in the opinions and pronouncements of the
American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting
Standards Board (or any successor authority), consistently
applied.
2.4 Post-Closing Management of AR. Following the Closing, the billing,
servicing, administering and collection of the AR shall be conducted by the
Company. The Company shall take all such actions as may be necessary or
advisable to collect the AR in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in accordance with the
Company's credit and collection policy in effect at Closing. The Company may
modify, adjust or write-off AR from time to time in accordance with the
Company's credit and collection policy in effect at Closing. Unless otherwise
required by contract or law, payments by an obligor in respect of services
rendered or expenses advanced by the Company shall be applied as follows: in the
event any such payment specifically references the invoice being paid or clearly
relates to an outstanding invoice, the payment will be applied to the
corresponding invoice; and, in any other case, the payment will be applied to
satisfy AR relating to such obligor in the order that such AR arose. Any
adjustment, modification or write-off affecting AR and fees and expenses
receivable and unbilled fees and expenses of the Company incurred after Closing
with respect to the same client engagement shall be allocated ratably to the
pre-Closing and post-Closing periods.
2.5 Assignment of Uncollected AR. If any AR remain uncollected by the
Company as of 180 days after the Closing Date, the Company will assign the
uncollected AR to the Company's stockholders. Notwithstanding the foregoing, the
Company will retain the sole right to service, administer and collect the
uncollected AR in accordance with Section 2.5. Any such collection of assigned
AR shall be remitted to the Company's stockholders.
2.6 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) "AR" means any fees and expenses receivable and unbilled
fees and expenses of the Company on the Closing Date.
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(b) "Net Working Capital" means an amount determined as of the
Closing Date, whenever calculated, equal to difference between: (i) the
sum of any AR, prepaid expenses and other current assets less (ii) the
sum of accounts payable, accrued current liabilities, the items listed
on Schedule 2.6, the Tax Accrual and the portion of employer-paid FICA
attributable to Medicare, payable in connection with accrued salary and
bonus accounts and the Special Bonus Plan. For purposes of this Section
2.6(b), the Special Bonus Plan accrual shall not constitute a current
liability.
(c) "Special Bonus Plan" means the Company's Special Bonus
Plan dated March 1, 1999.
(d) "Target" means an amount equal to 1% of the Company's net
revenues for the four quarter period ending on the last day of the
calendar quarter prior to Closing.
(e) "Tax Accrual" means an amount equal to the product of (i)
Net Working Capital (calculated before deduction of the Tax Accrual and
only to the extent it will result in taxable income to Centerprise)
less an amount equal to any tax deductions realized by Centerprise as a
result of any payments pursuant to the Special Bonus Plan times (ii)
the sum of 34% plus the effective state tax rate on the Company (net of
any federal tax benefit). A negative Tax Accrual shall be treated as a
current asset for purposes of Section 2.6(b)(i).
ARTICLE III
THE CLOSING AND CONSUMMATION DATE
The consummation of the Acquisition and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Katten Muchin & Zavis, Chicago, Illinois, contemporaneously with the closing
of the IPO, or at such other time and date as the parties hereto may mutually
agree (the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Centerprise, as of March 31,
1999 and, subject to Section 7.3, as of the date on which Centerprise and the
lead Underwriter (as defined in Section 8.1.1) execute and deliver the
Underwriting Agreement related to the IPO and as of the Closing Date, as
follows:
4.1 Organization and Qualification. The Company is a professional
corporation duly organized, validly existing and in good standing under the laws
of the State of New Jersey. Each Company Subsidiary (as defined in Section 4.2)
is duly organized, validly existing and in good standing under the laws of the
state of its organization set forth on Schedule 4.2. Each of the
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Company and the Company Subsidiaries has the requisite power and authority to
own, lease and operate its assets and properties and to carry on its business as
it is now being conducted, and is qualified to do business and is in good
standing in each jurisdiction in which the properties owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary. True, accurate and complete copies of the Company's and each Company
Subsidiary's Organizational Documents, in each case as in effect on March 31,
1999 have heretofore been delivered to Centerprise. "Organizational Documents"
means (a) the articles or certificate of incorporation and the bylaws of a
corporation (professional or otherwise), (b) the partnership agreement and any
statement of partnership of a general partnership, (c) the limited partnership
agreement and the certificate of limited partnership of any limited partnership,
(d) the operating or limited liability company agreement and certificate of
formation of any limited liability company, (e) any charter or similar document
adopted and filed in connection with the creation, formation, organization or
governance (as applicable) of any Person and (f) any amendment to any of the
foregoing.
4.2 Company Subsidiaries. Schedule 4.2 sets forth the name (including
any assumed names), jurisdiction of organization and ownership of the issued and
outstanding equity interests of each Person in which the Company owns, directly
or indirectly, securities or other interests having the power to elect a
majority of such Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of such Person
(each a "Company Subsidiary" and collectively, the "Company Subsidiaries").
Except as set forth on Schedule 4.2, the Company does not, directly or
indirectly, own, of record or beneficially, or control any capital stock,
securities convertible into capital stock or any other equity interest in any
Person.
4.3 Authority; Non-Contravention; Approvals.
4.3.1 The Company has full right, power and authority to enter
into this Agreement and, subject to the approval of the Merger and the
transactions contemplated hereby by the Company's stockholders, to
consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by the Company have been
duly authorized by all necessary corporate action on the part of the
Company, subject to the approval of the Merger and the transactions
contemplated hereby by the Company's stockholders. This Agreement has
been duly executed and delivered by the Company, and, assuming the due
authorization, execution and delivery hereof by Centerprise,
constitutes a valid and legally binding agreement of the Company,
enforceable against it in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and (ii) general
equitable principles.
4.3.2 The execution and delivery of this Agreement by the
Company does not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in
the creation of any claim, lien, privilege, mortgage, charge,
hypothecation, assessment, security interest, pledge or other
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encumbrance, conditional sales contract, equity charge, restriction, or
adverse claim of interest of any kind or nature whatsoever (each a
"Lien" and collectively, the "Liens"), upon any of the properties or
assets of the Company or any Company Subsidiary under, any of the
terms, conditions or provisions of (i) the Organizational Documents of
the Company or any Company Subsidiary, (ii) following completion of the
Conversion, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or
federal, state, provincial, local or foreign government, or any
subdivision, agency or authority of any thereof ("Governmental
Authority") applicable to the Company, any Company Subsidiary, or the
Business, properties or assets of the Company or any Company
Subsidiary, except for those items discussed in (ii) above relating to
regulating, licensing or permitting the practice of public accountancy,
or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which any of the Company or any
Company Subsidiary is a party or by which any of the Company, any
Company Subsidiary or any of the properties or assets of the Company or
any Company Subsidiary may be bound or affected. The consummation by
the Company of the transactions contemplated hereby will not result in
a violation, conflict, breach, right of termination, creation or
acceleration of Liens under the terms, conditions or provisions of the
items described in clauses (i) through (iii) of the immediately
preceding sentence, subject in the case of the terms, conditions or
provisions of the items described in clause (iii) above, to obtaining
(prior to the Closing Date) such consents required from third parties
set forth on Schedule 4.3.2 and except for those items described in
(ii) and (iii) above, relating to regulating, licensing or permitting
the practice of public accountancy and any filing which may be required
under the HSR Act.
4.3.3 Except for (i) the declaration of effectiveness of a
registration statement on Form S-1 (the "Form S-1") and a post-
effective amendment to the registration statement on Form S-4 (the
"Form S-4") (Form S-1 and Form S-4 are collectively the "Registration
Statements") with the Securities and Exchange Commission (the"SEC")
pursuant to the Securities Act of 1933, as amended (the "Securities
Act"or the "1933 Act"), any other filings required by the SEC and
filings, if required, with various state securities or "blue sky"
authorities, (ii) any filing which may be required under the Hart-Scot-
Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act"),
and (iii) any filing which may be required by any Governmental
Authority or self-regulatory organization regulating, licensing or
permitting the practice of public accountancy, no declaration, filing
or registration with, or notice to, or authorization, consent or
approval of, any Governmental Authority is necessary for the execution
and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents
or approvals which, if not made or obtained, as the case may be, would
not, individually or in the aggregate, have a "Company Material Adverse
Effect," which, for purposes of this Agreement means a material adverse
effect on the operations, assets, condition (financial or other),
operating results, employee or client relations, or prospects of the
Company or any Company Subsidiary.
4.4 Capitalization.
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4.4.1 The authorized capital stock of the Company consists of
Fifteen Thousand (15,000) shares of Company Stock, of which One Hundred
Forty Nine (149) shares of Class A Voting Common Stock and Fourteen
Thousand Six Hundred Sixty (14,660) shares of Class B Non-Voting Common
Stock are issued and outstanding. The authorized capital stock of each
of the Company Subsidiaries, if any, and the number of such shares
issued and outstanding is completely and accurately set forth in
Schedule 4.4. All of such issued and outstanding shares are validly
issued and are fully paid, nonassessable and free of preemptive rights.
The Company owns all shares of the Company Subsidiaries as indicated on
Schedule 4.4, in each case free and clear of all Liens, and the Company
has good and marketable title to such shares of the Company
Subsidiaries. All of such issued and outstanding shares are validly
issued and are fully paid, nonassessable and free of preemptive rights.
4.4.2 Except as set forth on Schedule 4.4, there are no
outstanding subscriptions, options, calls, contracts, commitments,
undertakings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of the capital stock of
the Company or any Company Subsidiary or obligating the Company or any
Company Subsidiary to grant, extend or enter into any such agreement or
commitment or obligating the Company or any Company Subsidiary to
convey or transfer any Company Stock or Company Subsidiary stock, as
the case may be. As of the Closing Date, there will be no voting
trusts, proxies or other agreements or understandings to which the
Company or any Company Subsidiary is a party or is bound with respect
to the voting of any shares of capital stock or other equity interests
of the Company or any Company Subsidiary.
4.5 Year 2000. To the Knowledge of the Company, all of the computer
software, computer firmware, computer hardware (whether general or special
purpose), and other similar or related items of automated, computerized, and/or
software system(s) that are used or relied on by the Company or any Company
Subsidiary in the conduct of the Business will not malfunction, will not cease
to function, will not generate incorrect data, and will not produce incorrect
results when processing, providing, and/or receiving (i) date-related data into
and between the twentieth (20th) and twenty-first (21st) centuries and (ii)
date-related data in connection with any valid date in the twentieth (20th) and
twenty-first (21st) centuries, except for any malfunctions or generations of
incorrect data or results that would not individually or in the aggregate have a
Company Material Adverse Effect. Nothing in this Section 4.5 is intended or
shall be construed as a representation or warranty with respect to embedded
systems.
4.6 Financial Statements. The Company has previously furnished to
Centerprise copies of the audited consolidated balance sheets of the Company as
of September 30 in each of the years 1997 and 1998 and an unaudited consolidated
balance sheet of the Company for the three month period ending December 31, 1998
(the "Latest Balance Sheet"), and the related audited consolidated statements of
income, stockholders' equity and cash flow for each of the years in the three
(3) year period ended September 30, 1998, including all notes thereto, and
related unaudited
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consolidated statements of income, stockholders' equity and cash flow for the
three month period ending December 31, 1998, including all notes thereto
(collectively, the "Financial Statements"). Each of the Financial Statements is
accurate and complete in all material respects, is consistent with the books and
records of the Company and the Company Subsidiaries (which, in turn, are
accurate and complete in all material respects), and fairly presents in all
material respects the financial condition, assets and liabilities of the Company
and the Company Subsidiaries as of its date and the results of operations and
cash flows for the periods related thereto, in each case in accordance with
generally accepted accounting principles, applied on a consistent basis
("GAAP").
4.7 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
4.7, neither the Company nor any Company Subsidiary had, as of the date of the
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent clearly and accurately reflected or accrued or fully
reserved against in the Financial Statements or (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business and consistent with past custom and practices (none of which
is a liability resulting from a breach of contract, breach of warranty, tort,
infringement claim, legal violation or lawsuit).
4.8 Unbilled Fees and Expenses. At the Closing all unbilled fees and
expenses at net realizable value reflected in the records of the Company and the
Company Subsidiaries arose in the ordinary course of business and will be
billable in the ordinary course of business using normal billing practices and
adjustments employed as of the date of this Agreement by the Company and each
Company Subsidiary. Upon such billing any such amounts will be collectible in
the ordinary course of business using normal collection practices and policies
employed by the Company and each Company Subsidiary (net of any allowance for
doubtful accounts determined in accordance with the Company's and the Company
Subsidiaries' past practice and custom).
4.9 Absence of Certain Changes or Events. Except as set forth on
Schedule 4.9, since the date of the Latest Balance Sheet, each of the Company
and the Company Subsidiaries has conducted its business only in the ordinary
course consistent with past custom and practices. Except as set forth on
Schedule 4.9, since the date of the Latest Balance Sheet, there has not been
any:
(a) material adverse change in the operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee or client relations or prospects of the Company or any Company
Subsidiary;
(b) damage, destruction or loss of any property owned by the
Company or any Company Subsidiary, or used in the operation of the
Business, whether or not covered by insurance, having a replacement
cost or fair market value in excess of five percent (5%) of the amount
of net property, plant and equipment shown on the Latest Balance Sheet,
in the aggregate;
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(c) voluntary or involuntary sale, transfer, surrender,
cancellation, abandonment, waiver, release or other disposition of any
kind by the Company or any Company Subsidiary of any right, power,
claim, or debt, except the collection of accounts and billing of
work-in-process, each in the ordinary course of business consistent
with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination or other labor dispute or similar occurrence that is
reasonably expected to adversely affect the Company, a Company
Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary
to any Person, other than as a result of services performed for, or
expenses properly and reasonably advanced for the benefit of, customers
in the ordinary course of business consistent with past custom and
practices;
(f) notice (formal or otherwise) of any liability, potential
liability or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or
other distribution in respect of the Company's capital stock or other
equity interests or any direct or indirect redemption, purchase, or
other acquisition of the Company's or any Company Subsidiary's capital
stock or other equity interests, or the payment of principal or
interest on any note, bond, debt instrument or debt to any Affiliate
(as defined in Section 15.4) of the Company or any Company Subsidiary,
except bonuses and distributions to employees and stockholders of the
Company disclosed to Centerprise in writing that are consistent with
the Company's past custom and practices or as otherwise contemplated by
this Agreement;
(h) incurrence by the Company or any Company Subsidiary of
debts, liabilities or obligations except current liabilities incurred
in connection with or for services rendered or goods supplied in the
ordinary course of business consistent with past custom and practices,
liabilities on account of taxes and governmental charges (but not
penalties, interest or fines in respect thereof), and obligations or
liabilities incurred by virtue of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any
notes, bonds, or other debt securities or any equity securities or
securities convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or
amendment or termination of, any material commitment, contract,
agreement, or transaction, other than in the ordinary course of
business and other than expiration of contracts in accordance with
their terms;
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(k) loss or threatened loss of, or any material reduction or
threatened material reduction in revenues from, any client of the
Company or any Company Subsidiary that accounted for revenues during
the last twelve months in excess of one percent (1%) of the
consolidated net revenues of the Company and the Company Subsidiaries,
or change in the relationship of the Company or any Company Subsidiary
with any client or Governmental Authority that is reasonably expected
to adversely affect the Company, any Company Subsidiary or the
Business;
(l) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or
amortization policies or rates) utilized by the Company or any Company
Subsidiary;
(m) discharge or satisfaction by the Company or any Company
Subsidiary of any material liability or encumbrance or payment by the
Company or any Company Subsidiary of any material obligation or
liability, other than current liabilities paid in the ordinary course
of its business consistent with past custom and practices;
(n) sale, lease or other disposition by the Company or any
Company Subsidiary of any tangible assets (having an aggregate
replacement cost or fair market value in excess of five percent (5%) of
the amount of net property, plant and equipment shown on the Latest
Balance Sheet) other than in the ordinary course of business, or the
sale, assignment or transfer by the Company or any Company Subsidiary
of any trademarks, service marks, trade names, corporate names,
copyright registrations, trade secrets or other intangible assets, or
disclosure of any proprietary confidential information of the Company
or any Company Subsidiary to any Person other than an employee, agent,
attorney, accountant or other representative of the Company that has
agreed to maintain the confidentiality of any such proprietary
confidential information;
(o) capital expenditures or commitments therefor by the
Company or any Company Subsidiary in excess of $50,000 individually or
$100,000 in the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the
Company or any Company Subsidiary or creation of any easements, Liens
or other interests against or on any of the Real Property (as defined
in Section 4.14.1);
(q) adoption, amendment or termination of any Employee Plan
(as defined in Section 4.17.5(a)) or increase in the benefits provided
under any Employee Plan, or promise or commitment to undertake any of
the foregoing in the future; or
(r) an occurrence or event not included in clauses (a) through
(q) that has resulted or, based on information of which the Company has
Knowledge, is reasonably expected to result in a Company Material
Adverse Effect.
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4.10 Litigation. Except as set forth on Schedule 4.10 (which shall
disclose the parties to, nature of and relief sought for each matter to be
disclosed on Schedule 4.10):
4.10.1 There is no suit, action, proceeding, investigation,
claim or order pending or, to the Knowledge of the Company, threatened
against the Company or any Company Subsidiary, or with respect to the
Merger, or with respect to any Employee Plan, or any fiduciary of any
such plan (or pending or, to the Knowledge of the Company, threatened
against any of the officers, directors, members, stockholders, partners
or employees of the Company or any Company Subsidiary with respect to
its business or proposed business activities), or to which the Company
or any Company Subsidiary is otherwise a party, or that is reasonably
expected to have a Company Material Adverse Effect, before any court,
or before any Governmental Authority (each an "Action" and
collectively, the "Actions"); nor, to the Knowledge of the Company, is
there any basis for any such Action.
4.10.2 Neither the Company nor any Company Subsidiary is
subject to any unsatisfied or continuing judgment, order or decree of
any court or Governmental Authority. Neither the Company nor any
Company Subsidiary, to the Knowledge of the Company, is otherwise
exposed, from a legal standpoint, to any liability or disadvantage that
is reasonably expected to result in a Company Material Adverse Effect,
and neither the Company nor any Company Subsidiary is a party to any
legal action to recover monies due it or for damages sustained by it,
other than collection of past due charges for services rendered or
expenses incurred by the Company.
4.10.3 Schedule 4.10 lists the insurer for each Action covered
by insurance or designates such Action, or a portion of such Action, as
uninsured and lists the individual and aggregate policy limits for the
insurance covering each insured Action and the applicable policy
deductibles for each insured Action.
4.10.4 Schedule 4.10 sets forth all material closed litigation
matters to which the Company or any Company Subsidiary was a party
during the five (5) year period preceding the Closing Date, the date
such litigation was commenced and concluded, and the nature of the
resolution thereof (including amounts paid in settlement or judgment).
4.11 Compliance with Applicable Laws. Except as set forth on Schedules
4.11 and 4.19, each of the Company and the Company Subsidiaries has complied in
all material respects with all laws, rules, regulations, writs, injunctions,
decrees, and orders (collectively, the "Laws") applicable to it or to the
operation of the Business, and neither the Company nor any Company Subsidiary
has received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of the Company, no event has occurred or circumstances exist that
(with or without notice or lapse of time) is reasonably expected to constitute
or result in a violation by the Company or any Company Subsidiary of any Law
that gives rise to any liability on the part of the Company or any Company
Subsidiary under any Law.
4.12 Licenses. Schedule 4.12 lists all Licenses used by the Company and
the Company Subsidiaries that are material to the conduct of the Business.
"Licenses" means all notifications, licenses, permits, franchises, certificates,
approvals, exemptions, classifications, registrations and
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other similar documents and authorizations, and applications therefor, held by
the Company or any Company Subsidiary and issued by, or submitted by the Company
or any Company Subsidiary to, any Governmental Authority or other Person, other
than those relating to the practice of public accountancy. Section B of Schedule
4.12 lists all licenses, certificates, approvals, registrations and other
similar documents and authorizations, and applications therefor, relating to the
practice of public accountancy (the "Accounting Licenses") held by the Company
or a Company Subsidiary and issued by, or submitted by the Company or any
Company Subsidiary to, any Governmental Authority or other Person. All such
Licenses and Accounting Licenses are valid, binding and in full force and
effect. Except as described on Schedule 4.12, the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not adversely affect any such Licenses. To the
Knowledge of the Company, the Company and the Company Subsidiaries have taken
all necessary action to maintain such Licenses. Except as set forth on Schedule
4.12, no loss or expiration of any such License is pending or, to the Company's
Knowledge, threatened or reasonably foreseeable.
4.13 Material Contracts. Except as listed or described on Schedule 4.13
(such contracts, or those which should have been listed on Schedule 4.13, are
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments (each a
"Contract" and collectively, the "Contracts") relating to or in any way
affecting the operation or ownership of the Business that are of a type
described below and no such agreements are currently in negotiation or proposed:
(a) any consulting agreement pursuant to which the Company or
a Company Subsidiary is to receive consulting services (other than
consulting agreements that may be terminated by the Company or a
Company Subsidiary on not more than 30 days notice without penalty),
employment agreement, change-in-control agreement, or collective
bargaining arrangement with any labor union;
(b) any Contract for capital expenditures or the acquisition
or construction of fixed assets in excess of $50,000;
(c) any Contract for the purchase, maintenance or acquisition,
or the sale or furnishing, of materials, supplies, merchandise,
machinery, equipment, parts or other property or services (except if
such Contract is made in the ordinary course of business and requires
aggregate future payments of less than $25,000);
(d) any Contract, other than trade payables in the ordinary
course of business, relating to the borrowing of money, or the guaranty
of another Person's borrowing of money, including, without limitation,
any notes, mortgages, indentures and other obligations, guarantees of
performance, agreements and instruments for or relating to any lending
or borrowing, including assumed indebtedness;
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(e) any Contract granting any Person a Lien on all or any part
of the assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions
in connection with Hazardous Materials (as defined in Section 4.19),
the remediation of any existing environmental liabilities or relating
to the performance of any environmental audit or study;
(g) any Contract granting to any Person an option or a first
refusal, first-offer or similar preferential right to purchase or
acquire any material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative
which is not terminable by the Company or a Company Subsidiary upon
ninety (90) calendar days or less notice without penalty;
(i) any Contract under which the Company or any Company
Subsidiary is (A) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property, or (B) a lessor of any
tangible personal property owned by the Company or any Company
Subsidiary, in either case having an original purchase price or
requiring aggregate lease payments in excess of $50,000;
(j) any Contract under which the Company or any Company
Subsidiary has granted or received a license or sublicense or under
which it is obligated to pay or has the right to receive a royalty,
license fee or similar payment, in either case which provides for
payments over the life of such Contract in excess of $25,000;
(k) any Contract concerning an Affiliate Transaction (as
defined in Section 4.21);
(l) any Contract providing for the indemnification or holding
harmless of any officer, director, employee or other Person;
(m) any Contract (A) for purchase or sale by the Company or
any Company Subsidiary of any real property on which the Company or any
Company Subsidiary conducts any aspect of the Business, (B) granting
any options to lease or purchase all or any portion of the Real
Property, or (C) providing for labor, services or materials to the Real
Property (including, without limitation, brokerage or management
services) involving aggregate future payments of more than $25,000;
(n) any Contract limiting, restricting or prohibiting the
Company or any Company Subsidiary from conducting business anywhere in
the United States or elsewhere in the world;
(o) any joint venture or partnership Contract;
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(p) any lease, sublease or associated agreements relating to
the Leased Property (as defined in Section 4.14.1);
(q) any Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the
Company or any Company Subsidiary, which, if amended, modified or
terminated as a result of, relating to or in connection with a failure
to provide prior notice, or gain such consent or approval, would result
in a Company Material Adverse Effect; or
(r) any other Contract, whether or not made in the ordinary
course of business, which involves future payments by the Company or
any Company Subsidiary in excess of $25,000.
The Company has provided Centerprise with a true and complete copy of
each written Material Contract and a true and complete summary of each oral
Material Contract, in each case including all amendments or other modifications
thereto. Except as set forth on Schedule 4.13, each Material Contract is a valid
and binding obligation of, and enforceable in accordance with its terms against,
the Company or a Company Subsidiary, as applicable, and, to the Knowledge of the
Company, the other parties thereto, and is in full force and effect, subject
only to bankruptcy, reorganization, receivership and other laws affecting
creditors' rights generally and equitable principles. Except as set forth on
Schedule 4.13, the Company or one of the Company Subsidiaries, as applicable,
has performed in all material respects all obligations required to be performed
by it as of the date hereof and will have performed in all material respects all
obligations required to be performed by it as of the Closing Date under each
Material Contract and neither the Company or Company Subsidiary, as applicable,
nor, to the Knowledge of the Company, any other party to any Material Contract
is in breach or default thereunder, and, to the Knowledge of the Company, there
exists no condition which would, with or without the lapse of time or the giving
of notice, or both, constitute a breach or default thereunder. The Company has
not been notified that any party to any Material Contract intends to cancel,
terminate, not renew, or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
4.14 Properties.
4.14.1 Schedule 4.14.1-1 is a correct and complete list, and a
brief description of, all real estate in which the Company or any of
the Company Subsidiaries has an ownership interest (the "Owned
Property") and all real property leased by the Company (the "Leased
Property"). Except as lessee of Leased Property, neither the Company
nor any Company Subsidiary is a lessee under or otherwise a party to
any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which another Person has granted to the
Company or any Company Subsidiary the right to use or occupy all or any
portion of any real property.
The Company or one or more of the Company Subsidiaries has
good and marketable fee simple title to the Owned Property and,
assuming good title in the Landlord, a valid
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leasehold interest in the Leased Property (the Owned Property and the
Leased Property being sometimes referred to herein as "Real Property"),
in each case free and clear of all Liens, assessments or restrictions
(including, without limitation, inchoate liens arising out of the
provision of labor, services or materials to any such real estate)
other than (a) mortgages shown on the Financial Statements as securing
specified liabilities or obligations, with respect to which no default
(or event that, with notice or lapse of time or both, would constitute
a default) exists, (b) Liens for current taxes not yet due, (c) (i)
minor imperfections of title, including utility and access easements
depicted on subdivision plats for platted lots that do not impair the
intended use of the property, if any, none of which materially impairs
the current operations of the Company, any Company Subsidiary or the
Business, and (ii) zoning laws and other land use restrictions or
restrictive covenants that do not materially impair the present use of
the property subject thereto, and (d) Liens, assessments, and
restrictions pursuant to and by virtue of the terms of the lease of the
Leased Property. The Real Property constitutes all real properties
reflected on the Financial Statements or used or occupied by the
Company or any Company Subsidiary in connection with the Business or
otherwise.
With respect to the Owned Property, except as reflected on
Schedule 4.14.1-2(a):
(a) the Company or one of the Company Subsidiaries is in
exclusive possession thereof and no easements, licenses or rights are
necessary to conduct the Business thereon in addition to those which
exist as of the date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority
materially adverse to the Owned Property and, to the Knowledge of the
Company, there is no threatened condemnation or proceeding with respect
thereto;
(c) there is no violation of any covenant, condition,
restriction, easement or agreement of any Governmental Authority that
affects the Owned Property or the ownership, operation, use or
occupancy thereof;
(d) no portion of any parcel of the Owned Property is subject
to any roll-back tax, dual or exempt valuation tax, and no portion of
any Owned Property is omitted from the appropriate tax rolls; and
(e) all assessments and taxes currently due and payable on
such Owned Property have been paid.
With respect to the Leased Property, except as reflected on Schedule
4.14.1-2(b):
(i) the Company and/or one of the Company
Subsidiaries is in exclusive, peaceful and undisturbed possession
thereof and, to the Knowledge of the Company, no easements, licenses or
rights are necessary to conduct the Business thereon in addition to
those which exist as of the date hereof; and
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(ii) to the Knowledge of the Company, no portion
thereof is subject to any pending condemnation proceeding or proceeding
by any public or quasi-public authority materially adverse to the
Leased Property and there is no threatened condemnation or proceeding
with respect thereto.
4.14.2 The Latest Balance Sheet and/or Schedule 4.14.2 reflect
all material tangible personal property owned by the Company or any
Company Subsidiary, except as sold or otherwise disposed of or acquired
in the ordinary course of business. Except as set forth on Schedule
4.14.2, the Company or one of the Company Subsidiaries has good and
marketable title to, or a valid leasehold interest in, or valid license
of, such personal property (including, without limitation, machinery,
equipment and computers), in each case free and clear of any Liens
(other than Liens that are part of such leasehold or license), and each
such asset is in working order and has been maintained in a
commercially reasonable manner and does not contain, to the Knowledge
of the Company, any material defect. Except as set forth in Schedule
4.14.2, no personal property (including, without limitation, software
and databases maintained on off-premises computers) used by the Company
or any Company Subsidiary in connection with the Business is held under
any lease, security agreement, conditional sales contract or other
title retention or security arrangement or is located other than on the
Real Property.
4.15 Intellectual Property. The (i) patents, patent applications,
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered trademarks, trade names, company names, assumed
business names and service marks (collectively, the "Marks"), (iii) copyrights
(the "Copyrights"), and (iv) know how, trade secrets, confidential information,
client lists, software, technical information, data, process technology, plans
and drawings (collectively, the "Trade Secrets") owned, used or licensed by the
Company or any Company Subsidiary (collectively, the "Intellectual Property")
are all those necessary to enable the Company and the Company Subsidiaries to
conduct and to continue to conduct the Business substantially as it is currently
conducted. Schedule 4.15 contains a complete and accurate list of all material
Patents, Marks and Copyrights and a brief description of all material Trade
Secrets owned, used by or directly licensed to the Company or any Company
Subsidiary, and a list of all material license agreements and arrangements with
respect to any of the Intellectual Property to which the Company or any Company
Subsidiary is a party, whether as licensee, licensor or otherwise (collectively,
the "Intellectual Property Licenses"). Except as set forth on Schedule 4.15, (i)
all of the Intellectual Property is owned or, to the Knowledge of the Company,
used under a valid Intellectual Property License, by the Company or one of the
Company Subsidiaries, and is free and clear of all Liens and other adverse
claims; (ii) none of the Company nor any Company Subsidiary has received any
written notice that it is or has infringed on, misappropriated or otherwise
conflicted with, or otherwise has Knowledge that it is infringing on,
misappropriating, or otherwise conflicting with the intellectual property rights
of any third parties; (iii) there is no claim pending or, to the Knowledge of
the Company, threatened against the Company or any Company Subsidiary with
respect to the alleged infringement or misappropriation by the Company or
Company Subsidiary, or a conflict with, any intellectual property rights of
others; (iv) the operation of any aspect of the Business in the manner in which
it has heretofore been operated or
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is presently operated does not give rise to any such infringement or
misappropriation; and (v) there is no infringement or misappropriation of the
Intellectual Property by a third party or claim, pending or, to the Knowledge of
the Company, threatened, against any third party with respect to the alleged
infringement or misappropriation of the Intellectual Property.
4.16 Taxes.
4.16.1 Except as set forth on Schedule 4.16.1-1, each of the
Company and the Company Subsidiaries has timely and accurately prepared
and filed or been included in or will timely and accurately prepare and
file or be included in all federal, state, local and foreign returns,
declarations and reports, information returns and statements
(collectively, the "Returns") for Taxes (as defined in Section 4.16.2)
required to be filed by or with respect to the Company or the Company
Subsidiaries before the Closing Date, and has paid or caused to be
paid, or has made adequate provision or set up an adequate accrual or
reserve for the payment of, all Taxes required to be paid in respect of
the periods for which Returns are due on or prior to the Closing Date,
and will establish an adequate accrual or reserve for the payment of
all Taxes payable in respect of the period, including portions thereof,
subsequent to the last of said periods required to be so accrued or
reserved, in each case in accordance with GAAP up to and including the
Closing Date. All such Returns are or will be true and correct in all
material respects. The Company has delivered to Centerprise true and
complete copies of all Returns referred to in the first sentence of
this Section 4.16.1 (including any amendments thereof) for the five (5)
most recent taxable years. Neither the Company nor any Company
Subsidiary is delinquent in the payment of any Tax, and no material
deficiencies for any Tax, assessment or governmental charge have been
threatened, claimed, proposed or assessed. No waiver or extension of
time to assess any Taxes has been given or requested. No written claim,
or any other claim, by any taxing authority in any jurisdiction where
the Company or any Company Subsidiary does not file Tax returns is
pending pursuant to which the Company or Company Subsidiary, as
applicable, is or may be subject to taxation by that jurisdiction. The
Company's and the Company Subsidiaries' Returns were last audited by
the Internal Revenue Service or comparable state, local or foreign
agencies on the dates set forth on Schedule 4.16.1-2.
4.16.2 For purposes of this Agreement, the term "Taxes" shall
mean all taxes, charges, withholdings, fees, levies, penalties,
additions, interest or other assessments, including, without
limitation, income, gross receipts, excise, property, sales,
employment, withholding, social security, occupation, use, service,
service use, license, payroll, franchise, transfer and recording taxes,
fees and charges, windfall profits, severance, customs, import, export,
employment or similar taxes, charges, fees, levies or other
assessments, imposed by the United States, or any state, local, foreign
or provincial government or subdivision or any agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other
basis.
4.17 Employee Benefit Plans; ERISA.
4.17.1 Except as described in Schedule 4.17.1, neither the
Company nor any Company Subsidiary has or is reasonably expected to
have any liability (including
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contingent liability) whether direct or indirect (and regardless of
whether it would be derived from a current or former Plan Affiliate, as
defined in Section 4.17.5(c)) with respect to any of the following
(whether written, unwritten or terminated): (i) any employee welfare
benefit plan, as defined in Section 3(1) of "ERISA," including, but not
limited to, any medical plan, life insurance plan, short-term or
long-term disability plan or dental plan; (ii) any "employee pension
benefit plan," as defined in Section 3(2) of ERISA (as defined in
Section 4.17.5(b)), including, but not limited to, any excess benefit
plan, top hat plan or deferred compensation plan or arrangement,
nonqualified retirement plan or arrangement, qualified defined
contribution or defined benefit arrangement; or (iii) any other benefit
plan, policy, program, arrangement or agreement, including, but not
limited to, any material fringe benefit plan or program, personnel
policy, bonus or incentive plan, stock option, restricted stock, stock
bonus, holiday pay, vacation pay, sick pay, bonus program, service
award, moving expense, reimbursement program, tool allowance, safety
equipment allowance, deferred bonus plan, salary reduction agreement,
change-of-control agreement, employment agreement or consulting
agreement.
4.17.2 A complete copy of each written Employee Plan (as
defined in Section 4.17.5(a)) as amended to the Closing, together with
audited financial statements, if any, for the three (3) most recent
plan years; a copy of each trust agreement or other funding vehicle
with respect to each such plan; a copy of any and all determination
letters, rulings or notices issued by a Governmental Authority with
respect to such plan; a copy of the Form 5500 Annual Report for the
three (3) most recent plan years; and a copy of each and any general
explanation or communication which was required to be distributed or
otherwise provided to participants in such plan and which describes all
or any relevant aspect of each plan, including summary plan
descriptions and/or summary of material modifications, have been
delivered to Centerprise. A description of each unwritten Employee
Plan, including a description of eligibility, participation, benefits,
funding arrangements and assets or other relevant aspects of the
obligation, is set forth in Schedule 4.17.2.
4.17.3 Except as is not reasonably expected to give rise to
any liability (including contingent liability), whether direct or
indirect, to the Company or any Company Subsidiary, each Employee Plan
(i) has been and is operated and administered in compliance with its
terms; (ii) has been and is operated, administered, maintained and
funded in compliance with the applicable requirements of the Code in
such a manner as to qualify, where appropriate and intended, for both
Federal and state purposes, for income tax exclusions, tax-exempt
status, and the allowance of deductions and credits with respect to
contributions thereto; (iii) where appropriate, has received a
favorable determination letter from the Internal Revenue Service upon
which the sponsor of the plan may currently rely; (iv) has been and
currently complies in form and in operation in all respects with all
applicable requirements of ERISA and the Code and any applicable
reporting and disclosure requirements of Federal and state laws,
including but not limited to the requirement of Part 6 of subtitle B of
Title I of ERISA and Section 4980B of the Code. With respect to each
Employee Plan, no Person has: (i) entered into any nonexempt
"prohibited transaction," as such terms are defined in ERISA or the
Code; (ii) breached a fiduciary
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obligation or (iii) any liability for any failure to act or comply in
connection with the administration or investment of the assets of such
plan; and no Employee Plan has any liability and there is no liability
in connection with any Employee Plan, other than a liability (i) which
is expressly and adequately reflected in the Latest Balance Sheets,
(ii) which is discretionary or terminable at will by the Company or one
of the Company Subsidiaries without incurring any such liability, or
(iii) which is adequately funded under a funding arrangement separate
from the assets of the Company, any Company Subsidiary or a Plan
Affiliate (and only to the extent of such funding). Any contribution
made or accrued with respect to any Employee Plan is fully deductible
by the Company, a Company Subsidiary or a Plan Affiliate.
4.17.4 Neither the Company nor any Company Subsidiary or Plan
Affiliate has ever sponsored, maintained, contributed to or been
required to contribute to, or has any liability, whether direct or
indirect, with respect to any Employee Plan which is or has ever been
(i) a "multiemployer plan" as defined in Section 4001 of ERISA, (ii) a
"multiemployer plan" within the meaning of Section 3(37) of ERISA,
(iii) a "multiple employer plan" within the meaning of Code Section
413(c), (iv) a "multiple employer welfare arrangement" within the
meaning of Section 3(40) of ERISA, (v) subject to the funding
requirements of Section 412 of the Code or to Title IV of ERISA, or
(vi) provides for post-retirement medical, life insurance or other
welfare-type benefits.
4.17.5 As used in this Agreement, the following terms shall
have the following respective meanings:
(a) the term "Employee Plan" shall mean any plan,
policy, program, arrangement or agreement described in Section
4.17.1, whether or not scheduled;
(b) the term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended; and
(c) with respect to any Person ("First Person"), the
term "Plan Affiliate" shall mean any other Person with whom
the First Person constitutes or has constituted all or part of
a controlled group, or which would be treated or have been
treated with the First Person as under common control or whose
employees would be or have been treated as employed by the
First Person, under Section 414 of the Code or Section 4001(b)
of ERISA and any regulations, administrative rulings and case
law interpreting the foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no,
and within the last three (3) years neither the Company nor any Company
Subsidiary has experienced any, strike, picketing, boycott, work stoppage or
slowdown or other similar labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor pending or,
to the Knowledge of the Company, threatened against the Company or any Company
Subsidiary, or that is reasonably expected to affect the Company or any Company
Subsidiary; nor, to the Knowledge of the Company, is there
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any basis for any such allegation, charge, or complaint. There is no request for
representation pending and, to the Knowledge of the Company, no question
concerning representation has been raised. There is no grievance pending that is
reasonably expected to result in a Company Material Adverse Effect nor any
arbitration proceeding arising out of a union agreement. To the Knowledge of the
Company, no employee who is key to the Business and no group of employees has
announced or otherwise indicated any plans to terminate employment with the
Company or any Company Subsidiary. Each of the Company and any Company
Subsidiary has complied with all applicable laws relating to the employment of
labor, including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes.
Neither the Company nor any Company Subsidiary is liable for any arrears of
wages or any taxes or penalties for failure to comply with any such laws,
ordinances or regulations.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19,
(i) each of the Company and the Company Subsidiaries is operating and has
operated its business in compliance with all applicable Environmental and Safety
Requirements (as defined later in this Section); (ii) to the actual knowledge of
the Board of Directors of the Company, without any duty to inquire
(notwithstanding the definition of "Knowledge" in Section 15.4), there are no
Hazardous Materials (as defined later in this Section) present at, on or under
any real property currently or formerly owned, leased or used by the Company or
Company Subsidiary (other than those present in office supplies and
cleaning/maintenance materials) for which the Company or a Company Subsidiary is
or is reasonably expected to be responsible, or otherwise have any liability,
for response costs under any Environmental and Safety Requirements; (iii) each
of the Company and the Company Subsidiaries has disposed of all waste materials
generated by the Company or such Company Subsidiary at any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
in compliance with applicable Environmental and Safety Requirements; and (iv)
there are and have been no facts, events, occurrences or conditions at or
related to any real property currently or formerly owned, leased or used by the
Company or Company Subsidiary that is reasonably expected to cause or give rise
to liabilities or response obligations of the Company or any Company Subsidiary
under any Environmental and Safety Requirements. The term "Environmental and
Safety Requirements" means any federal, state and local laws, statutes,
regulations or other requirements relating to the protection, preservation or
conservation of the environment or worker health and safety, all as amended or
reauthorized. The term "Hazardous Materials" means "hazardous substances," as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq., "hazardous wastes," as defined by the
Resource Conservation Recovery Act, 42 U.S.C. Section 6901 et seq., asbestos in
any form or condition, polychlorinated biphenyls and any other material,
substance or waste to which liability or standards of conduct may be imposed
under any Environmental and Safety Requirement.
4.20 Insurance. Each of the Company and the Company Subsidiaries has in
full force and effect commercially reasonable amounts of insurance to protect
the Company's and Company Subsidiaries' ownership or interest in, and operation
of, its assets against the types of liabilities, including professional
malpractice, customarily insured against in connection with operations similar
to the Business, and all premiums due on such policies have been paid. To the
Company's Knowledge, each of the Company and the Company Subsidiaries has
complied with the provisions of all such policies and is not in default under
any of such policies. Schedule 4.20 contains a
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complete and correct list of all such insurance policies. None of the Company
nor any Company Subsidiary has received any notice of cancellation or intent to
cancel or increase premiums with respect to such insurance policies. Schedule
4.20 also contains a list of all claims or asserted claims reported to insurers
under such policies relating to the ownership or interest in the Company's and
the Company Subsidiaries' assets, or operation of the Business, including all
professional malpractice claims and similar types of claims, actions or
proceedings asserted against the Company or any Company Subsidiary arising out
of the Business at any time within the past three (3) years.
4.21 Interest in Customers and Suppliers; Affiliate Transactions.
Except as described on Schedule 4.21 and except for ownership as an investment
of not more than one percent (1%) of any class of capital stock of any
publicly-traded company, none of the Company nor any Affiliate of the Company
nor or any Company Subsidiary nor any stockholder of the Company (i) possesses,
directly or indirectly, any financial interest in, or is a director, officer,
employee or affiliate of, any Person that is a client, supplier, customer,
lessor, lessee or competitor of the Company or any Company Subsidiary, (ii)
owns, directly or indirectly, in whole or in part, or has any interest in any
tangible or intangible property used in the conduct of the Business, or (iii) is
a party to an agreement or relationship, that involves the receipt by such
Person of compensation or property from the Company or any Company Subsidiary
other than through a customary employment relationship or through distributions
made with respect to the Company Stock or equity interests in any Company
Subsidiary (provided such distributions have been made consistent with the
Company's or any Company Subsidiary's, as the case may be, past custom and
practices). Schedule 4.21 sets forth the parties to and the date, nature and
amount of each transaction during the last five years involving the transfer of
any cash, property or rights to or from the Company or any Company Subsidiary
from, to or for the benefit of any Affiliates (other than customary employment
relationships or distributions made with respect to the Company Stock)
("Affiliate Transactions"), and any existing commitments of the Company or any
Company Subsidiary to engage in the future in any Affiliate Transactions. Except
as disclosed, each Affiliate Transaction and each transaction with former
Affiliates of the Company or any Company Subsidiary was effected on terms
equivalent to those that would have been established in an arm's-length
transaction.
4.22 Business Relationships. Schedule 4.22 lists all clients of the
Company and each Company Subsidiary representing one percent (1%) or more of the
Company's consolidated net revenue for the twelve (12) months ended December 31,
1998. Except as set forth on Schedule 4.22, since December 31, 1998, none of
such clients has canceled or substantially reduced its business with the Company
or Company Subsidiary, as applicable, nor are any of such clients threatening to
do so. To the Knowledge of the Company, no client that accounts for one percent
(1%) or more of the Company's consolidated net revenue, or supplier of the
Company or any Company Subsidiary, will cease to do business with, or
substantially reduce its business with, the Company or any Company Subsidiary,
as applicable, after the consummation of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
names and current total compensation, including, without limitation, salary and
bonuses paid to employees and draws or other distributions paid to partners,
members or owners of each Person who earned from the
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Company or a Company Subsidiary in 1998 total compensation in excess of
$100,000. Except as set forth in Schedule 4.23, no Person listed thereon has
received any bonus or increase in compensation and there has been no "general
increase" in the compensation or rate of compensation payable to any employees,
partners, members or owners of the Company or any Company Subsidiary since the
date of the Latest Balance Sheet, other than in the Company's and Company
Subsidiaries' ordinary course of business, consistent with past custom and
practices, nor since that date has there been any oral or written promise to
employees, partners, members or owners of any bonus or increase in compensation,
other than in the Company's and Company Subsidiaries' ordinary course of
business, consistent with past custom and practices. The term "general increase"
as used herein means any increase generally applicable to a class or group, but
does not include increases granted to individuals for merit, length of service
or change in position or responsibility made on the basis of the custom and past
practices of the Company or any Company Subsidiary. Schedule 4.23 includes the
date and amount of the last bonus or similar distribution or increase in
compensation for each listed individual.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each
bank in which the Company or any Company Subsidiary has an account or safe
deposit box, the number of each such account or box, and the names of all
Persons authorized to draw thereon or to have access thereto.
4.25 Disclosure; No Misrepresentation. No representation or warranty of
the Company contained in this Agreement or in any of the certification,
schedules, lists, documents, exhibits, or other instruments delivered or to be
delivered to Centerprise as contemplated by any provision hereof contains any
untrue statement regarding a material fact or omits to state a material fact
necessary in order to make the statements made herein or therein not misleading.
To the Knowledge of the Company, there is no fact or circumstance that has not
been disclosed to Centerprise herein that has or is reasonably expected to have
a Company Material Adverse Effect.
ARTICLE V
[RESERVED]
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE
Centerprise represents and warrants to the Company as of March 31, 1999
and, subject to Section 7.3, as of the date on which Centerprise and the lead
Underwriter execute and deliver the Underwriting Agreement related to the IPO
and as of the Closing Date as follows:
6.1 Organization And Qualification. Each of Centerprise and Mergersub
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. True, accurate and complete
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copies of each of Centerprise's and Mergersub's Certificate of Incorporation and
By-laws, as in effect on the date hereof, including all amendments thereto, have
heretofore been delivered to the Company.
6.2 Capitalization.
6.2.1 The authorized capital stock of Centerprise consists of
20,000 shares of Centerprise Common Stock, of which 17,500 shares are
outstanding as of the date hereof. All of the issued and outstanding
shares of Centerprise Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights. Immediately prior to
the Closing Date, the authorized capital stock of Centerprise will
consist of 50,000,000 shares of Centerprise Common Stock, of which the
number of shares set forth in the Form S-1 will be issued and
outstanding, and 10,000,000 shares of Preferred Stock, par value $0.01
per share, none of which will be issued and outstanding. Other than (i)
shares of Centerprise Common Stock issued pursuant to a split of the
shares outstanding as of the date of this Agreement, (ii) shares of
Centerprise Common Stock issued in accordance with the Acquisition and
the Other Acquisitions, and (iii) shares of Centerprise Common Stock
that may be issued to new members of management in lieu of shares
previously issued to current members of management, but which will not
increase the number of shares of outstanding Centerprise Common Stock,
no shares of Centerprise Common Stock will be issued prior to the
consummation of the IPO. Mergersub's authorized capital stock consists
solely of 1,000 shares of common stock, par value $.01 per share (the
"Mergersub Stock"), all of which are issued and outstanding, are owned
free and clear of any Liens by Centerprise, and are fully paid,
nonassessable and free of preemptive rights.
6.2.2 Except as set forth on Schedule 6.2, as of the date
hereof, there are no outstanding subscriptions, options, calls,
contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under
any outstanding security, instrument or other agreement obligating
Centerprise to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock of Centerprise or
obligating Centerprise to grant, extend or enter into any such
agreement or commitment. There are no voting trusts, proxies or other
agreements or understandings to which Centerprise is a party or is
bound with respect to the voting of any shares of capital stock of
Centerprise. The shares of Centerprise Common Stock issued to the
Company's stockholders in the Acquisition will at the Closing Date be
duly authorized, validly issued, fully paid and nonassessable and free
of preemptive rights and issued pursuant to a registration statement as
required by the 1933 Act or an exemption therefrom.
6.3 No Subsidiaries. Except for Centerprise's ownership of 100% of the
capital stock of Professional Service Group, Inc., a Delaware corporation, and
Mergersub (and similar entities created for similar purposes with respect to the
Other Agreements) Centerprise has no subsidiaries and it does not own any
capital stock of any corporation or any equity or other interest of any nature
whatsoever in any Person.
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6.4 Authority; Non-Contravention; Approvals.
6.4.1 Each of Centerprise and Mergersub has all requisite
right, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has
been approved by the Boards of Directors of Centerprise and Mergersub,
and no other corporate proceedings on the part of Centerprise or
Mergersub are necessary to authorize the execution and delivery of this
Agreement or the consummation by Centerprise and Mergersub of the
transactions contemplated hereby. This Agreement has been duly executed
and delivered by Centerprise and Mergersub and, assuming the due
authorization, execution and delivery hereof by the Company constitutes
a valid and legally binding agreement of Centerprise and Mergersub,
enforceable against each of them in accordance with its terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and (ii) general
equitable principles.
6.4.2 The execution and delivery of this Agreement by
Centerprise and Mergersub does not violate, conflict with or result in
a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any of
the properties or assets of Centerprise and Mergersub under any of the
terms, conditions or provisions of (i) the Certificate of Incorporation
or By-laws of Centerprise or Mergersub, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or Governmental Authority applicable to
Centerprise or Mergersub or any of their respective properties or
assets, or (iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Centerprise or
Mergersub is now a party or by which Centerprise, Mergersub or any of
their respective properties or assets, may be bound or affected, except
those items described in clause (ii) relating to regulating, licensing
or permitting the practice of public accountancy. The consummation by
Centerprise and Mergersub of the transactions contemplated hereby will
not result in any violation, conflict, breach, right of termination or
acceleration or creation of Liens under any of the terms, conditions or
provisions of the items described in clauses (i) through (iii) of the
immediately preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (ii) above,
to obtaining (prior to the Closing Date) Centerprise Required Statutory
Approvals and except for those items described in (ii) above relating
to regulating, licensing or permitting the practice of public
accountancy.
6.4.3 Except with respect to (i) the declaration of the
effectiveness of the Registration Statements by the SEC and filings, if
required, with various state securities or "blue sky" authorities, (ii)
any filing which may be required under the HSR Act, (iii) any filing
which may be required by any Governmental Authority or self-regulatory
organization regulating, licensing or permitting the practice of public
accountancy (the filings and approvals referred to in clauses (i)
through (iii) are collectively referred to as the
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"Centerprise Required Statutory Approvals") no declaration, filing or
registration with, or notice to, or authorization, consent or approval
of, any governmental or regulatory body or authority is necessary for
the execution and delivery of this Agreement by Centerprise or
Mergersub or the consummation by Centerprise or Mergersub of the
transactions contemplated hereby, other than such declarations,
filings, registrations, notices, authorizations, consents or approvals
which, if not made or obtained, as the case may be, are not reasonably
expected to, in the aggregate, have a material adverse effect on the
business operations, properties, assets, condition (financial or
other), results of operations or prospects of Centerprise and its
subsidiaries, taken as a whole (a "Centerprise Material Adverse
Effect").
6.5 Absence of Undisclosed Liabilities. Except as set forth on Schedule
6.5, neither Centerprise nor Mergersub has incurred any liabilities or
obligations (whether known or unknown, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise) of any nature. Except as set
forth on Schedule 6.5, neither Centerprise nor Mergersub has engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is it bound by any obligation or undertaking.
6.6 Litigation. There are no claims, suits, actions or proceedings
pending or, to the Knowledge of Centerprise, threatened against, relating to or
affecting Centerprise or Mergersub, before any court, Governmental Authority or
any arbitrator that seek to restrain or enjoin the consummation of the
Acquisition or the IPO or which could reasonably be expected, either alone or in
the aggregate with all such claims, actions or proceedings, to have a
Centerprise Material Adverse Effect. Centerprise is not subject to any
unsatisfied or continuing judgment, order or decree of any court or Governmental
Authority. Centerprise is not a party to any legal action to recover monies due
it or for damages sustained by it.
6.7 Compliance with Applicable Laws. Each of Centerprise and Mergersub
has complied in all material respects with all Laws applicable to it, and has
not received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of Centerprise, no event has occurred or circumstances exist that
(with or without notice or lapse of time) may constitute or result in a
violation by Centerprise or Mergersub of any Law or may give rise to any
liability on the part of the Centerprise or Mergersub under any Law.
6.8 No Misrepresentation. None of the representations and warranties of
Centerprise or Mergersub set forth in this Agreement or in any of the
certificates, schedules, lists, documents, exhibits, or other instruments
delivered or to be delivered to the Company as contemplated by any provision
hereof contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. To the Knowledge of Centerprise, there is no fact or circumstance
that has not been disclosed to the Company herein that has or is reasonably
expected to have a Company Material Adverse Effect.
ARTICLE VII
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CERTAIN COVENANTS AND OTHER TERMS
7.1 Conduct of Business by the Company Pending the Acquisition.
7.1.1 Except as otherwise contemplated by this Agreement,
after the date hereof and prior to the Closing Date or earlier
termination of this Agreement, unless Centerprise shall otherwise agree
in writing, the Company shall, and shall cause each Company Subsidiary
to:
(a) in all material respects conduct the Business in
the ordinary and usual course and consistent with past customs
and practices;
(b) not (i) amend its Organizational Documents except
as necessary to complete the Conversion, (ii) split, combine
or reclassify its outstanding capital stock or (iii) declare,
set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise except dividends or distributions
which (A) are consistent with past customs and practices and
(B) do not result in a Company Material Adverse Effect;
(c) not issue, sell, pledge or dispose of, or agree
to issue, sell, pledge or dispose of (i) any additional shares
of, or any options, warrants or rights of any kind to acquire
any shares of, its capital stock or equity interests of any
class, (ii) any debt with voting rights or (iii) any debt or
equity securities convertible into or exchangeable for, or any
rights, warrants, calls, subscriptions, or options to acquire,
any such capital stock, debt with voting rights or convertible
securities;
(d) not (i) incur or become contingently liable with
respect to any indebtedness for borrowed money other than (A)
borrowings in the ordinary course of business in a manner
consistent with past customs and practices or (B) borrowings
to refinance existing indebtedness on commercially reasonable
terms, (ii) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or equity interests or
any options, warrants or rights to acquire any of its capital
stock or equity interests or any security convertible into or
exchangeable for its capital stock or equity interests, (iii)
sell, pledge, dispose of or encumber any assets or businesses
other than dispositions in the ordinary course of business in
a manner consistent with past customs and practices (iv) enter
into any contract, agreement, commitment or arrangement with
respect to any of the foregoing;
(e) use commercially reasonable efforts to (i)
preserve intact its business organizations and goodwill, (ii)
keep available the services of its present officers and key
employees, and (iii) preserve the goodwill and business
relationships with clients and others having business
relationships with it and not engage in any action, directly
or indirectly, with the intent to adversely impact the
transactions contemplated by this Agreement;
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(f) confer on a regular and frequent basis with one
or more representatives of Centerprise to report operational
matters of materiality and the general status of ongoing
operations;
(g) except as contemplated by Schedule 4.9, not (i)
increase in any manner the base compensation of, or enter into
any new bonus or incentive agreement or arrangement with, any
of its employees, partners, members or owners, except in the
ordinary course of business in a manner consistent with past
customs and practices of the Company or any Company
Subsidiary, as applicable, (ii) pay or agree to pay any
additional pension, retirement allowance or other employee
benefit under any Employee Plan to any such Person, whether
past or present, (iii) enter into any new employment,
severance, consulting, or other compensation agreement with
any of its existing employees, partners, members or owners,
(iv) amend or enter into a new Employee Plan (except as
required by Law) or amend or enter into a new collective
bargaining agreement, or (v) engage in any new Affiliate
Transaction;
(h) comply in all material respects with all
applicable Laws;
(i) not make any material investment in, directly or
indirectly, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any
other manner, any businesses or any Person or division thereof
or otherwise acquire or agree to acquire any assets in each
case which are material to it other than in the ordinary
course of business in a manner consistent with past customs
and practices;
(j) not sell, lease, license, encumber or otherwise
dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of its assets other than in the
ordinary course of business, consistent with past customs and
practices;
(k) maintain with financially responsible insurance
companies insurance on its tangible assets and its businesses
in such amounts and against such risks and losses in a manner
consistent with past customs and practices in all material
respects; and
(l) collect and bill receivables in the ordinary and
usual course and consistent with past custom and practices.
7.1.2 Notwithstanding the fact that such action might
otherwise be permitted pursuant to this Article, the Company shall not
take, or permit any Company Subsidiary to take, any action that would
or is reasonably likely to result in any of the representations or
warranties of the Company set forth in this Agreement being untrue or
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in any of the conditions to the consummation of the transactions
contemplated hereunder set forth in Article X not being satisfied.
7.1.3 Prior to the Closing, (i) the Company shall terminate,
without any liability to the Company or the Company Subsidiaries, all
agreements relating to the voting of the Company's capital stock, and
all agreements and obligations of the Company and the Company
Subsidiaries relating to borrowed money and/or involving payments to or
for the benefit of a present or former stockholder of the Company, or
an Affiliate or family member of a present or former stockholder of the
Company, including without limitation those set forth on Schedule
7.1.4(i), but excluding (A) debt reflected on Schedule 2.1 as Debt
Assumed By Centerprise, (B) items reflected on Schedule 2.6, (C)
agreements and obligations to the extent such agreements and
obligations result in Indirect Costs under the Incentive Compensation
Agreement, (D) that certain Second Amended and Restated Shareholders'
and Non-Shareholder Officers' Agreement dated as of December 31, 1998,
a true and complete copy of which has been delivered to Centerprise
(the "Company Shareholders' Agreement"), and which Company
Shareholders' Agreement shall not be amended further, and (E) items
approved by Centerprise in writing; and (ii) notwithstanding anything
contained in this Section 7.1 to the contrary, the Company will
transfer and distribute the assets listed on Schedule 7.1.4(ii) (the
"Excluded Assets") to the Persons listed on Schedule 7.1.4(ii), subject
to all liabilities and obligations of any nature (whether known or
unknown, accrued, absolute, contingent, direct, indirect, perfected,
inchoate, unliquidated or otherwise) relating to the Excluded Assets
(collectively, the "Excluded Liabilities"); provided, however, that
prior to the Closing, the Company shall obtain novations or other
releases or agreements discharging the Company from all Excluded
Liabilities (so that the respective Excluded Liabilities will become
direct liabilities and obligations, of the assignee), and provide
copies thereof to Centerprise.
7.2 No-Shop.
(a) After the date hereof and prior to the Closing Date or
earlier termination of this Agreement, the Company shall (i) not, and
the Company shall use its diligent efforts to cause the Company
Subsidiaries and any officer, director or employee of, or any attorney,
accountant, investment banker, financial advisor or other agent
retained by the Company or any Company Subsidiary not to, initiate,
solicit, negotiate, encourage, or provide non-public or confidential
information to facilitate, any proposal or offer to acquire all or any
substantial part of the business and properties of the Company or any
Company Subsidiary, or any capital stock or other equity interests the
Company or any Company Subsidiary, whether by merger, purchase of
assets or otherwise, whether for cash, securities or any other
consideration or combination thereof, or enter into any joint venture
or partnership or similar arrangement, and (ii) promptly advise
Centerprise of the terms of any communications the Company may receive
or become aware of relating to any bid for part or all of the Company
or any Company Subsidiary. Notwithstanding the foregoing, if the
underwriters' internal sales force presentation or "road show" for the
IPO has not started by October 15, 1999, then from and after such date,
the Company may (through its authorized agents) conduct limited
discussions with potential acquirers of the Company for
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the sole purpose of assessing the potential terms and conditions of an
acquisition proposal involving the Company. Notwithstanding the
preceding sentence, the Company shall not (i) disclose any non-public
or confidential information regarding the Company to any such third
party or (ii) enter into any agreement (including a letter of intent or
term sheet) with such third party unless this Agreement has been
terminated pursuant to Article XI.
(b) The Company (i) acknowledges that a breach of any of its
covenants contained in this Section 7.2 will result in irreparable harm
to Centerprise which will not be compensable in money damages; and (ii)
agrees that such covenant shall be specifically enforceable and that
specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
7.3 Schedules. Each party hereto agrees that with respect to the
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement or amend and deliver to the other parties all the schedules to this
Agreement (the "Schedules") to correct any matter which would constitute a
breach of any such party's representations and warranties herein; provided,
however, that no amendment or supplement to a Schedule that constitutes or
reflects a Company Material Adverse Effect or affects Schedule 4.2, Schedule 4.4
or Schedule 8.8 may be made unless Centerprise and a majority of the Founding
Companies consent to such amendment or supplement. No amendment of or supplement
to a Schedule shall be made later than three (3) business days prior to the
anticipated effectiveness of the Form S-1. For all purposes of this Agreement,
including, without limitation, for purposes of determining whether the
conditions set forth in Sections 10.2 and 10.3 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 7.3. In the event that (i) one of the other Founding
Companies seeks to amend or supplement a Schedule pursuant to Section 7.3 of one
of the Other Agreements, (ii) such amendment or supplement constitutes or
reflects a Company Material Adverse Effect (as defined in such Other Agreement)
or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8 of such Other Agreement,
and (iii) Centerprise and a majority of the Founding Companies consent to such
amendment or supplement, but the Company does not, the Company may terminate
this Agreement at any time prior to the Closing Date. In the event that (i) the
Company seeks to amend or supplement a Schedule pursuant to this Section 7.3,
(ii) such amendment or supplement constitutes or reflects a Company Material
Adverse Effect or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8, and (iii)
Centerprise and a majority of the Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section 7.3,
unless this Agreement is so terminated in connection with an amendment of or
supplement to a Schedule relating to the Company's breach of a representation or
warranty as of March 31, 1999 in which case the Company shall pay to
Centerprise, as Centerprise's exclusive remedy (notwithstanding anything to the
contrary) and as liquidated damages, and not as a penalty, an amount equal to
$2,000,000 (the "Liquidated Damages Amount"). The Company agrees that in the
case of such termination Centerprise and the Founding Companies (excluding the
Company) will sustain immediate and irreparable economic
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harm and loss of goodwill and that actual losses suffered by such parties will
be difficult, if not impossible, to ascertain, but the Liquidated Damages Amount
set forth herein is reasonable and has been arrived at after a good faith effort
to estimate such losses. Payment of the Liquidated Damages Amount shall be made
in cash to Centerprise within thirty (30) days of a termination pursuant to this
Section 7.3 in connection with an amendment of or supplement to a Schedule
relating to a breach of a representation or warranty as of the date of this
Agreement.
7.4 Company Stockholders Meeting. The Company shall take all action in
accordance with applicable Laws and its Organizational Documents necessary to
duly call, give notice of, convene and hold a meeting of the Company's
stockholders to be held on the earliest practicable date determined in
consultation with Centerprise to consider and vote upon approval of the Merger,
this Agreement and the transactions contemplated hereby. The Company shall
solicit the approval of the Merger, this Agreement and the transactions
contemplated hereby by Company's stockholders, and the Company's Board of
Directors shall recommend approval of the Merger, this Agreement and the
transactions contemplated hereby by the Company's stockholders. If the Merger,
this Agreement and the transactions contemplated hereby are approved by the
Company's stockholders, the Company shall not call, give notice of, convene or
hold any other meeting of its stockholders to rescind or modify such approval or
to consider any other transaction.
7.5 Conversion. Prior to the Closing but effective only if, as and when
the Closing occurs, the Company shall complete the Conversion pursuant to
applicable law and present such evidence of the Conversion at the Closing, as
Centerprise or its counsel may require.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Access to Information.
8.1.1 The Company shall and shall cause the Company
Subsidiaries to afford to Centerprise and its accountants, counsel,
financial advisors and other representatives, including without
limitation the underwriters engaged in connection with the IPO (each an
"Underwriter" and collectively, the "Underwriters") and their counsel
(collectively, the "Centerprise Representatives"), and to the other
Founding Companies and their accountants, counsel, financial advisors
and other representatives, and Centerprise shall afford to the Company
and their accountants, counsel, financial advisors and other
representatives (the "Company Representatives"), upon reasonable
notice, full access during normal business hours throughout the period
prior to the Closing Date to all of its respective properties, books,
contracts, commitments and records (including, but not limited to,
financial statements and Tax Returns) and, during such period, shall
furnish promptly to one another all due diligence information requested
by the other party. Centerprise shall hold and shall use its best
efforts to cause the Centerprise Representatives to hold, and the
Company shall hold and shall use their best efforts to cause the
Company Representatives to hold, in strict confidence all non-public
information furnished to it in connection with the
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transactions contemplated by this Agreement, except that each of
Centerprise, the Company may disclose any information that it is
required by law or judicial or administrative order to disclose. In
addition, Centerprise will cause each of the other Founding Companies
and their members and stockholders to enter into a provision similar to
this Section 8.1 requiring each such Founding Company to keep
confidential any information obtained by such Founding Company in
connection with the transactions contemplated by this Agreement.
8.1.2 In the event that this Agreement is terminated in
accordance with its terms, each party shall promptly return to the
disclosing party all non-public written material provided pursuant to
this Section 8.1 or pursuant to the Other Agreements and shall not
retain any copies, extracts or other reproductions of such written
material. In the event of such termination, all documents, memoranda,
notes and other writings prepared by Centerprise or the Company based
on the information in such material shall be destroyed (and Centerprise
and the Company shall use their respective reasonable best efforts to
cause their advisors and representatives to similarly destroy such
documents, memoranda and notes), and such destruction (and reasonable
best efforts) shall be certified in writing by an authorized officer
supervising such destruction.
8.2 Registration Statements.
8.2.1 Centerprise has filed the Registration Statements with
the SEC and shall use all reasonable efforts to have the Registration
Statements declared effective by the SEC as promptly as practicable.
Centerprise shall also take any action required to be taken under
applicable state "blue sky" or securities laws in connection with the
issuance of Centerprise Common Stock. Centerprise and the Company shall
promptly furnish to each other all information, and take such other
actions, as may reasonably be requested in connection with making such
filings. All information provided and to be provided by Centerprise and
the Company, respectively, for use in the Registration Statements shall
be true and correct in all material respects without omission of any
material fact which is required to make such information not false or
misleading as of the date thereof and in light of the circumstances
under which given or made. The Company agree promptly to advise
Centerprise if at any time during the period in which a prospectus
relating to the offering or the Merger is required to be delivered
under the Securities Act, any information contained in the prospectus
concerning the Company or the Company Subsidiaries becomes incorrect or
incomplete in any material respect, and to provide the information
needed to correct such inaccuracy or remedy such incompletion.
8.2.2 Centerprise agrees that it will provide to the Company
and its counsel copies of drafts of the Registration Statements (and
any amendments thereto) containing material changes to the information
therein as they are prepared and will not (i) file with the SEC, (ii)
request the acceleration of the effectiveness of or (iii) circulate any
prospectus forming a part of, the Registration Statements (or any
amendment thereto) unless the Company and its counsel (x) have had at
least two days to review the revised information contained therein
(which changes shall be highlighted by computer generated marks
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indicating the additions and deletions made from the prior draft
reviewed by the Company's counsel) and (y) have not objected to the
substance of the information contained therein. Any objections posed by
the Company or its counsel shall be in writing and state with
specificity the material in question, the reason for the objection, and
the Company's proposed alternative. If the objection is founded upon a
rule promulgated under the Securities Act, the objection shall cite the
rule. Notwithstanding the foregoing, during the five (5) business days
immediately preceding the date scheduled for the filing of the
Registration Statements and any amendment thereto, the Company and its
counsel shall be obligated to respond to proposed changes
electronically transmitted to them within two (2) hours from the time
the proposed changes (in the case of the initial filing of the
Registration Statements, from the last circulated draft of the
Registration Statements; and, in the case of any subsequent filing of
the Registration Statements or any amendment thereof, from the most
recently filed Registration Statements or amendment thereof) are
transmitted to the Company's counsel; provided, that, Centerprise has
provided to the Company or its counsel reasonable advance notice of
such proposed changes; provided, further, that such changes are
highlighted by computer generated marks indicating the additions and
deletions made from the prior draft reviewed by the Company's counsel.
8.2.3 Centerprise will advise the Stockholder Representative
of the effectiveness of the Registration Statements, advise the
Stockholder Representative of the entry of any stop order suspending
the effectiveness of the Registration Statements or the initiation of
any proceeding for that purpose, and, if such stop order shall be
entered, use its best efforts promptly to obtain the lifting or removal
thereof. Upon the written request of the Company Centerprise will
furnish to the Company a reasonable number of copies of the final
prospectus associated with the IPO.
8.3 Expenses and Fees. Centerprise shall pay the fees and expenses of
the independent public accountants and legal counsel to Centerprise and all
filing, printing and other reasonable, documented fees and expenses associated
with the IPO and Form S-4. The Company and its stockholders will not be liable
for any portion of the above expenses in the event the IPO is not completed.
Centerprise shall also pay the underwriting discounts and commissions payable in
connection with the sale of Centerprise Common Stock in the IPO. All other costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
8.4 Agreement to Cooperate. Subject to the terms and conditions herein
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
8.5 Public Statements. Except as may be required by law, no party
hereto nor any Affiliate of any party hereto shall issue any press release or
any written public statement with respect to this Agreement or the transactions
contemplated by this Agreement or the Other Agreements without the prior written
consent of Centerprise and the Company.
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8.6 [Reserved]
8.7 Centerprise Covenants. After the date hereof and prior to the
Closing Date or earlier termination of this Agreement in accordance with its
terms, Centerprise shall comply in all material respects with all applicable
Laws. Centerprise shall not take any action that would or is reasonably likely
to result in any of the representations or warranties of Centerprise set forth
in this Agreement being untrue or in any of the conditions to the consummation
of the transactions contemplated hereunder set forth in Article X not being
satisfied.
8.8 Release of Guarantees. Centerprise shall use all commercially
reasonable efforts and good faith to have the Company's stockholders released
from any and all guarantees on any indebtedness and leases that they personally
guaranteed for the benefit of the Company as set forth on Schedule 8.8, with all
such guarantees on indebtedness and leases being assumed by Centerprise, if
necessary to achieve such releases. If any guaranteed indebtedness is repaid in
full with proceeds from the IPO and the Company's stockholders' guarantees
thereafter shall have no further force or effect, then Centerprise shall not be
obligated to use any efforts to obtain a release of such guarantee. In the event
that Centerprise cannot obtain such releases from the lenders of any such
guaranteed indebtedness or lessors of any guaranteed leases, Centerprise agrees
to indemnify, defend and hold harmless the Company's stockholders against any
and all claims made by lenders or landlords under such guarantees.
8.9 [Reserved]
8.10 Preparation and Filing of Tax Returns.
8.10.1 The Company shall be responsible for causing the timely
filing of the final pre-Closing Returns for the Company and the Company
Subsidiaries; provided, however, that Centerprise and its advisors
shall have the right to review and approve such returns prior to
filing, which approval shall not be unreasonably withheld. Centerprise
shall, and shall cause its Affiliates to, provide to the Company such
cooperation and information reasonably requested in filing any return,
amended return or claim for refund, determining a liability for Taxes
or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. The Company shall bear all costs of
filing such returns.
8.10.2 Each of the Company and Centerprise shall comply with
the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction
as subject to the provisions of Section 351 of the Code.
8.11 Maintenance of Insurance. The Company covenants and agrees that
all insurance policies listed, or required to be listed, on Schedule 4.20 will
be maintained in full force and effect through the Closing Date.
8.12 Administration. After the Closing, at the request of the
Stockholder Representative, Centerprise shall, directly or through one or more
of its subsidiaries, administer
37
<PAGE>
and manage the collection of amounts referred to on Schedule 7.1.4(ii) using
reasonable care and in accordance with the Company's policies in effect at
Closing.
8.13 Stockholder Representative. The Company appoints Robert Gallo and
Russell Minetti (the "Stockholder Representative") as its agent and
representative with full power and authority to agree, contest or settle any
claim or dispute affecting the Company made under Article II and to otherwise
act on behalf of the Company and its stockholders in accordance with the terms
of this Agreement.
ARTICLE IX
[RESERVED]
ARTICLE X
CLOSING CONDITIONS
10.1 Conditions to Each Party's Obligation to Effect the Acquisition.
The respective obligations of each party to effect the Acquisition shall be
subject to the fulfillment at or prior to the Closing of the following
conditions:
(a) the Underwriting Agreement related to the IPO shall have
been executed and the closing of the sale of Centerprise Common Stock
to the Underwriters pursuant thereto shall have occurred simultaneously
with the Closing hereunder;
(b) the closings of the transactions contemplated under each
of the Other Agreements shall have occurred simultaneously with the
Closing hereunder, unless terminated in accordance with Section 7.3 of
the applicable Other Agreement;
(c) the Registration Statements shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in
effect and no proceeding for that purpose shall have been instituted by
the SEC or any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or
decree shall be pending before or issued by any federal or state court
which seeks to prevent or prevents the consummation of the IPO, the
Acquisition or any of the Other Acquisitions shall have been issued and
remain in effect;
(e) the minimum price condition set forth on Schedule 2.1
shall have been satisfied;
38
<PAGE>
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government
or governmental agency in the United States which would prevent the
consummation of the Acquisition or any of the Other Acquisitions or
make the consummation of the Acquisition or any of the Other
Acquisitions illegal;
(g) all material governmental and third party waivers,
consents and approvals required for the consummation of the Acquisition
or any of the Other Acquisitions and the transactions contemplated
hereby and by the Other Agreements (including, without limitation, any
consents listed on Schedules 4.3.2 or 4.12) shall have been obtained
and be in effect;
(h) no action, suit or proceeding with respect to the
Acquisition has been filed or threatened by a third party and remains
threatened or remains pending before any court, Governmental Authority
or regulatory Person;
(i) this Agreement, the Merger and the transactions
contemplated hereby shall have been approved and adopted by the
Company's stockholders in the manner required by any applicable Law and
the Company's Organizational Documents and such approval shall remain
in full force and effect; and
(j) Centerprise shall have entered into one or more credit
facilities providing for aggregate commitments of not less than $75
million.
10.2 Conditions to Obligation of the Company to Effect the Acquisition.
Unless waived by the Company, the obligation of the Company to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing of
the following additional conditions:
(a) Centerprise, Mergersub and each of the Other Founding
Companies shall have performed in all material respects their
respective agreements contained in this Agreement and each Other
Agreement required to be performed on or prior to the Closing Date and
the representations and warranties of Centerprise contained in this
Agreement and each Other Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and the Company shall
have received a certificate of the Chief Executive Officer or President
of Centerprise to that effect;
(b) no Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy
shall have promulgated or formally proposed any statute, rule or
regulation which, when taken together with all such promulgations,
would materially impair the value to the Company of the Acquisition;
(c) the Company shall have received an opinion from Katten
Muchin & Zavis, dated as of the Closing Date, containing the
substantive opinions set forth in
39
<PAGE>
Exhibit 10.2(c), the final form of such opinion to be in form and
substance reasonably acceptable to the Company;
(d) each of the stockholders of the Company shall have been
afforded the opportunity to enter into an employment agreement (the
"Employment Agreement") with Centerprise substantially in the form
attached hereto as Exhibit 10.2(d);
(e) Centerprise shall have delivered to the Company a
certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State, showing
that Centerprise is in good standing;
(f) each of the stockholders of the Company, the partners,
members and stockholders of the other Founding Companies who are to
receive shares of Centerprise Common Stock pursuant to the Other
Agreements, and the other stockholders of Centerprise other than those
acquiring stock in the IPO shall have entered into an agreement (the
"Stockholders Agreement") substantially in the form attached hereto as
Exhibit 10.2(f);
(g) all conditions to the Acquisitions of the other Founding
Companies, on substantially the same terms as provided herein, shall
have been satisfied or waived by the applicable party and the Company;
(h) the Company shall have received an opinion of Katten
Muchin & Zavis, dated as of the Closing Date and based upon certain
factual representations and assumptions, that for federal income tax
purposes there will be no gain or loss recognized with respect to the
Centerprise Common Stock received in exchange for Company Stock in the
Merger pursuant to Section 351 of the Code, the final form of such
opinion to be in form and substance reasonably acceptable to the
Company; and
(i) a written bonus plan satisfactory to the Company's
stockholders shall have been agreed to in writing by Centerprise and
the Company's stockholders.
10.3 Conditions to Obligation of Centerprise to Effect the Acquisition.
Unless waived by Centerprise, the obligation of Centerprise and Mergersub to
effect the Acquisition shall be subject to the fulfillment at or prior to the
Closing of the additional following conditions:
(a) the Company shall have performed in all material respects
its agreements contained in this Agreement required to be performed on
or prior to the Closing Date and the representations and warranties of
the Company contained in this Agreement shall be true and correct in
all material respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and Centerprise and the
Underwriters shall have received a Certificate of the Chief Executive
Officer or President of the Company to that effect;
(b) [Reserved];
40
<PAGE>
(c) Centerprise and the Underwriters shall have received an
opinion from Cole, Schotz, Meisel, Forman & Leonard, P.A., counsel to
the Company, dated the Closing Date, in the form attached hereto as
Exhibit 10.3(c), the final form of such opinion to be in form and
substance reasonably acceptable to the Underwriters and Centerprise;
(d) each of the Stockholders shall have executed and delivered
the Employment Agreement referred to in Section 10.2(d);
(e) Centerprise and the Underwriters shall have received
"Comfort" letters in customary form from the Company's independent
public accountants, dated the effective date of the Form S-1 and the
Closing Date (or such other date reasonably acceptable to Centerprise),
with respect to certain financial statements and other financial
information included in the Form S-1 and any subsequent changes in
specified balance sheet and income statement items, including total
assets, working capital, total stockholders' equity, total revenues and
the total and per share amounts of net income;
(f) the Company shall have delivered to Centerprise and the
Underwriters a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the appropriate Governmental
Authority in the state of organization of Seller, the Company and each
Company Subsidiary and, unless waived by Centerprise, in each state in
which the Company or any Company Subsidiary is authorized to do
business, showing the Company or Company Subsidiary (as applicable) is
in good standing;
(g) no Governmental Authority shall have promulgated or
formally proposed any statute, rule or regulation which, when taken
together with all such promulgations, would materially impair the value
to Centerprise of the Acquisition;
(h) the stockholders of the Company shall have executed the
Stockholders Agreement;
(i) the Company's stockholders shall have delivered to
Centerprise an instrument in the form attached hereto as Exhibit
10.3(j), dated the Closing Date, releasing the Company (and the Company
Subsidiaries) from any and all claims of such persons against the
Company (and the Company Subsidiaries) and obligations of the Company
(and the Company Subsidiaries) to such persons;
(j) [Reserved];
41
<PAGE>
(k) the Company shall have terminated or have caused the
termination of any voting trusts, proxies or other agreements or
understandings to which the Company is a party or is bound with respect
to any shares of capital stock or other equity interests of the Company
and the Company Subsidiaries and shall have provided Centerprise
evidence of such termination that is acceptable to Centerprise's
counsel;
(l) the Company shall have presented evidence satisfactory to
Centerprise of its compliance with the provisions of Section 7.1.4
hereof;
(m) the Company shall have delivered to Centerprise a payoff
letter including a statement of per diem interest amounts and other
applicable release documents from all such lenders or creditors
regarding the payment in full of indebtedness at Closing, in each case
in form and substance satisfactory to Centerprise (including, without
limitation, applicable UCC-3 termination statements);
(n) the secretary of the Company shall have delivered
certified copies of the resolutions of the board of directors and
shareholders of the Company approving execution and delivery of this
Agreement, the Conversion, the Merger and the other actions, agreements
and documents, necessary or desirable to complete the transactions
contemplated herein; and
(o) the Company's stockholders shall have executed and
delivered the Company Stockholder Agreement in the form of Exhibit
10.3(o) attached hereto.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) pursuant to Section 7.3;
(b) by the Company,
(i) if the Acquisition is not completed by November
15, 1999 other than on account of delay or default on the part
of the Company or any of its affiliates or associates;
(ii) if the Acquisition is enjoined by a final,
unappealable court order not entered at the request or with
the support of the Company or any of its affiliates or
associates;
42
<PAGE>
(iii) if Centerprise (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
respects within thirty (30) days after written notice of such
default is given to Centerprise; or
(c) by Centerprise,
(i) if the Acquisition is not completed by November
15, 1999 other than on account of delay or default on the part
of Centerprise or any of its stockholders or any of their
affiliates or associates;
(ii) if the Acquisition is enjoined by a final,
unappealable court order not entered at the request or with
the support of Centerprise or any of its stockholders or any
of their affiliates or associates;
(iii) if the Company (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
respects within thirty (30) days after written notice of such
default is given the Company by Centerprise; or
(d) by mutual consent of the Company and the Board of
Directors of Centerprise.
11.2 Effect of Termination. In the event of termination of this
Agreement by either Centerprise or the Company, as provided in Section 11.1,
this Agreement shall forthwith become void and there shall be no further
obligation on the part of the Company, Centerprise, Mergersub or their
respective officers or directors (except the obligations set forth in this
Section 11.2 and in Sections 8.1, 8.3 and 8.5, all of which shall survive the
termination). Nothing in this Section 11.2 shall relieve any party from
liability for any breach of this Agreement.
11.3 Amendment. This Agreement may not be amended except by action
taken by the Boards of Directors of Centerprise and the Company or duly
authorized committees thereof and then only by an instrument in writing signed
on behalf of each of the parties hereto and in compliance with applicable law.
Centerprise covenants and agrees that it shall not amend, modify or supplement
the material terms of any Other Agreement following the Closing without the
prior written consent of at least two thirds (2/3rds) of the members of
Centerprise's Board of Directors; provided that no waiver of any restriction set
forth in Article XII shall be of any effect unless consented to by a majority of
the members of Centerprise's Board of Directors who do not at the time of such
proposed waiver hold Restricted Shares within the meaning of this Agreement, any
Other Agreement or the Stockholders Agreement.
11.4 Waiver. At any time prior to the Closing Date, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions
43
<PAGE>
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE XII
[RESERVED]
ARTICLE XIII
[RESERVED]
ARTICLE XIV
[RESERVED]
ARTICLE XV
GENERAL PROVISIONS
15.1 Brokers. The Company represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
(except for any fee described in Schedule 15.1) or commission in connection with
the Acquisition or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. Centerprise represents and
warrants that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
Acquisition or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Centerprise or its stockholders (other than
underwriting discounts and commission to be paid in connection with the IPO).
15.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
given in accordance with this Section):
44
<PAGE>
15.2.1 If to Centerprise or Mergersub, to:
Centerprise Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert Basten
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
15.2.2 If to the Company, to:
Insurance Design Administrators
169 Ramapo Road
P.O. Box 875
Oakland, New Jersey 07436
Attn: Robert F. Gallo
Facsimile No.: (201) 337-1391
with a copy to:
Cole, Schotz, Meisel, Forman & Leonard, P.A.
25 Main Street
P.O. Box 800
Hackensack, New Jersey 07602
Attn: Henry R. Matri, Esq.
Facsimile No.: (201) 489-1536
15.2.3 If to the Stockholder Representative, to:
Insurance Design Administrators
169 Ramapo Road
P.O. Box 875
Oakland, New Jersey 07436
Attn: Robert F. Gallo and Russell Minetti
Facsimile No.: (201) 337-1391
15.3 Interpretation. The table of contents and headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of
45
<PAGE>
this Agreement. In this Agreement, unless a contrary intention appears, (i) the
words "herein," "hereof" and "hereunder" and other words of similar import refer
to this Agreement as a whole and not to any particular Article, Section or other
subdivision and (ii) reference to any Article or Section means such Article or
Section hereof. No provision of this Agreement shall be interpreted or construed
against any party hereto solely because such party or its legal representative
drafted such provision.
15.4 Certain Definitions. As used in this Agreement, (i) the term
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated association, corporation, entity, firm,
association, organization or other business in any form whatsoever or government
(whether Federal, state, county, city or otherwise, including, without
limitation, any instrumentality, division, agency or department thereof), (ii)
the term "Affiliate" shall have the meaning given for that term in Rule 405
under the Securities Act, and shall include each past and present Affiliate of a
Person and the members of such Affiliate's immediate family or their spouses or
children and any trust the beneficiaries of which are such individuals or
relatives, and (iii) an individual will be deemed to have "Knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or matter, or (b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the existence of
such fact or other matter and a prudent individual would conduct such
investigation; a Person, other than an individual, will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is a
partner, member or shareholder of such Person or who is otherwise serving, or
who has served, as a director, officer or trustee (or any capacity) of such
Person has, or at any time had, Knowledge of such fact or other matter.
15.5 Entire Agreement; Assignment. This Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof and (b) shall not be assigned by operation of law or otherwise,
except that Centerprise may assign this Agreement to any wholly-owned subsidiary
of Centerprise.
15.6 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Illinois applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
15.7 Counterparts. This Agreement may be executed via facsimile or
otherwise in two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
46
<PAGE>
15.8 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and their respective
successors, permitted assigns, heirs, legal representatives and executors and
except as expressly set forth in herein, nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
* * *
[remainder of page intentionally left blank]
47
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
as of the date first written above.
CENTERPRISE ADVISORS, INC.
By: /s/ Robert C. Basten
--------------------------------
Name:
------------------------------
Its:
-------------------------------
IDA MERGERSUB INC.
By: /s/ Robert C. Basten
--------------------------------
Name:
------------------------------
Its:
-------------------------------
SELF FUNDED BENEFITS, INC., D/B/A/
INSURANCE DESIGN ADMINISTRATORS
By: /s/ Robert F. Gallo
--------------------------------
Name:
------------------------------
Its:
-------------------------------
<PAGE>
Exhibit 2.42
--------------------------
AMENDED AND RESTATED
MERGER AGREEMENT
by and among
CENTERPRISE ADVISORS, INC.,
GRACE MERGERSUB INC.,
and
GRACE & COMPANY, P.C.
September 24 , 1999
--------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER........................................................2
1.1 The Merger.......................................................2
1.2 Effects of the Merger............................................2
1.3 Directors and Officers of the Surviving Corporation..............3
ARTICLE II CONSIDERATION AND MANNER OF PAYMENT..............................3
2.1 Merger Consideration.............................................3
2.1.1 Basic Purchase Consideration..............................3
2.1.2 Treasury Stock............................................3
2.1.3 Dissenters................................................3
2.1.4 Conversion of Mergersub Stock.............................3
2.1.5 Exchange of Certificates..................................4
2.2 Post-Closing Adjustments to Basic Purchase Consideration.........4
2.3 Post-Closing Management of AR....................................5
2.4 Assignment of Uncollected AR.....................................6
2.5 Definitions......................................................6
ARTICLE III THE CLOSING AND CONSUMMATION DATE...............................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................7
4.1 Organization and Qualification...................................7
4.2 Company Subsidiaries.............................................7
4.3 Authority; Non-Contravention; Approvals..........................8
4.4 Capitalization...................................................10
4.5 Year 2000........................................................11
4.6 Financial Statements.............................................11
4.7 Absence of Undisclosed Liabilities...............................11
4.8 Unbilled Fees and Expenses.......................................11
4.9 Absence of Certain Changes or Events.............................12
4.10 Litigation.......................................................14
4.11 Compliance with Applicable Laws..................................15
4.12 Licenses.........................................................15
4.13 Material Contracts...............................................15
4.14 Properties.......................................................18
4.15 Intellectual Property............................................20
4.16 Taxes............................................................21
4.17 Employee Benefit Plans; ERISA....................................21
4.18 Labor Matters....................................................23
4.19 Environmental Matters............................................24
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
4.20 Insurance.......................................................25
4.21 Interest in Customers and Suppliers; Affiliate Transactions.....25
4.22 Business Relationships..........................................25
4.23 Compensation....................................................26
4.24 Bank Accounts...................................................26
4.25 Professional Credentials........................................26
4.26 Disclosure; No Misrepresentation................................26
ARTICLE V [RESERVED].......................................................27
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF CENTERPRISE...................27
6.1 Organization And Qualification..................................27
6.2 Capitalization..................................................27
6.3 No Subsidiaries.................................................28
6.4 Authority; Non-Contravention; Approvals.........................28
6.5 Absence of Undisclosed Liabilities..............................29
6.6 Litigation......................................................30
6.7 Compliance with Applicable Laws.................................30
6.8 No Misrepresentation............................................30
ARTICLE VII CERTAIN COVENANTS AND OTHER TERMS..............................30
7.1 Conduct of Business by the Company Pending the Acquisition......30
7.2 No-Shop.........................................................33
7.3 Schedules.......................................................34
7.4 Company Stockholders Meeting....................................35
7.5 Conversion......................................................35
ARTICLE VIII ADDITIONAL AGREEMENTS.........................................35
8.1 Access to Information...........................................35
8.2 Registration Statements.........................................36
8.3 Expenses and Fees...............................................37
8.4 Agreement to Cooperate..........................................37
8.5 Public Statements...............................................38
8.6 [Reserved]......................................................38
8.7 Centerprise Covenants...........................................38
8.8 Release of Guarantees...........................................38
8.9 [Reserved]......................................................38
8.10 Preparation and Filing of Tax Returns...........................38
8.11 Maintenance of Insurance........................................39
8.12 Administration..................................................39
8.13 Payment of Special Bonus........................................39
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.14 Partner Representative.............................................39
ARTICLE IX [RESERVED].........................................................39
ARTICLE X CLOSING CONDITIONS..................................................40
10.1 Conditions to Each Party's Obligation to Effect the Acquisition....40
10.2 Conditions to Obligation of the Company to Effect the Acquisition..41
10.3 Conditions to Obligation of Centerprise to Effect the Acquisition..42
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER..................................44
11.1 Termination........................................................44
11.2 Effect of Termination..............................................45
11.3 Amendment..........................................................45
11.4 Waiver.............................................................46
ARTICLE XII [RESERVED]........................................................46
ARTICLE XIII [RESERVED].......................................................46
ARTICLE XIV [RESERVED]........................................................46
ARTICLE XV GENERAL PROVISIONS.................................................46
15.1 Brokers............................................................46
15.2 Notices............................................................47
15.3 Interpretation.....................................................47
15.4 Certain Definitions................................................48
15.5 Entire Agreement; Assignment.......................................48
15.6 Applicable Law.....................................................48
15.7 Counterparts.......................................................48
15.8 Parties in Interest................................................48
</TABLE>
(iii)
<PAGE>
LIST OF SCHEDULES
-----------------
Schedule 2.1 Consideration
Schedule 2.6 Net Working Capital Adjustment Items
Schedule 4.2 Company Subsidiaries
Schedule 4.3.2 Required Consents
Schedule 4.4 Capitalization
Schedule 4.7 Liabilities
Schedule 4.9 Certain Changes and Events
Schedule 4.10 Litigation
Schedule 4.11 Noncompliance with Applicable Laws
Schedule 4.12 Licenses and Permits
Schedule 4.13 Material Contracts
Schedule 4.14.1-1 Real Property
Schedule 4.14.1-2(a) Exceptions Regarding Owned Property
Schedule 4.14.1-2(b) Exceptions Regarding Leased Property
Schedule 4.14.2 Tangible Personal Property; Liens
Schedule 4.15 Intellectual Property
Schedule 4.16.1-1 Taxes
Schedule 4.16.1-2 Tax Audits
Schedule 4.17.1 Employee Plans
Schedule 4.17.2 Unwritten Employee Plans
(iv)
<PAGE>
Schedule 4.17.4 Multiple Employer Plans
Schedule 4.18 Labor Matters
Schedule 4.19 Environmental Matters
Schedule 4.20 Insurance
Schedule 4.21 Affiliate Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 6.2 Centerprise's Capitalization
Schedule 6.5 Liabilities
Schedule 7.1.4(i) Terminated Agreements
Schedule 7.1.4(i)-D Agreements Not To Be Terminated
Schedule 7.1.4(ii) Excluded Assets
Schedule 8.8 Partners' Guarantees
Schedule 15.1 Brokers
(v)
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit 10.2(c) Form of Opinion of Centerprise's Counsel
Exhibit 10.2(d) Form of Incentive Compensation Agreement
Exhibit 10.2(f) Form of Stockholders Agreement
Exhibit 10.3(c) Form of Opinion of Counsel to the Company
Exhibit 10.3(d)(A) Form of Separate Practice Agreement
Exhibit 10.3(d)(B) Form of Services Agreement
Exhibit 10.3(j) Form of Partners' General Release
Exhibit 10.3(r) Form of Company Stockholder Agreement
(vi)
<PAGE>
DEFINED TERMS
-------------
Acquisition................................................... Introduction
Accounting Licenses........................................... Section 4.12
Actions....................................................... Section 4.10.1
Affiliate..................................................... Section 15.4
Affiliate Transactions........................................ Section 4.21
Agreement..................................................... Introduction
AR............................................................ Section 2.5
Arbitrator.................................................... Section 2.2.5
Attest Entity................................................. Section 7.1.2
Attestation Practice.......................................... Introduction
Basic Purchase Consideration.................................. Section 2.1.1
BBM........................................................... Section 7.1.4
BBM Agreement................................................. Section 7.1.4
Business...................................................... Introduction
Cash Consideration............................................ Section 2.1.1
Centerprise................................................... Introduction
Centerprise Accountants....................................... Section 2.2.2
Centerprise Common Stock...................................... Section 2.1.1
Centerprise Material Adverse Effect........................... Section 6.4.3
Centerprise Representatives................................... Section 8.1.1
Centerprise Required Statutory Approvals...................... Section 6.4.3
Closing....................................................... Article III
Closing Balance Sheet......................................... Section 2.2.2
(vii)
<PAGE>
Closing Date.............................................. Article III
Code...................................................... Introduction
Company................................................... Introduction
Company Material Adverse Effect........................... Section 4.3.3
Company Representatives................................... Section 8.1.1
Company Stock............................................. Section 2.1.1
Company Subsidiary(ies)................................... Section 4.2
Consummation Date......................................... Article III
Contracts................................................. Section 4.13
Conversion................................................ Introduction
Copyrights................................................ Section 4.15
DGCL...................................................... Section 1.1
Disputed Item............................................. Section 2.2.5
Dissenting Shares......................................... Section 2.1.3
Effective Time............................................ Section 1.1
Employee Plan............................................. Section 4.17.5(a)
Environmental and Safety Requirements..................... Section 4.19
ERISA..................................................... Section 4.17.5(b)
Excluded Assets........................................... Section 7.1.4
Excluded Liabilities...................................... Section 7.1.4
Final Adjustment.......................................... Section 2.2.4
Financial Statements...................................... Section 4.6
First Person.............................................. Section 4.17.5(c)
Form S-1.................................................. Section 4.3.3
(viii)
<PAGE>
Form S-4.................................................... Section 4.3.3
Founding Companies.......................................... Introduction
GAAP........................................................ Section 4.6
GBCLM....................................................... Section 1.1
general increase............................................ Section 4.23
Governmental Authority...................................... Section 4.3.2
Hazardous Materials......................................... Section 4.19
herein...................................................... Section 15.3
hereof...................................................... Section 15.3
hereunder................................................... Section 15.3
Holdings.................................................... Section 10.1(k)
HSR Act..................................................... Section 4.3.3
Incentive Compensation Agreement............................ Section 10.2(d)
Indemnified Party........................................... Section 9.3.1
Indemnifying Party.......................................... Section 9.3.1
Intellectual Property....................................... Section 4.15
Intellectual Property Licenses.............................. Section 4.15
Interim Adjustment.......................................... Section 2.2.3
IPO......................................................... Introduction
Knowledge................................................... Section 15.4
Latest Balance Sheet........................................ Section 4.6
Laws........................................................ Section 4.11
Leased Property............................................. Section 4.14.1
Licenses.................................................... Section 4.12
(ix)
<PAGE>
Lien(s)..................................................... Section 4.3.2
Liquidated Damages Amount................................... Section 7.3
Marks....................................................... Section 4.15
Material Contracts.......................................... Section 4.13
Merger...................................................... Introduction
Merger Documents............................................ Section 1.1
Mergersub................................................... Introduction
Mergersub Stock............................................. Section 6.2.1
Net Working Capital......................................... Section 2.5
1933 Act.................................................... Section 4.3.3
Organizational Documents.................................... Section 4.1
Other Agreements............................................ Introduction
Other Acquisitions.......................................... Introduction
Other Founding Companies.................................... Section 9.1
Owned Property.............................................. Section 4.14.1
Partner Indemnified Party................................... Section 9.2
Partner Representative...................................... Section 8.14
Patents..................................................... Section 4.15
Person...................................................... Section 15.4
Plan Affiliate.............................................. Section 4.17.5(c)
Real Property............................................... Section 4.14.1
Registration Statements..................................... Section 4.3.3
Resolution Period........................................... Section 2.2.5
Restricted Shares........................................... Section 12.1
(x)
<PAGE>
Returns.................................................... Section 4.16.1
Schedules.................................................. Section 7.3
SEC........................................................ Section 4.3.3
Securities Act............................................. Section 4.3.3
Special Bonus.............................................. Section 7.1.4(iii)
Stock Consideration........................................ Section 2.1.1
Stockholders Agreement..................................... Section 10.2(f)
Surviving Corporation...................................... Section 1.2
Target..................................................... Section 2.5
Taxes...................................................... Section 4.16.2
Trade Secrets.............................................. Section 4.15
Underwriters............................................... Section 8.1.1
(xi)
<PAGE>
AMENDED AND RESTATED
MERGER AGREEMENT
THIS AMENDED AND RESTATED MERGER AGREEMENT (this "Agreement") is made as
of September 24, 1999, by and among Centerprise Advisors, Inc., a Delaware
corporation ("Centerprise"), Grace Mergersub, Inc. a Delaware corporation and
wholly owned subsidiary of Centerprise ("Mergersub"), and Grace & Company, P.C.,
a Missouri professional corporation (the "Company").
WITNESSETH:
WHEREAS, the Company engages directly, and indirectly through the Company
Subsidiaries, in the business of providing accounting, tax and other related
services (such business provided by the Company is referred to as the
"Business");
WHEREAS, prior to, and in anticipation of, completion of the transactions
contemplated hereby (a) the Company will cease to provide services related to
the practice of accounting that, pursuant to applicable laws and regulations,
may only be conducted by certified public accountants (the "Attestation
Practice") and (b) the Company will be converted from a professional corporation
to a business corporation by amending the Company's Organizational Documents (as
defined in Section 4.1) such that it converts to a business corporation the
actions described in the foregoing (a) and (b), the "Conversion");
WHEREAS, the Boards of Directors of the Company, Centerprise and Mergersub
deem it advisable and in the best interests of their respective shareholders to
approve and consummate the business combination transaction provided for herein
in which Mergersub would merge with the Company, with the Company being the
surviving corporation in the merger (the "Acquisition" or "Merger");
WHEREAS, Centerprise is entering into other agreements (the "Other
Agreements") substantially similar to this Agreement with each of Reznick Fedder
& Silverman, P.C., Robert F. Driver Company, Inc., Mann Frankfort Stein & Lipp,
P.C., The Reppond Company, Inc., Reppond Administrators, LLC, Verasource Excess
Risk Ltd., Berry, Dunn, McNeil & Parker, Chartered, Urbach Kahn & Werlin PC,
Self Funded Benefits, Inc. d/b/a Insurance Design Administrators, Simione,
Scillia, Larrow & Dowling LLC, and Follmer Rudzewicz & Co., P.C., (which
companies together with the Company are collectively referred to herein as the
"Founding Companies"), which agreements provide for the merger of a wholly
owned subsidiary of Centerprise with each such Founding Company (the "Other
Acquisitions") simultaneously with the Acquisition; Centerprise has provided a
side letter to each holder of equity interests of the Company to such effect;
<PAGE>
WHEREAS, simultaneously with the consummation of the Acquisition,
Centerprise will close an initial public offering (the "IPO") of Centerprise
Common Stock (as defined in Section 2.1); and
WHEREAS, the parties intend the acquisition of Centerprise Common Stock
pursuant to the terms hereof to be tax-free under the provisions of Section 351
of the Internal Revenue Code of 1986, as amended (the "Code").
WHEREAS, the Voting Agreement, dated as of March 31, 1999, among
Centerprise and certain of the stockholders of the Company has been terminated
and is no longer in force and effect.
NOW, THEREFORE, for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement and in reliance upon the representations and warranties set
forth herein, Mergersub shall be merged with and into the Company, the result of
which will cause the separate corporate existence of Mergersub to cease and the
Company to continue under the laws of the State of Missouri. As promptly as
possible on the Closing Date, the parties shall cause the Merger to be completed
by filing articles of merger and a certificate of merger, as applicable (the
"Merger Documents"), with the Secretary of State of the State of Missouri, as
provided in the General and Business Corporation Law of Missouri, as amended
(the "GBCLM"), and with the Secretary of State of the State of Delaware, as
provided in the General Corporation Law of the State of Delaware (the "DGCL").
The Merger shall become effective (the "Effective Time") upon the filing of the
Merger Documents with the Secretary of State of the State of Missouri and the
Secretary of State of the State of Delaware or at such later time,
contemporaneously with the closing of the IPO, as agreed by Centerprise and the
Company and specified in the Merger Documents.
1.2 Effects of the Merger. At the Effective Time (i) the separate
existence of Mergersub shall cease and Mergersub shall be merged with and into
the Company, with the Company being the surviving corporation in the Merger (the
Company is sometimes referred to herein as the "Surviving Corporation"), (ii)
the Articles of Incorporation and By-laws of the Surviving Corporation shall be
amended in form and substance acceptable to Centerprise and as
2
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specified in the Merger Documents, (iii) the Merger shall have all the effects
provided by applicable law, and (iv) the Company shall be a wholly-owned
subsidiary of Centerprise.
1.3 Directors and Officers of the Surviving Corporation. From and after
the Effective Time, the directors and officers of Mergersub shall be the
directors and officers of the Surviving Corporation until their successors are
duly elected and qualified.
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2.1 Merger Consideration.
2.1.1 Basic Purchase Consideration. At the Closing, by virtue of the
Merger and without any action on the part of the holder thereof, the
outstanding shares of capital stock, consisting of 15,000 shares of common
stock, no par value per share of the Company (the "Company Stock") shall be
converted into the right to receive: (a) that number of shares of
Centerprise common stock, par value $.01 per share (the "Centerprise Common
Stock") shown on line T of Schedule 2.1; provided, however, that if the
initial public offering price of the Centerprise Common Stock is below
$11.90 per share, the number of shares of Centerprise Common Stock received
at Closing shall be increased such that the value of the shares, using the
initial public offering price, equals the amounts shown on line U of
Schedule 2.1 (the "Stock Consideration") and (b) the amount of cash shown
on line S of Schedule 2.1 (the "Cash Consideration"). The sum of the Cash
Consideration and the Stock Consideration is herein referred to as "Basic
Purchase Consideration."
2.1.2 Treasury Stock. Each share of capital stock of the Company
held in treasury of the Company shall be canceled and retired and no
payment shall be made in respect thereof.
2.1.3 Dissenters. Each outstanding share of capital stock of the
Company the holder of which has perfected his right to dissent under
applicable law and has not effectively withdrawn or lost such right as of
the Effective Time (the "Dissenting Shares") shall not be converted into
the right to receive Basic Purchase Consideration, and the holder thereof
shall be entitled only to such rights as are granted by applicable law. The
Company shall give Centerprise prompt notice upon receipt by the Company of
any such written demands for payment of fair value of shares of capital
stock of the Company and any other instruments provided pursuant to
applicable law. Any payments made in respect of Dissenting Shares shall be
made by the Surviving Corporation.
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2.1.4 Conversion of Mergersub Stock. At the Effective Time, each
share of Mergersub Stock issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and become one validly
issued, fully paid and non-assessable share of the Surviving Corporation.
Such newly issued shares shall thereafter constitute all of the issued and
outstanding capital stock of the Surviving Corporation.
2.1.5 Exchange of Certificates. At the Closing, Centerprise shall
receive the original Company Stock certificates, duly endorsed in blank by
the Company's stockholder(s) or accompanied by blank stock powers, in
exchange for the allocated share of (a) Centerprise Common Stock
certificates representing the Stock Consideration and (b) payment of the
Cash Consideration by certified check, cashier's check or wire transfer of
immediately available funds to a bank account or bank accounts in the
amounts and manner specified by the Company in a writing delivered to
Centerprise at least three (3) business days prior to the Closing Date. The
shares represented by the Company Stock certificates so delivered to
Centerprise shall be canceled. Until surrendered as contemplated by this
Section 2.1.5, each certificate representing shares of Company Stock
represents only the right to receive Basic Purchase Consideration, as
adjusted in accordance with this Article II.
2.2 Post-Closing Adjustments to Basic Purchase Consideration.
2.2.1 Adjustments for Net Working Capital Shortfall/Excess. The
Basic Purchase Consideration shall be (a) reduced dollar-for-dollar to the
extent Net Working Capital on the Closing Date is less than the Target or
(b) increased dollar-for-dollar to the extent Net Working Capital on the
Closing Date is greater than the Target.
2.2.2 Preliminary Balance Sheet and Adjustment. At or about the
Closing, the Company will prepare, and the firm PricewaterhouseCoopers LLP
(the "Centerprise Accountants") will review, a balance sheet of the
Company, as of the Closing Date, in accordance with GAAP and consistent
with the accounting policies and practices used in connection with the
preparation of the Financial Statements (the "Closing Balance Sheet") along
with a preliminary calculation of any excess or shortfall of Net Working
Capital as compared to the Target.
2.2.3 Interim Adjustment. As soon as practicable, the Company will
prepare and deliver to Centerprise a revised calculation of Net Working
Capital reflecting all collections of AR up to the date 90 days from the
Closing Date. Within 10 days of receipt of such calculation, Centerprise
will deliver to the Partner Representative a written report indicating the
amount and nature of any adjustment to the Basic Purchase Consideration
determined in accordance with Section 2.3.1 (the "Interim Adjustment").
4
<PAGE>
2.2.4 Final Adjustment. As soon as practicable, the Company will
prepare and deliver to Centerprise a final calculation of Net Working
Capital revised to reflect all collections of AR up to the date 180 days
from the Closing Date. Centerprise will review such calculation and any
records, work papers and other documents related thereto. Within 10 days of
receipt of such calculation, Centerprise will deliver to the Partner
Representative a written report indicating the amount and nature of any
adjustment to the Basic Purchase Consideration determined in accordance
with Section 2.3.1 (the "Final Adjustment").
2.2.5 Disputes. The parties hereto shall not object to the Interim
Adjustment which shall be binding on the parties hereto, and shall withhold
all objections until delivery of the Final Adjustment report. If the
Partner Representative does not object (or otherwise respond) in writing to
the Final Adjustment report within 30 days after its delivery, the Final
Adjustment shall automatically become final, binding and conclusive on all
parties hereto. Any objection to the Final Adjustment report shall be in
writing and shall specify the item or items in dispute (each a "Disputed
Item").
If the Partner Representative and Centerprise are unable to resolve
any Disputed Item within 30 days after notice from the Partner
Representative that a dispute exists (the "Resolution Period"), then a
representative from the office of a nationally recognized accounting firm
(the "Arbitrator") selected jointly by Centerprise and the Partner
Representative will arbitrate the dispute. The Partner Representative and
Centerprise shall, within 20 days after expiration of the Resolution
Period, present their respective positions with respect to any Disputed
Item to the Arbitrator together with such materials as the Arbitrator deems
appropriate. To the extent any Disputed Item is similar to a disputed item
under the Other Agreements, the Arbitrator shall arbitrate the Disputed
Item based on the submitted materials and without regard to the disputed
item under the Other Agreements. The Arbitrator shall, after the
submission of the materials, submit a written decision on each Disputed
Item to the Partner Representative and Centerprise and such determination
shall be final and binding on the parties hereto. The arbitration shall be
conducted in Chicago, Illinois. The parties hereto agree that the cost of
the Arbitrator shall be borne by the non-prevailing party or as determined
by the Arbitrator.
2.2.6 Payment of Adjustments. In the event Net Working Capital is
less than the Target, the Company's stockholders shall pay the amount of
the shortfall to Centerprise. In the event Net Working Capital is greater
than the Target, Centerprise shall pay the amount of the excess to the
Company's stockholders. Any payment required to be made pursuant to this
paragraph shall be made, within ten days of delivery of the report
indicating any adjustment, by wire transfer of immediately available funds
to an account designated in writing by the party that is to receive payment
of such adjustment. In respect of the Final Adjustment, the party making a
payment required by such adjustment shall make such payment within ten days
after the Final Adjustment becomes final and shall
5
<PAGE>
receive credit for or return of any amount previously paid in connection
with the Interim Adjustment.
2.3 Post-Closing Management of AR. Following the Closing, the billing,
servicing, administering and collection of the AR shall be conducted by the
Company. The Company shall take all such actions as may be necessary or
advisable to collect the AR in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in accordance with the
Company's credit and collection policy in effect at Closing. The Company may
modify, adjust or write-off AR from time to time in accordance with the
Company's credit and collection policy in effect at Closing. Unless otherwise
required by contract or law, payments by an obligor in respect of services
rendered or expenses advanced by the Company shall be applied as follows: in the
event any such payment specifically references the invoice being paid or clearly
relates to an outstanding invoice, the payment will be applied to the
corresponding invoice; and, in any other case, the payment will be applied to
satisfy AR relating to such obligor in the order that such AR arose. Any
adjustment, modification or write-off affecting AR and fees and expenses
receivable and unbilled fees and expenses of the Company incurred after Closing
with respect to the same client engagement shall be allocated ratably to the
pre-Closing and post-Closing periods.
2.4 Assignment of Uncollected AR. If any AR remain uncollected by the
Company as of 180 days after the Closing Date, the Company will assign the
uncollected AR to the Company's stockholders. Notwithstanding the foregoing,
the Company will retain the sole right to service, administer and collect the
uncollected AR in accordance with Section 2.3.
2.5 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) "AR" means any fees and expenses receivable and unbilled fees and
expenses of the Company on the Closing Date.
(b) "Net Working Capital" means an amount determined as of the Closing
Date, whenever calculated, equal to difference between: (i) the sum of any
AR, prepaid expenses and other current assets less (ii) the sum of accounts
payable, accrued current liabilities, and the items listed on Schedule 2.5,
the Tax Accrual, the Special Bonus (as defined in Section 7.1.4(iii)) and
the employer-paid FICA payable in connection with deferred compensation and
the Special Bonus.
(c) "Tax Accrual" means an amount equal to the product of (i) Net
Working Capital (calculated before deduction of the Tax Accrual) less an
amount equal to any tax deductions realized by Centerprise as a result of
any payments pursuant to the Special Bonus Plan times (ii) the sum of 34%
plus the effective state tax rate on the Company (net of any federal tax
benefit). A negative Tax Accrual shall be treated as a current asset for
purposes of Section 2.5(b)(i).
6
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(d) "Target" means an amount equal to 1% of the Company's net revenues
for the four quarter period ending on the last day of the calendar quarter
prior to Closing.
ARTICLE III
THE CLOSING AND CONSUMMATION DATE
The consummation of the Acquisition and the other transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Katten
Muchin & Zavis, Chicago, Illinois, contemporaneously with the closing of the
IPO, or at such other time and date as the parties hereto may mutually agree
(the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Centerprise, as of March 31, 1999
and, subject to Section 7.3, as of the date on which Centerprise and the lead
Underwriter (as defined in Section 8.1.1) execute and deliver the Underwriting
Agreement related to the IPO and as of the Closing Date, as follows:
4.1 Organization and Qualification. The Company is a professional
corporation duly organized, validly existing and in good standing under the laws
of the State of Missouri, and, following the Conversion, the Company will be a
business corporation duly organized, validly existing and in good standing under
the laws of the State of Missouri. Each Company Subsidiary (as defined in
Section 4.2) is duly organized, validly existing and in good standing under the
laws of the state of its organization set forth on Schedule 4.2. Each of the
Company and the Company Subsidiaries has the requisite power and authority to
own, lease and operate its assets and properties and to carry on its business as
it is now being conducted, and is qualified to do business and is in good
standing in each jurisdiction in which the properties owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary. The Company has not qualified to do business in the states listed on
Schedule 4.2. True, accurate and complete copies of the Company's and each
Company Subsidiary's Organizational Documents, in each case as in effect on
March 31, 1999 have heretofore been delivered to Centerprise. "Organizational
Documents" means (a) the articles or certificate of incorporation and the bylaws
of a corporation (professional or otherwise), (b) the partnership agreement and
any statement of partnership of a general partnership, (c) the limited
partnership agreement and the certificate of limited partnership of any limited
partnership, (d) the operating or limited liability company agreement and
certificate of formation of any limited liability company, (e) any charter or
similar document adopted and filed in connection with the creation, formation,
organization or governance (as applicable) of any Person and (f) any amendment
to any of the foregoing.
7
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4.2 Company Subsidiaries. Schedule 4.2 sets forth the name (including any
assumed names), jurisdiction of organization and ownership of the issued and
outstanding equity interests of each Person in which the Company owns, directly
or indirectly, securities or other interests having the power to elect a
majority of such Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of such Person
(each a "Company Subsidiary" and collectively, the "Company Subsidiaries").
Except as set forth on Schedule 4.2, the Company does not, directly or
indirectly, own, of record or beneficially, or control any capital stock,
securities convertible into capital stock or any other equity interest in any
Person.
4.3 Authority; Non-Contravention; Approvals.
4.3.1 The Company has full right, power and authority to enter into
this Agreement and, subject to the approval of the Merger and the
transactions contemplated hereby by the Company's stockholders, to
consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement by the Company have been duly authorized
by all necessary corporate action on the part of the Company, subject to
the approval of the Merger and the transactions contemplated hereby by the
Company's stockholders. This Agreement has been duly executed and delivered
by the Company, and, assuming the due authorization, execution and delivery
hereof by Centerprise, constitutes a valid and legally binding agreement of
the Company, enforceable against it in accordance with its terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
4.3.2 The execution and delivery of this Agreement by the Company does
not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any claim,
lien, privilege, mortgage, charge, hypothecation, assessment, security
interest, pledge or other encumbrance, conditional sales contract, equity
charge, restriction, or adverse claim of interest of any kind or nature
whatsoever (each a "Lien" and collectively, the "Liens"), upon any of the
properties or assets of the Company or any Company Subsidiary under, any of
the terms, conditions or provisions of (i) the Organizational Documents of
the Company or any Company Subsidiary, (ii) following completion of the
Conversion, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or federal,
state, provincial, local or foreign government, or any subdivision, agency
or authority of any thereof ("Governmental Authority") applicable to the
Company, any Company Subsidiary, or the Business, properties or assets of
the
8
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Company or any Company Subsidiary, except for those items discussed in (ii)
above relating to regulating, licensing or permitting the practice of
public accountancy, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which any of the Company
or any Company Subsidiary is a party or by which any of the Company, any
Company Subsidiary or any of the properties or assets of the Company or any
Company Subsidiary may be bound or affected. The consummation by the
Company of the transactions contemplated hereby will not result in a
violation, conflict, breach, right of termination, creation or acceleration
of Liens under the terms, conditions or provisions of the items described
in clauses (i) through (iii) of the immediately preceding sentence, subject
in the case of the terms, conditions or provisions of the items described
in clause (iii) above, to obtaining (prior to the Closing Date) such
consents required from third parties set forth on Schedule 4.3.2 and except
for those items described in (ii) and (iii) above relating to regulating,
licensing or permitting the practice of public accountancy and any filing
which may be required under the HSR Act.
4.3.3 Except for (i) the declaration of effectiveness of a
registration statement on Form S-1 (the "Form S-1") and a post-effective
amendment to the registration statement on Form S-4 (the "Form S-4") (Form
S-1 and Form S-4 are collectively the "Registration Statements") with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities
Act of 1933, as amended (the "Securities Act"or the "1933 Act"), and
filings, if required, with various state securities or "blue sky"
authorities, (ii) any filing which may be required under the Hart-Scott-
Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act"), and
(iii) any filing which may be required by any Governmental Authority or
self-regulatory organization regulating, licensing or permitting the
practice of public accountancy, no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any
Governmental Authority is necessary for the execution and delivery of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not
made or obtained, as the case may be, would not, individually or in the
aggregate, have a "Company Material Adverse Effect" which, for purposes
of this Agreement means a material adverse effect on the operations,
assets, condition (financial or other), operating results, employee or
client relations, or prospects of the Company or any Company Subsidiary.
4.4 Capitalization.
--------------
4.4.1 The authorized capital stock of the Company consists of 30,000
shares of Company Stock, of which 15,000 shares are issued and outstanding.
The Company has 1,500 shares in its treasury. The authorized capital stock
of each of the Company Subsidiaries, if any, and the number of such shares
issued and outstanding is completely and accurately set forth in Schedule
4.4. All of such issued and outstanding shares are
9
<PAGE>
validly issued and are fully paid, nonassessable and free of preemptive
rights. The Company owns all shares of the Company's Subsidiaries as
indicated on Schedule 4.4, in each case free and clear of all Liens, and
the Company has good and marketable title to such shares of the Company
Subsidiaries. All of such issued and outstanding shares are validly issued
and are fully paid, nonassessable and free of preemptive rights.
4.4.2 Except as set forth on Schedule 4.4, there are no outstanding
subscriptions, options, calls, contracts, commitments, undertakings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of the Company or any Company
Subsidiary or obligating the Company or any Company Subsidiary to grant,
extend or enter into any such agreement or commitment or obligating the
Company or any Company Subsidiary to convey or transfer any Company Stock
or Company Subsidiary stock, as the case may be. As of the Closing Date,
there will be no voting trusts, proxies or other agreements or
understandings to which the Company or any Company Subsidiary is a party or
is bound with respect to the voting of any shares of capital stock or other
equity interests of the Company or any Company Subsidiary.
4.5 Year 2000. To the Knowledge of the Company, all of the computer
software, computer firmware, computer hardware (whether general or special
purpose), and other similar or related items of automated, computerized, and/or
software system(s) that are used or relied on by the Company or any Company
Subsidiary in the conduct of the Business will not malfunction, will not cease
to function, will not generate incorrect data, and will not produce incorrect
results when processing, providing, and/or receiving (i) date-related data into
and between the twentieth (20/th/) and twenty-first (21/st/) centuries and (ii)
date-related data in connection with any valid date in the twentieth (20/th/)
and twenty-first (21/st/) centuries, except for any malfunctions or generations
of incorrect data or results that would not individually or in the aggregate
have a Company Material Adverse Effect. Nothing in this Section 4.5 is
intended or shall be construed as a representation or warranty with respect to
embedded systems.
4.6 Financial Statements. The Company has previously furnished to
Centerprise copies of the audited consolidated balance sheet of the Company as
of December 31, 1998 (the "Latest Balance Sheet"), and the related audited
consolidated statement of income, stockholders' equity and cash flow for the one
(1) year period ended December 31, 1998, including all notes thereto,
(collectively, the "Financial Statements"). Each of the Financial Statements
is accurate and complete in all material respects, is consistent with the books
and records of the Company and the Company Subsidiaries (which, in turn, are
accurate and complete in all material respects), and fairly presents in all
material respects the financial condition, assets and liabilities of the Company
and the Company Subsidiaries as of its date and the results of operations and
cash flows for the periods related thereto, in each case in accordance with
generally accepted accounting principles, applied on a consistent basis
("GAAP").
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4.7 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
4.7, neither the Company nor any Company Subsidiary had, as of the date of the
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent clearly and accurately reflected or accrued or fully
reserved against in the Financial Statements or (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business and consistent with past custom and practices (none of which
is a liability resulting from a breach of contract, breach of warranty, tort,
infringement claim, legal violation or lawsuit).
4.8 Unbilled Fees and Expenses. At the Closing all unbilled fees and
expenses at net realizable value reflected in the records of the Company and the
Company Subsidiaries arose in the ordinary course of business and will be
billable in the ordinary course of business using normal billing practices and
adjustments employed as of the date of this Agreement by the Company and each
Company Subsidiary. Upon such billing any such amounts will be collectible in
the ordinary course of business using normal collection practices and policies
employed by the Company and each Company Subsidiary (net of any allowance for
doubtful accounts determined in accordance with the Company's and the Company
Subsidiaries' past practice and custom).
4.9 Absence of Certain Changes or Events. Except as set forth on Schedule
4.9, since the date of the Latest Balance Sheet, each of the Company and the
Company Subsidiaries has conducted its business only in the ordinary course
consistent with past custom and practices. Except as set forth on Schedule 4.9,
since the date of the Latest Balance Sheet, there has not been any:
(a) material adverse change in the operations, condition (financial or
otherwise), operating results, assets, liabilities, employee or client
relations or prospects of the Company or any Company Subsidiary;
(b) damage, destruction or loss of any property owned by the Company
or any Company Subsidiary, or used in the operation of the Business,
whether or not covered by insurance, having a replacement cost or fair
market value in excess of five percent (5%) of the amount of net property,
plant and equipment shown on the Latest Balance Sheet, in the aggregate;
(c) voluntary or involuntary sale, transfer, surrender, cancellation,
abandonment, waiver, release or other disposition of any kind by the
Company or any Company Subsidiary of any right, power, claim or debt,
except the collection of accounts and billing of work-in-process, each in
the ordinary course of business consistent with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union organizational
activity, allegation, charge or complaint of employment discrimination or
other labor dispute or
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similar occurrence that is reasonably expected to adversely affect the
Company, a Company Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary to any
Person, other than as a result of services performed for, or expenses
properly and reasonably advanced for the benefit of, customers in the
ordinary course of business consistent with past custom and practices;
(f) notice (formal or otherwise) of any liability, potential liability
or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or other
distribution in respect of the Company's capital stock or other equity
interests or any direct or indirect redemption, purchase, or other
acquisition of the Company's or any Company Subsidiary's capital stock or
other equity interests, or the payment of principal or interest on any
note, bond, debt instrument or debt to any Affiliate (as defined in Section
15.4) of the Company or any Company Subsidiary, except bonuses and
distributions to employees and stockholders of the Company disclosed to
Centerprise in writing that are consistent with the Company's past custom
and practices or as otherwise contemplated by this Agreement;
(h) incurrence by the Company or any Company Subsidiary of debts,
liabilities or obligations except current liabilities incurred in
connection with or for services rendered or goods supplied in the ordinary
course of business consistent with past custom and practices, liabilities
on account of taxes and governmental charges (but not penalties, interest
or fines in respect thereof), and obligations or liabilities incurred by
virtue of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any notes,
bonds, or other debt securities or any equity securities or securities
convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or amendment
or termination of, any material commitment, contract, agreement, or
transaction, other than in the ordinary course of business and other than
expiration of contracts in accordance with their terms;
(k) loss or threatened loss of, or any material reduction or
threatened material reduction in revenues from, any client of the Company
or any Company Subsidiary that accounted for revenues during the last
twelve months in excess of one percent (1%) of the consolidated net
revenues of the Company and the Company Subsidiaries, or change in the
relationship of the Company or any Company Subsidiary with any client or
Governmental Authority that is reasonably expected to adversely affect the
Company, any Company Subsidiary or the Business;
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(l) change in accounting principles, methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) utilized by the Company or any Company Subsidiary;
(m) discharge or satisfaction by the Company or any Company Subsidiary
of any material liability or encumbrance or payment by the Company or any
Company Subsidiary of any material obligation or liability, other than
current liabilities paid in the ordinary course of its business consistent
with past custom and practices;
(n) sale, lease or other disposition by the Company or any Company
Subsidiary of any tangible assets (having an aggregate replacement cost or
fair market value in excess of five percent (5%) of the amount of net
property, plant and equipment shown on the Latest Balance Sheet) other than
in the ordinary course of business, or the sale, assignment or transfer by
the Company or any Company Subsidiary of any trademarks, service marks,
trade names, corporate names, copyright registrations, trade secrets or
other intangible assets, or disclosure of any proprietary confidential
information of the Company or any Company Subsidiary to any Person other
than an employee, agent, attorney, accountant or other representative of
the Company that has agreed to maintain the confidentiality of any such
proprietary confidential information;
(o) capital expenditures or commitments therefor by the Company or any
Company Subsidiary in excess of $50,000 individually or $100,000 in the
aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the Company
or any Company Subsidiary or creation of any easements, Liens or other
interests against or on any of the Real Property (as defined in Section
4.14.1);
(q) adoption, amendment or termination of any Employee Plan (as
defined in Section 4.17.5(a)) or increase in the benefits provided under
any Employee Plan, or promise or commitment to undertake any of the
foregoing in the future; or
(r) an occurrence or event not included in clauses (a) through (q)
that has resulted or, based on information of which the Company has
Knowledge, is reasonably expected to result in a Company Material Adverse
Effect.
4.10 Litigation. Except as set forth on Schedule 4.10 (which shall
disclose the parties to, nature of and relief sought for each matter to be
disclosed on Schedule 4.10):
4.10.1 There is no suit, action, proceeding, investigation, claim or
order pending or, to the Knowledge of the Company, threatened against the
Company or any Company Subsidiary, or with respect to the Merger, or with
respect to any Employee Plan, or any fiduciary of any such plan (or pending
or, to the Knowledge of the Company, threatened against any of the
officers, directors, members, stockholders, partners or employees of the
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Company or any Company Subsidiary with respect to its business or proposed
business activities), or to which the Company or any Company Subsidiary is
otherwise a party, or that is reasonably expected to have a Company
Material Adverse Effect, before any court, or before any Governmental
Authority (each an "Action" and collectively, the "Actions"); nor, to
the Knowledge of the Company, is there any basis for any such Action.
4.10.2 Neither the Company nor any Company Subsidiary is subject to
any unsatisfied or continuing judgment, order or decree of any court or
Governmental Authority. Neither the Company nor any Company Subsidiary, to
the Knowledge of the Company, is otherwise exposed, from a legal
standpoint, to any liability or disadvantage that is reasonably expected to
result in a Company Material Adverse Effect, and neither the Company nor
any Company Subsidiary is a party to any legal action to recover monies due
it or for damages sustained by it, other than collection of past due
charges for services rendered or expenses incurred by the Company.
4.10.3 Schedule 4.10 lists the insurer for each Action covered by
insurance or designates such Action, or a portion of such Action, as
uninsured and lists the individual and aggregate policy limits for the
insurance covering each insured Action and the applicable policy
deductibles for each insured Action.
4.10.4 Schedule 4.10 sets forth all material closed litigation matters
to which the Company or any Company Subsidiary was a party during the five
(5) year period preceding the Closing Date, the date such litigation was
commenced and concluded, and the nature of the resolution thereof
(including amounts paid in settlement or judgment).
4.11 Compliance with Applicable Laws. Except as set forth on Schedules
4.11 and 4.19, each of the Company and the Company Subsidiaries has complied in
all material respects with all laws, rules, regulations, writs, injunctions,
decrees, and orders (collectively, the "Laws") applicable to it or to the
operation of the Business, and neither the Company nor any Company Subsidiary
has received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of the Company, no event has occurred or circumstances exist that
(with or without notice or lapse of time) is reasonably expected to constitute
or result in a violation by the Company or any Company Subsidiary of any Law
that gives rise to any liability on the part of the Company or any Company
Subsidiary under any Law.
4.12 Licenses. Schedule 4.12 lists all Licenses used by the Company and
the Company Subsidiaries that are material to the conduct of the Business.
"Licenses" means all notifications, licenses, permits, franchises, certificates,
approvals, exemptions, classifications, registrations and other similar
documents and authorizations, and applications therefor held by the Company or
any Company Subsidiary and issued by, or submitted by the Company or any Company
Subsidiary to, any Governmental Authority or other Person, other than those
relating to the practice of public
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accountancy. Section B of Schedule 4.12 lists all licenses, certificates,
approvals, registrations and other similar documents and authorizations, and
applications therefor relating to the practice of public accountancy (the
"Accounting Licenses") held by the Company or a Company Subsidiary and issued
by, or submitted by the Company or any Company Subsidiary to, any Governmental
Authority or other Person. All such Licenses and Accounting Licenses are valid,
binding and in full force and effect. Except as described on Schedule 4.12, the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not adversely affect any such
Licenses. To the Knowledge of the Company, the Company and the Company
Subsidiaries have taken all necessary action to maintain such Licenses. No loss
or expiration of any such License is pending or, to the Company's Knowledge,
threatened or reasonably foreseeable.
4.13 Material Contracts. Except as listed or described on Schedule 4.13
(such contracts, or those which should have been listed on Schedule 4.13, are
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments (each a
"1 Contract" and collectively, the "Contracts") relating to or in any way
affecting the operation or ownership of the Business that are of a type
described below and no such agreements are currently in negotiation or proposed:
(a) any consulting agreement pursuant to which the Company or a
Company Subsidiary is to receive consulting services (other than consulting
agreements that may be terminated by the Company or a Company Subsidiary on
not more than 30 days notice without penalty), employment agreement,
change-in-control agreement, or collective bargaining arrangement with any
labor union;
(b) any Contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $50,000;
(c) any Contract for the purchase, maintenance or acquisition, or the
sale or furnishing, of materials, supplies, merchandise, machinery,
equipment, parts or other property or services (except if such Contract is
made in the ordinary course of business and requires aggregate future
payments of less than $25,000);
(d) any Contract, other than trade payables in the ordinary course of
business, relating to the borrowing of money, or the guaranty of another
Person's borrowing of money, including, without limitation, any notes,
mortgages, indentures and other obligations, guarantees of performance,
agreements and instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(e) any Contract granting any Person a Lien on all or any part of the
assets of the Company or any Company Subsidiary;
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(f) any Contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (as defined in Section 4.19), the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) any Contract granting to any Person an option or a first refusal,
first-offer or similar preferential right to purchase or acquire any
material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative which
is not terminable by the Company or a Company Subsidiary upon ninety (90)
calendar days or less notice without penalty;
(i) any Contract under which the Company or any Company Subsidiary is
(A) a lessee or sublessee of any machinery, equipment, vehicle or other
tangible personal property, or (B) a lessor of any tangible personal
property owned by the Company or any Company Subsidiary, in either case
having an original purchase price or requiring aggregate lease payments in
excess of $50,000;
(j) any Contract under which the Company or any Company Subsidiary has
granted or received a license or sublicense or under which it is obligated
to pay or has the right to receive a royalty, license fee or similar
payment, in either case which provides for payments over the life of such
Contract in excess of $25,000;
(k) any Contract concerning an Affiliate Transaction (as defined in
Section 4.21);
(l) any Contract providing for the indemnification or holding harmless
of any officer, director, employee or other Person;
(m) any Contract (A) for purchase or sale by the Company or any
Company Subsidiary of any real property on which the Company or any Company
Subsidiary conducts any aspect of the Business, (B) granting any options to
lease or purchase all or any portion of the Real Property, or (C) providing
for labor, services or materials to the Real Property (including, without
limitation, brokerage or management services) involving aggregate future
payments of more than $25,000;
(n) any Contract limiting, restricting or prohibiting the Company or
any Company Subsidiary from conducting business anywhere in the United
States or elsewhere in the world;
(o) any joint venture or partnership Contract;
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(p) any lease, sublease or associated agreements relating to the
Leased Property (as defined in Section 4.14.1);
(q) any Contract requiring prior notice, consent or other approval
upon a change of control in the equity ownership of the Company or any
Company Subsidiary, which, if amended, modified or terminated as a result
of, relating to or in connection with a failure to provide prior notice, or
gain such consent or approval, would result in a Company Material Adverse
Effect; or
(r) any other Contract, whether or not made in the ordinary course of
business, which involves future payments by the Company or any Company
Subsidiary in excess of $25,000.
The Company has provided Centerprise with a true and complete copy of each
written Material Contract and a true and complete summary of each oral Material
Contract, in each case including all amendments or other modifications thereto.
Except as set forth on Schedule 4.13, each Material Contract is a valid and
binding obligation of, and enforceable in accordance with its terms against, the
Company or a Company Subsidiary, as applicable, and, to the Knowledge of the
Company, the other parties thereto, and is in full force and effect, subject
only to bankruptcy, reorganization, receivership and other laws affecting
creditors' rights generally and equitable principles. Except as set forth on
Schedule 4.13, the Company or one of the Company Subsidiaries, as applicable,
has performed in all material respects all obligations required to be performed
by it as of the date hereof and will have performed in all material respects all
obligations required to be performed by it as of the Closing Date under each
Material Contract and neither the Company or Company Subsidiary, as applicable,
nor, to the Knowledge of the Company, any other party to any Material Contract
is in breach or default thereunder, and, to the Knowledge of the Company, there
exists no condition which would, with or without the lapse of time or the giving
of notice, or both, constitute a breach or default thereunder. The Company has
not been notified that any party to any Material Contract intends to cancel,
terminate, not renew, or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
4.14 Properties.
----------
4.14.1 Schedule 4.14.1-1 is a correct and complete list, and a brief
description of, all real estate in which the Company or any of the Company
Subsidiaries has an ownership interest (the "Owned Property") and all
real property leased by the Company (the "Leased Property"). Except as
lessee of Leased Property, neither the Company nor any Company Subsidiary
is a lessee under or otherwise a party to any lease, sublease, license,
concession or other agreement, whether written or oral, pursuant to which
another Person has granted to the Company or any Company Subsidiary the
right to use or occupy all or any portion of any real property.
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The Company or one or more of the Company Subsidiaries has good and
marketable fee simple title to the Owned Property and, assuming good title
in the landlord, a valid leasehold interest in the Leased Property (the
Owned Property and the Leased Property being sometimes referred to herein
as "Real Property"), in each case free and clear of all Liens,
assessments or restrictions (including, without limitation, inchoate liens
arising out of the provision of labor, services or materials to any such
real estate) other than (a) mortgages shown on the Financial Statements as
securing specified liabilities or obligations, with respect to which no
default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) Liens for current taxes not yet due, (c)
(i) minor imperfections of title, including utility and access easements
depicted on subdivision plats for platted lots that do not impair the
intended use of the property, if any, none of which materially impairs the
current operations of the Company, any Company Subsidiary or the Business,
and (ii) zoning laws and other land use restrictions or restrictive
covenants that do not materially impair the present use of the property
subject thereto, and (d) Liens, assessments, and restrictions pursuant to
and by virtue of the terms of the lease of the Leased Property. The Real
Property constitutes all real properties reflected on the Financial
Statements or used or occupied by the Company or any Company Subsidiary in
connection with the Business or otherwise.
With respect to the Owned Property, except as reflected on Schedule
4.14.1-2(a):
(a) the Company or one of the Company Subsidiaries is in exclusive
possession thereof and no easements, licenses or rights are necessary to
conduct the Business thereon in addition to those which exist as of the
date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority materially
adverse to the Owned Property and, to the Knowledge of the Company, there
is no threatened condemnation or proceeding with respect thereto;
(c) there is no violation of any covenant, condition, restriction,
easement or agreement of any Governmental Authority that affects the Owned
Property or the ownership, operation, use or occupancy thereof;
(d) no portion of any parcel of the Owned Property is subject to any
roll-back tax, dual or exempt valuation tax, and no portion of any Owned
Property is omitted from the appropriate tax rolls; and
(e) all assessments and taxes currently due and payable on such Owned
Property have been paid.
With respect to the Leased Property, except as reflected on Schedule
4.14.1-2(b):
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(i) the Company and/or one of the Company Subsidiaries is in
exclusive, peaceful and undisturbed possession thereof and, to the
Knowledge of the Company, no easements, licenses or rights are necessary to
conduct the Business thereon in addition to those which exist as of the
date hereof; and
(ii) to the Knowledge of the Company, no portion thereof is
subject to any pending condemnation proceeding or proceeding by any public
or quasi-public authority materially adverse to the Leased Property and
there is no threatened condemnation or proceeding with respect thereto.
4.14.2 The Latest Balance Sheet and/or Schedule 4.14.2 reflect all
material tangible personal property owned by the Company or any Company
Subsidiary, except as sold or otherwise disposed of or acquired in the
ordinary course of business. Except as set forth on Schedule 4.14.2, the
Company or one of the Company Subsidiaries has good and marketable title
to, or a valid leasehold interest in, or valid license of, such personal
property (including, without limitation, machinery, equipment and
computers), in each case free and clear of any 1 Liens (other than Liens
that are part of such leasehold or license), and each such asset is in
working order and has been maintained in a commercially reasonable manner
and does not contain, to the Knowledge of the Company, any material defect.
Except as set forth in Schedule 4.14.2, no personal property (including,
without limitation, software and databases maintained on off-premises
computers) used by the Company or any Company Subsidiary in connection with
the Business is held under any lease, security agreement, conditional sales
contract or other title retention or security arrangement or is located
other than on the Real Property.
4.15 Intellectual Property. The (i) patents, patent applications,
inventions and discoveries that may be patentable (collectively, the
"Patents"), (ii) registered and unregistered trademarks, trade names, company
names, assumed business names and service marks (collectively, the "Marks"),
(iii) copyrights (the "Copyrights"), and (iv) know how, trade secrets,
confidential information, client lists, software, technical information, data,
process technology, plans and drawings (collectively, the "Trade Secrets")
owned, used or licensed by the Company or any Company Subsidiary (collectively,
the "Intellectual Property") are all those necessary to enable the Company and
the Company Subsidiaries to conduct and to continue to conduct the Business
substantially as it is currently conducted. Schedule 4.15 contains a complete
and accurate list of all material Patents, Marks and Copyrights and a brief
description of all material Trade Secrets owned, used by or directly licensed to
the Company or any Company Subsidiary, and a list of all material license
agreements and arrangements with respect to any of the Intellectual Property to
which the Company or any Company Subsidiary is a party, whether as licensee,
licensor or otherwise (collectively, the "Intellectual Property Licenses").
Except as set forth on Schedule 4.15, (i) all of the Intellectual Property is
owned or, to the Knowledge of the Company, used under a valid Intellectual
Property License, by the Company or one of the Company Subsidiaries, and is free
and clear of all Liens and other adverse claims; (ii) none of the Company nor
any Company Subsidiary has received any written notice that it is or has
infringed on,
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misappropriated or otherwise conflicted with, or otherwise has Knowledge that it
is infringing on, misappropriating, or otherwise conflicting with the
intellectual property rights of any third parties; (iii) there is no claim
pending or, to the Knowledge of the Company, threatened against the Company or
any Company Subsidiary with respect to the alleged infringement or
misappropriation by the Company or Company Subsidiary, or a conflict with, any
intellectual property rights of others; (iv) the operation of any aspect of the
Business in the manner in which it has heretofore been operated or is presently
operated does not give rise to any such infringement or misappropriation; and
(v) there is no infringement or misappropriation of the Intellectual Property by
a third party or claim, pending or, to the Knowledge the Company, threatened,
against any third party with respect to the alleged infringement or
misappropriation of the Intellectual Property.
4.16 Taxes.
-----
4.16.1 Except as set forth on Schedule 4.16.1-1, each of the Company
and the Company Subsidiaries has timely and accurately prepared and filed
or been included in or will timely and accurately prepare and file or be
included in all federal, state, local and foreign returns, declarations and
reports, information returns and statements (collectively, the "Returns")
for Taxes (as defined in Section 4.16.2) required to be filed by or with
respect to the Company or the Company Subsidiaries before the Closing Date,
and has paid or caused to be paid, or has made adequate provision or set up
an adequate accrual or reserve for the payment of, all Taxes required to be
paid in respect of the periods for which Returns are due on or prior to the
Closing Date, and will establish an adequate accrual or reserve for the
payment of all Taxes payable in respect of the period, including portions
thereof, subsequent to the last of said periods required to be so accrued
or reserved, in each case in accordance with GAAP up to and including the
Closing Date. All such Returns are or will be true and correct in all
material respects. The Company has delivered to Centerprise true and
complete copies of all Returns referred to in the first sentence of this
Section 4.16.1 (including any amendments thereof) for the five (5) most
recent taxable years. Neither the Company nor any Company Subsidiary is
delinquent in the payment of any Tax, and no material deficiencies for any
Tax, assessment or governmental charge have been threatened, claimed,
proposed or assessed. No waiver or extension of time to assess any Taxes
has been given or requested. No written claim, or any other claim, by any
taxing authority in any jurisdiction where the Company or any Company
Subsidiary does not file Tax returns is pending pursuant to which the
Company or Company Subsidiary, as applicable, is or may be subject to
taxation by that jurisdiction. The Company's and the Company Subsidiaries'
Returns were last audited by the Internal Revenue Service or comparable
state, local or foreign agencies on the dates set forth on Schedule
4.16.1-2.
4.16.2 For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, withholdings, fees, levies, penalties, additions,
interest or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, employment,
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withholding, social security, occupation, use, service, service use,
license, payroll, franchise, transfer and recording taxes, fees and
charges, windfall profits, severance, customs, import, export, employment
or similar taxes, charges, fees, levies or other assessments, imposed by
the United States, or any state, local, foreign or provincial government or
subdivision or any agency thereof, whether computed on a separate,
consolidated, unitary, combined or any other basis.
4.17 Employee Benefit Plans; ERISA.
-----------------------------
4.17.1 Except as described in Schedule 4.17.1, neither the Company
nor any Company Subsidiary has or is reasonably expected to have any
liability (including contingent liability) whether direct or indirect (and
regardless of whether it would be derived from a current or former Plan
Affiliate, as defined in Section 4.17.5(c)) with respect to any of the
following (whether written, unwritten or terminated): (i) any employee
welfare benefit plan, as defined in Section 3(1) of "ERISA," including,
but not limited to, any medical plan, life insurance plan, short-term or
long-term disability plan or dental plan; (ii) any "employee pension
benefit plan," as defined in Section 3(2) of ERISA (as defined in Section
4.17.5(b)), including, but not limited to, any excess benefit plan, top hat
plan or deferred compensation plan or arrangement, nonqualified retirement
plan or arrangement, qualified defined contribution or defined benefit
arrangement; or (iii) any other benefit plan, policy, program, arrangement
or agreement, including, but not limited to, any material fringe benefit
plan or program, personnel policy, bonus or incentive plan, stock option,
restricted stock, stock bonus, holiday pay, vacation pay, sick pay, bonus
program, service award, moving expense, reimbursement program, tool
allowance, safety equipment allowance, deferred bonus plan, salary
reduction agreement, change-of-control agreement, employment agreement or
consulting agreement.
4.17.2 A complete copy of each written Employee Plan (as defined in
Section 4.17.5(a)) as amended to the Closing, together with audited
financial statements, if any, for the three (3) most recent plan years; a
copy of each trust agreement or other funding vehicle with respect to each
such plan; a copy of any and all determination letters, rulings or notices
issued by a Governmental Authority with respect to such plan; a copy of the
Form 5500 Annual Report for the three (3) most recent plan years; and a
copy of each and any general explanation or communication which was
required to be distributed or otherwise provided to participants in such
plan and which describes all or any relevant aspect of each plan, including
summary plan descriptions and/or summary of material modifications, have
been delivered to Centerprise. A description of each unwritten Employee
Plan, including a description of eligibility, participation, benefits,
funding arrangements and assets or other relevant aspects of the
obligation, is set forth in Schedule 4.17.2.
4.17.3 Except as is not reasonably expected to give rise to any
liability (including contingent liability), whether direct or indirect, to
the Company or any Company
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Subsidiary, each Employee Plan (i) has been and is operated and
administered in compliance with its terms; (ii) has been and is operated,
administered, maintained and funded in compliance with the applicable
requirements of the Code in such a manner as to qualify, where appropriate
and intended, for both Federal and state purposes, for income tax
exclusions, tax-exempt status, and the allowance of deductions and credits
with respect to contributions thereto; (iii) where appropriate, has
received a favorable determination letter from the Internal Revenue Service
upon which the sponsor of the plan may currently rely; (iv) has been and
currently complies in form and in operation in all respects with all
applicable requirements of ERISA and the Code and any applicable reporting
and disclosure requirements of Federal and state laws, including but not
limited to the requirement of Part 6 of subtitle B of Title I of ERISA and
Section 4980B of the Code. With respect to each Employee Plan, no Person
has: (i) entered into any nonexempt "prohibited transaction," as such
terms are defined in ERISA or the Code; (ii) breached a fiduciary
obligation or (iii) any liability for any failure to act or comply in
connection with the administration or investment of the assets of such
plan; and no Employee Plan has any liability and there is no liability in
connection with any Employee Plan, other than a liability (i) which is
expressly and adequately reflected in the Latest Balance Sheets, (ii) which
is discretionary or terminable at will by the Company or one of the Company
Subsidiaries without incurring any such liability, or (iii) which is
adequately funded under a funding arrangement separate from the assets of
the Company, any Company Subsidiary or a Plan Affiliate (and only to the
extent of such funding). Any contribution made or accrued with respect to
any Employee Plan is fully deductible by the Company, a Company Subsidiary
or a Plan Affiliate.
4.17.4 Except as set forth on Schedule 4.17.4, neither the Company
nor any Company Subsidiary or Plan Affiliate has ever sponsored,
maintained, contributed to or been required to contribute to, or has any
liability, whether direct or indirect, with respect to any Employee Plan
which is or has ever been (i) a "multiemployer plan" as defined in Section
4001 of ERISA, (ii) a "multiemployer plan" within the meaning of Section
3(37) of ERISA, (iii) a "multiple employer plan" within the meaning of Code
Section 413(c), (iv) a "multiple employer welfare arrangement" within the
meaning of Section 3(40) of ERISA, (v) subject to the funding requirements
of Section 412 of the Code or to Title IV of ERISA, or (vi) provides for
post-retirement medical, life insurance or other welfare-type benefits.
4.17.5 As used in this Agreement, the following terms shall have the
following respective meanings:
(a) the term "Employee Plan" shall mean any plan, policy,
program, arrangement or agreement described in Section 4.17.1, whether
or not scheduled;
(b) the term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended; and
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(c) with respect to any Person ("First Person"), the term "Plan
Affiliate" shall mean any other Person with whom the First Person
constitutes or has constituted all or part of a controlled group, or
which would be treated or have been treated with the First Person as
under common control or whose employees would be or have been treated
as employed by the First Person, under Section 414 of the Code or
Section 4001(b) of ERISA and any regulations, administrative rulings
and case law interpreting the foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no,
and within the last three (3) years neither the Company nor any Company
Subsidiary has experienced any, strike, picketing, boycott, work stoppage or
slowdown or other similar labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor pending or,
to the Knowledge the Company, threatened against the Company or any Company
Subsidiary, or that is reasonably expected to affect the Company or any Company
Subsidiary; nor, to the Knowledge the Company, is there any basis for any such
allegation, charge, or complaint. There is no request for representation pending
and, to the Knowledge the Company, no question concerning representation has
been raised. There is no grievance pending that is reasonably expected to result
in a Company Material Adverse Effect nor any arbitration proceeding arising out
of a union agreement. To the Knowledge of the Company, no employee who is key to
the Business and no group of employees has announced or otherwise indicated any
plans to terminate employment with the Company or any Company Subsidiary. Each
of the Company and any Company Subsidiary has complied with all applicable laws
relating to the employment of labor, including provisions thereof relating to
wages, hours, equal opportunity, collective bargaining and the payment of social
security and other taxes. Neither the Company nor any Company Subsidiary is
liable for any arrears of wages or any taxes or penalties for failure to comply
with any such laws, ordinances or regulations.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19,
(i) each of the Company and the Company Subsidiaries is operating and has
operated its business in compliance with all applicable Environmental and Safety
Requirements (as defined later in this Section); (ii) to the actual knowledge of
the Board of Directors of the Company, without any duty to inquire
(notwithstanding the definition of "Knowledge" in Section 15.4), there are no
Hazardous Materials (as defined later in this Section) present at, on or under
any real property currently or formerly owned, leased or used by the Company or
Company Subsidiary (other than those present in office supplies and
cleaning/maintenance materials) for which the Company or a Company Subsidiary or
is or is reasonably expected to be responsible, or otherwise have any liability,
for response costs under any Environmental and Safety Requirements; (iii) each
of the Company and the Company Subsidiaries has disposed of all waste materials
generated by the Company or such Company Subsidiary at any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
in compliance with applicable Environmental and Safety Requirements; and (iv)
there are and have been no facts, events, occurrences or conditions at or
related to any real property currently or formerly owned, leased or used by the
Company or Company Subsidiary that is reasonably expected to cause or give rise
to liabilities or response
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obligations of the Company or any Company Subsidiary under any Environmental and
Safety Requirements. The term "Environmental and Safety Requirements" means
any federal, state and local laws, statutes, regulations or other requirements
relating to the protection, preservation or conservation of the environment or
worker health and safety, all as amended or reauthorized. The term "Hazardous
Materials" means "hazardous substances," as defined by the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. (S) 9601 et
seq., "hazardous wastes," as defined by the Resource Conservation Recovery
Act, 42 U.S.C. (S) 6901 et seq., asbestos in any form or condition,
polychlorinated biphenyls and any other material, substance or waste to which
liability or standards of conduct may be imposed under any Environmental and
Safety Requirement.
4.20 Insurance. Each of the Company and the Company Subsidiaries has in
full force and effect commercially reasonable amounts of insurance to protect
the Company's and Company Subsidiaries' ownership or interest in, and operation
of, its assets against the types of liabilities, including professional
malpractice, customarily insured against in connection with operations similar
to the Business, and all premiums due on such policies have been paid. To the
Company's Knowledge, each of the Company and the Company Subsidiaries has
complied with the provisions of all such policies and is not in default under
any of such policies. Schedule 4.20 contains a complete and correct list of all
such insurance policies. None of Seller, the Company nor any Company Subsidiary
has received any notice of cancellation or intent to cancel or increase premiums
with respect to such insurance policies. Schedule 4.20 also contains a list of
all claims or asserted claims reported to insurers under such policies relating
to the ownership or interest in the Company's and the Company Subsidiaries'
assets, or operation of the Business, including all professional malpractice
claims and similar types of claims, actions or proceedings asserted against the
Company or any Company Subsidiary arising out of the Business at any time within
the past three (3) years.
4.21 Interest in Customers and Suppliers; Affiliate Transactions. Except
as described on Schedule 4.21 and except for ownership as an investment of not
more than one percent (1%) of any class of capital stock of any publicly-traded
company, none of Grace Capital, LLP ("Holdings") the Company, any partner of
Holdings, any Affiliate of any such partner nor any Affiliate of Holdings, the
Company or any Company Subsidiary (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
Person that is a client, supplier, customer, lessor, lessee or competitor of the
Company or any Company Subsidiary, (ii) owns, directly or indirectly, in whole
or in part, or has any interest in any tangible or intangible property used in
the conduct of the Business, or (iii) is a party to an agreement or
relationship, that involves the receipt by such Person of compensation or
property from the Company or any Company Subsidiary other than through a
customary employment relationship or through distributions made with respect to
the Company Stock or equity interests in any Company Subsidiary (provided such
distributions have been made consistent with the Company's or any Company
Subsidiary's, as the case may be, past custom and practices). Schedule 4.21 sets
forth the parties to and the date, nature and amount of each transaction during
the last five years involving the transfer of any cash, property or rights to or
from the Company or any Company Subsidiary from, to or for the benefit of any
Affiliates
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(other than customary employment relationships or distributions made with
respect to the Company Stock) ("Affiliate Transactions"), and any existing
commitments of the Company or any Company Subsidiary to engage in the future in
any Affiliate Transactions. Except as disclosed, each Affiliate Transaction and
each transaction with former Affiliates of the Company or any Company Subsidiary
was effected on terms equivalent to those that would have been established in an
arm's-length transaction.
4.22 Business Relationships. Schedule 4.22 lists all clients of the
Company and each Company Subsidiary representing one percent (1%) or more of the
Company's consolidated net revenue for the twelve (12) months ended December 31,
1998. Except as set forth on Schedule 4.22, since December 31, 1998, none of
such clients has canceled or substantially reduced its business with the Company
or Company Subsidiary, as applicable, nor are any of such clients threatening to
do so. To the Knowledge of the Company, except as set forth on Schedule 4.22 no
client that accounts for one percent (1%) or more of the Company's consolidated
net revenue, or supplier of the Company or any Company Subsidiary, will cease to
do business with, or substantially reduce its business with, the Company or any
Company Subsidiary, as applicable, after the consummation of the transactions
contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
names and current total compensation, including, without limitation, salary and
bonuses paid to employees and draws or other distributions paid to partners,
members or owners of each Person who earned from the Company or a Company
Subsidiary in 1998 total compensation in excess of $100,000. Except as set
forth in Schedule 4.23, no Person listed thereon has received any bonus or
increase in compensation and there has been no "general increase" in the
compensation or rate of compensation payable to any employees, partners, members
or owners of the Company or any Company Subsidiary since the date of the Latest
Balance Sheet, other than in the Company's and Company Subsidiaries' ordinary
course of business, consistent with past custom and practices, nor since that
date has there been any oral or written promise to employees, partners, members
or owners of any bonus or increase in compensation, other than in the Company's
and Company Subsidiaries' ordinary course of business, consistent with past
custom and practices. The term "general increase" as used herein means any
increase generally applicable to a class or group, but does not include
increases granted to individuals for merit, length of service or change in
position or responsibility made on the basis of the custom and past practices of
the Company or any Company Subsidiary. Schedule 4.23 includes the date and
amount of the last bonus or similar distribution or increase in compensation for
each listed individual.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each
bank in which the Company or any Company Subsidiary has an account or safe
deposit box, the number of each such account or box, and the names of all
Persons authorized to draw thereon or to have access thereto.
4.25 Professional Credentials. Each Partner is a Certified Public
Accountant in good standing in one of the States of the United States or the
District of Columbia, and entitled to
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practice in one of the jurisdictions in which the Company or any Company
Subsidiary maintains an office, and there are no disciplinary proceedings
pending or threatened against the Company, any Company Subsidiary or any of the
Partners by any Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy.
4.26 Disclosure; No Misrepresentation. No representation or warranty of
the Company contained in this Agreement or in any of the certification,
schedules, lists, documents, exhibits, or other instruments delivered or to be
delivered to Centerprise as contemplated by any provision hereof contains any
untrue statement regarding a material fact or omits to state a material fact
necessary in order to make the statements made herein or therein not misleading.
To the Knowledge of the Company, there is no fact or circumstance that has not
been disclosed to Centerprise herein that has or is reasonably expected to have
a Company Material Adverse Effect.
ARTICLE V
[RESERVED]
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE
Centerprise represents and warrants to the Company as of March 31, 1999
and, subject to Section 7.3, as of the date on which Centerprise and the lead
Underwriter execute and deliver the Underwriting Agreement related to the IPO
and as of the Closing Date as follows:
6.1 Organization And Qualification. Each of Centerprise and Mergersub is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. True, accurate and complete copies of each of
Centerprise's and Mergersub's Certificate of Incorporation and By-laws, as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to Seller and the Company.
6.2 Capitalization.
6.2.1 The authorized capital stock of Centerprise consists of 20,000
shares of Centerprise Common Stock, of which 17,500 shares are outstanding
as of the date hereof. All of the issued and outstanding shares of
Centerprise Common Stock are validly issued and are fully paid,
nonassessable and free of preemptive rights. Immediately prior to the
Closing Date, the authorized capital stock of Centerprise will consist of
50,000,000 shares of Centerprise Common Stock, of which the number of
shares set forth in the Form S-1 will be issued and outstanding, and
10,000,000 shares of Preferred Stock, par value $0.01
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per share, none of which will be issued and outstanding. Other than (i)
shares of Centerprise Common Stock issued pursuant to a split of the shares
outstanding as of the date of this Agreement, (ii) shares of Centerprise
Common Stock issued in accordance with the Acquisition and the Other
Acquisitions, and (iii) shares of Centerprise Common Stock that may be
issued to new members of management in lieu of shares previously issued to
current members of management, but which will not increase the number of
shares of outstanding Centerprise Common Stock, no shares of Centerprise
Common Stock will be issued prior to the consummation of the IPO.
Mergersub's authorized capital stock consists solely of 1,000 shares of
common stock, par value $.01 per share (the "Mergersub Stock"), all of
which are issued and outstanding, are owned free and clear of any Liens by
Centerprise, and are fully paid, nonassessable and free of preemptive
rights.
6.2.2 Except as set forth on Schedule 6.2, as of the date hereof,
there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement obligating Centerprise
to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of Centerprise or obligating
Centerprise to grant, extend or enter into any such agreement or
commitment. There are no voting trusts, proxies or other agreements or
understandings to which Centerprise is a party or is bound with respect to
the voting of any shares of capital stock of Centerprise. The shares of
Centerprise Common Stock issued to the Company's Stockholders in the
Acquisition will at the Closing Date be duly authorized, validly issued,
fully paid and nonassessable and free of preemptive rights and issued
pursuant to a registration statement as required by the 1933 Act or an
exemption therefrom.
6.3 No Subsidiaries. Except for Centerprise's ownership of 100% of
the capital stock of Professional Service Group, Inc., a Delaware corporation,
and Mergersub (and similar entities created for similar purposes with respect to
the Other Agreements) Centerprise has no subsidiaries and it does not own any
capital stock of any corporation or any equity or other interest of any nature
whatsoever in any Person.
6.4 Authority; Non-Contravention; Approvals.
6.4.1 Each of Centerprise and Mergersub has all requisite right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been approved by the
Boards of Directors of Centerprise and Mergersub, and no other corporate
proceedings on the part of Centerprise or Mergersub are necessary to
authorize the execution and delivery of this Agreement or the consummation
by Centerprise and Mergersub of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Centerprise and Mergersub
and,
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assuming the due authorization, execution and delivery hereof by, the
Company constitutes a valid and legally binding agreement of Centerprise
and Mergersub, enforceable against each of them in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
6.4.2 The execution and delivery of this Agreement by Centerprise and
Mergersub does not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of
any Lien upon any of the properties or assets of Centerprise and Mergersub
under any of the terms, conditions or provisions of (i) the Certificate of
Incorporation or By-laws of Centerprise or Mergersub, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or Governmental Authority applicable
to Centerprise or Mergersub or any of their respective properties or
assets, or (iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Centerprise or
Mergersub is now a party or by which Centerprise, Mergersub or any of their
respective properties or assets, may be bound or affected, except those
items described in clause (ii) relating to regulating, licensing or
permitting the practice of public accountancy. The consummation by
Centerprise and Mergersub of the transactions contemplated hereby will not
result in any violation, conflict, breach, right of termination or
acceleration or creation of Liens under any of the terms, conditions or
provisions of the items described in clauses (i) through (iii) of the
immediately preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (ii) above, to
obtaining (prior to the Closing Date) Centerprise Required Statutory
Approvals and except for those items described in (ii) above relating to
regulating, licensing or permitting the practice of public accountancy.
6.4.3 Except with respect to (i) the declaration of the effectiveness
of the Registration Statements by the SEC and filings, if required, with
various state securities or "blue sky" authorities, (ii) any filing
which may be required under the HSR Act, (iii) any filing which may be
required by any Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy (the
filings and approvals referred to in clauses (i) through (iii) are
collectively referred to as the "Centerprise Required Statutory
Approvals") no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body
or authority is necessary for the execution and delivery of this Agreement
by Centerprise or Mergersub or the consummation by Centerprise or Mergersub
of the transactions contemplated hereby, other than such declarations,
filings, registrations, notices, authorizations, consents or approvals
which, if not made or obtained, as the case
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may be, are not reasonably expected to, in the aggregate, have a material
adverse effect on the business operations, properties, assets, condition
(financial or other), results of operations or prospects of Centerprise and
its subsidiaries, taken as a whole (a "Centerprise Material Adverse
Effect").
6.5 Absence of Undisclosed Liabilities. Except as set forth on Schedule
6.5, neither Centerprise nor Mergersub has incurred any liabilities or
obligations (whether known or unknown, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise) of any nature. Except as set
forth on Schedule 6.5, neither Centerprise nor Mergersub has engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is it bound by any obligation or undertaking.
6.6 Litigation. There are no claims, suits, actions or proceedings
pending or, to the Knowledge of Centerprise, threatened against, relating to or
affecting Centerprise or Mergersub, before any court, Governmental Authority or
any arbitrator that seek to restrain or enjoin the consummation of the
Acquisition or the IPO or which could reasonably be expected, either alone or in
the aggregate with all such claims, actions or proceedings, to have a
Centerprise Material Adverse Effect. Centerprise is not subject to any
unsatisfied or continuing judgment, order or decree of any court or Governmental
Authority. Centerprise is not a party to any legal action to recover monies due
it or for damages sustained by it.
6.7 Compliance with Applicable Laws. Each of Centerprise and Mergersub
has complied in all material respects with all Laws applicable to it, and has
not received any notice of any alleged claim or threatened claim, violation of
or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of Centerprise, no event has occurred or circumstances exist that
(with or without notice or lapse of time) may constitute or result in a
violation by Centerprise or Mergersub of any Law or may give rise to any
liability on the part of the Centerprise or Mergersub under any Law.
6.8 No Misrepresentation. None of the representations and warranties of
Centerprise or Mergersub set forth in this Agreement or in any of the
certificates, schedules, lists, documents, exhibits, or other instruments
delivered or to be delivered to the Company as contemplated by any provision
hereof contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. To the Knowledge of Centerprise, there is no fact or circumstance
that has not been disclosed to the Company herein that has or is reasonably
expected to have a Company Material Adverse Effect.
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ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS
7.1 Conduct of Business by the Company Pending the Acquisition.
7.1.1 Except as otherwise contemplated by this Agreement, after the
date hereof and prior to the Closing Date or earlier termination of this
Agreement, unless Centerprise shall otherwise agree in writing, the Company
shall, and shall cause each Company Subsidiary to:
(a) in all material respects conduct the Business in the ordinary
and usual course and consistent with past customs and practices;
(b) not (i) amend its Organizational Documents except as
necessary to complete the Conversion, (ii) split, combine or
reclassify its outstanding capital stock or (iii) declare, set aside
or pay any dividend or distribution payable in cash, stock, property
or otherwise except dividends or distributions which (A) are
consistent with past customs and practices and (B) do not result in a
Company Material Adverse Effect;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
options, warrants or rights of any kind to acquire any shares of, its
capital stock or equity interests of any class, (ii) any debt with
voting rights or (iii) any debt or equity securities convertible into
or exchangeable for, or any rights, warrants, calls, subscriptions, or
options to acquire, any such capital stock, debt with voting rights or
convertible securities;
(d) not (i) incur or become contingently liable with respect to
any indebtedness for borrowed money other than (A) borrowings in the
ordinary course of business in a manner consistent with past customs
and practices or (B) borrowings to refinance existing indebtedness on
commercially reasonable terms, (ii) redeem, purchase, acquire or offer
to purchase or acquire any shares of its capital stock or equity
interests or any options, warrants or rights to acquire any of its
capital stock or equity interests or any security convertible into or
exchangeable for its capital stock or equity interests, (iii) sell,
pledge, dispose of or encumber any assets or businesses other than
dispositions in the ordinary course of business in a manner consistent
with past customs and practices (iv) enter into any contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
(e) use commercially reasonable efforts to (i) preserve intact
its business organizations and goodwill, (ii) keep available the
services of its present officers
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and key employees, and (iii) preserve the goodwill and business
relationships with clients and others having business relationships
with it and not engage in any action, directly or indirectly, with the
intent to adversely impact the transactions contemplated by this
Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of Centerprise to report operational matters of
materiality and the general status of ongoing operations;
(g) except as contemplated by Schedule 4.9, not (i) increase in
any manner the base compensation of, or enter into any new bonus or
incentive agreement or arrangement with, any of its employees,
partners, members or owners, except in the ordinary course of
business in a manner consistent with past customs and practices of the
Company or any Company Subsidiary, as applicable, (ii) pay or agree to
pay any additional pension, retirement allowance or other employee
benefit under any Employee Plan to any such Person, whether past or
present, (iii) enter into any new employment, severance, consulting,
or other compensation agreement with any of its existing employees,
partners, members or owners, (iv) amend or enter into a new Employee
Plan (except as required by Law) or amend or enter into a new
collective bargaining agreement, or (v) engage in any new Affiliate
Transaction;
(h) comply in all material respects with all applicable Laws;
(i) not make any material investment in, directly or indirectly,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any businesses or any Person or
division thereof or otherwise acquire or agree to acquire any assets
in each case which are material to it other than in the ordinary
course of business in a manner consistent with past customs and
practices;
(j) not sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, license, encumber or otherwise dispose of,
any of its assets other than in the ordinary course of business,
consistent with past customs and practices;
(k) maintain with financially responsible insurance companies
insurance on its tangible assets and its businesses in such amounts
and against such risks and losses in a manner consistent with past
customs and practices in all material respects; and
(l) collect and bill receivables in the ordinary and usual course
and consistent with past custom and practices.
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7.1.2 [Reserved]
7.1.3 Notwithstanding the fact that such action might otherwise be
permitted pursuant to this Article, the Company shall not take, or permit
any Company Subsidiary to take, any action that would or is reasonably
likely to result in any of the representations or warranties of the Company
set forth in this Agreement being untrue or in any of the conditions to the
consummation of the transactions contemplated hereunder set forth in
Article X not being satisfied.
7.1.4 Prior to the Closing, (i) the Company shall terminate, without
any liability to the Company or the Company Subsidiaries, all agreements
relating to the voting of the Company's capital stock, and all agreements
and obligations of the Company and the Company Subsidiaries relating to
borrowed money and/or involving payments to or for the benefit of a present
or former stockholder of the Company, or an Affiliate or family member of a
Partner or present or former stockholder of the Company, including without
limitation those set forth on Schedule 7.1.4(i), but excluding (A) debt
reflected on Schedule 2.1 as Debt Assumed By Centerprise, (B) items
reflected on Schedule 2.5, (C) agreements and obligations to the extent
such agreements and obligations result in Indirect Costs under the
Incentive Compensation Agreement, (D) the agreements set forth on Schedule
7.1.4(i)-D and (E) items approved by Centerprise in writing, (ii) the
Company shall transfer or distribute to the Persons set forth on Schedule
7.1.4(ii), and such Persons shall assume, (A) all assets identified on
Schedule 7.1.4(ii) (collectively, the "Excluded Assets") and (B) any and
all liabilities and obligations of any nature (whether known or unknown,
accrued, absolute, contingent, direct, indirect, perfected, inchoate,
unliquidated or otherwise) relating to the Excluded Assets and the
Company's interest in Better Business Methods, L.L.C., a Missouri limited
liability company ("BBM"), which was transferred by the Company effective
as of January 1, 1999 (collectively, the "Excluded Liabilities"), and (iii)
the Company may declare a special bonus (the "Special Bonus") in an amount
(after adding all Taxes payable by the Company with respect thereto) not in
excess of that portion of the AR that is not necessary to meet the Target
or otherwise satisfy the obligations of the Company hereunder. Prior to
the Closing, the Company shall obtain novations or other releases or
agreements discharging the Company from all Excluded Liabilities (so that
the respective Excluded Liabilities will become direct liabilities and
obligations of the assignee), including without limitation the obligation
to make loans to BBM, contained in Section 2.d.i. of that certain Operating
Agreement dated August 3, 1998, by and among the Company, Richard F.
Schmidt and Keith S. Morris (the "BBM Agreement"), and the restriction on
competition, contained in Section 6.g. of the BBM Agreement and provide
copies thereof to Centerprise.
7.2 No-Shop.
(a) After the date hereof and prior to the Closing Date or earlier
termination of this Agreement, the Company shall (i) not, and the Company
shall use its diligent efforts
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to cause the Company Subsidiaries and any officer, director or employee of,
or any attorney, accountant, investment banker, financial advisor or other
agent retained by the Company or any Company Subsidiary not to, initiate,
solicit, negotiate, encourage, or provide non-public or confidential
information to facilitate, any proposal or offer to acquire all or any
substantial part of the business and properties of the Company or any
Company Subsidiary, or any capital stock or other equity interest of the
Company or any Company Subsidiary, whether by merger, purchase of assets or
otherwise, whether for cash, securities or any other consideration or
combination thereof, or enter into any joint venture or partnership or
similar arrangement, and (ii) promptly advise Centerprise of the terms of
any communications the Company may receive or become aware of relating to
any bid for part or all of the Company or any Company Subsidiary.
Notwithstanding the foregoing, if the underwriters' internal sales force
presentation or "road show" for the IPO has not started by October 15,
1999, then from and after such date, the Company may (through its
authorized agents) conduct limited discussions with potential acquirers of
the Company for the sole purpose of assessing the potential terms and
conditions of an acquisition proposal involving the Company.
Notwithstanding the preceding sentence, the Company shall not (i) disclose
any non-public or confidential information regarding the Company to any
such third party or (ii) enter into any agreement (including a letter of
intent or term sheet) with such third party unless this Agreement has been
terminated pursuant to Article XI.
(b) The Company (i) acknowledge that a breach of any of its covenants
contained in this Section 7.2 will result in irreparable harm to
Centerprise which will not be compensable in money damages; and (ii) agrees
that such covenant shall be specifically enforceable and that specific
performance and injunctive relief shall be a remedy properly available to
the other party for a breach of such covenant.
7.3 Schedules. Each party hereto agrees that with respect to the
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement or amend and deliver to the other parties all the schedules to this
Agreement (the "Schedules") to correct any matter which would constitute a
breach of any such party's representations and warranties herein; provided,
however, that no amendment or supplement to a Schedule that constitutes or
reflects a Company Material Adverse Effect or affects Schedule 4.2, Schedule 4.4
or Schedule 8.8 may be made unless Centerprise and a majority of the Founding
Companies consent to such amendment or supplement. No amendment of or
supplement to a Schedule shall be made later than three (3) business days prior
to the anticipated effectiveness of the Form S-1. For all purposes of this
Agreement, including, without limitation, for purposes of determining whether
the conditions set forth in Sections 10.2 and 10.3 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 7.3. In the event that (i) one of the other Founding
Companies seeks to amend or supplement a Schedule pursuant to Section 7.3 of one
of the Other Agreements, (ii) such amendment or supplement constitutes or
reflects a Company Material Adverse Effect (as defined in such Other Agreement)
or affects Schedule 4.2, Schedule 4.4 or
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Schedule 8.8 of such Other Agreement, and (iii) Centerprise and a majority of
the Founding Companies consent to such amendment or supplement, but the Company
does not, the Company may terminate this Agreement at any time prior to the
Closing Date. In the event that (i) the Company seeks to amend or supplement a
Schedule pursuant to this Section 7.3, (ii) such amendment or supplement
constitutes or reflects a Company Material Adverse Effect or affects Schedule
4.2, Schedule 4.4 or Schedule 8.8, and (iii) Centerprise and a majority of the
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section 7.3,
unless this Agreement is so terminated in connection with an amendment of or
supplement to a Schedule relating to the Company's breach of a representation or
warranty as of March 31, 1999 in which case the Company shall pay to
Centerprise, as Centerprise's exclusive remedy (notwithstanding anything to the
contrary) and as liquidated damages, and not as a penalty, an amount equal to
$2,000,000 (the "Liquidated Damages Amount"). The Company agrees that in the
case of such termination Centerprise and the Founding Companies (excluding the
Company) will sustain immediate and irreparable economic harm and loss of
goodwill and that actual losses suffered by such parties will be difficult, if
not impossible, to ascertain, but the Liquidated Damages Amount set forth herein
is reasonable and has been arrived at after a good faith effort to estimate such
losses. Payment of the Liquidated Damages Amount shall be made in cash to
Centerprise within thirty (30) days of a termination pursuant to this Section
7.3 in connection with an amendment of or supplement to a Schedule relating to a
breach of a representation or warranty as of the date of this Agreement.
7.4 Company Stockholders Meeting. The Company shall take all action in
accordance with applicable Laws and its Organizational Documents necessary to
duly call, give notice of, convene and hold a meeting of the Company's
stockholders to be held on the earliest practicable date determined in
consultation with Centerprise to consider and vote upon approval of the Merger,
this Agreement and the transactions contemplated hereby. The Company shall
solicit the approval of the Merger, this Agreement and the transactions
contemplated hereby by the Company's stockholders and the Company's Board of
Directors shall recommend approval of the Merger, this Agreement and the
transactions contemplated hereby by the Company's stockholders. If the Merger,
this Agreement and the transactions contemplated hereby are approved by the
Company's stockholders, the Company shall not call, give notice of, convene or
hold any other meeting of its stockholders to rescind or modify such approval or
to consider any other transaction.
7.5 Conversion. Prior to the Closing but effective only if, as and when
the Closing occurs, the Company shall complete, the Conversion, pursuant to
applicable law and present such evidence of the Conversion at the Closing, as
Centerprise or its counsel may require.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Access to Information.
---------------------
8.1.1 The Company shall and shall cause the Company Subsidiaries to
afford to Centerprise and its accountants, counsel, financial advisors and
other representatives, including without limitation the underwriters
engaged in connection with the IPO (each an "Underwriter" and collectively,
the "Underwriters") and their counsel (collectively, the "Centerprise
Representatives"), and to the other Founding Companies and their
accountants, counsel, financial advisors and other representatives, and
Centerprise shall afford to the Company and their accountants, counsel,
financial advisors and other representatives (the "Company
Representatives"), upon reasonable notice, full access during normal
business hours throughout the period prior to the Closing Date to all of
its respective properties, books, contracts, commitments and records
(including, but not limited to, financial statements and Tax Returns) and,
during such period, shall furnish promptly to one another all due diligence
information requested by the other party. Centerprise shall hold and shall
use its best efforts to cause the Centerprise Representatives to hold, and
the Company shall hold and shall use their best efforts to cause the
Company Representatives to hold, in strict confidence all non-public
information furnished to it in connection with the transactions
contemplated by this Agreement, except that each of Centerprise and the
Company may disclose any information that it is required by law or judicial
or administrative order to disclose. In addition, Centerprise will cause
each of the other Founding Companies and their members and stockholders to
enter into a provision similar to this Section 8.1 requiring each such
Founding Company to keep confidential any information obtained by such
Founding Company in connection with the transactions contemplated by this
Agreement.
8.1.2 In the event that this Agreement is terminated in accordance
with its terms, each party shall promptly return to the disclosing party
all non-public written material provided pursuant to this Section 8.1 or
pursuant to the Other Agreements and shall not retain any copies, extracts
or other reproductions of such written material. In the event of such
termination, all documents, memoranda, notes and other writings prepared by
Centerprise or the Company based on the information in such material shall
be destroyed (and Centerprise and the Company shall use their respective
reasonable best efforts to cause their advisors and representatives to
similarly destroy such documents, memoranda and notes), and such
destruction (and reasonable best efforts) shall be certified in writing by
an authorized officer supervising such destruction.
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8.2 Registration Statements.
-----------------------
8.2.1 Centerprise has filed the Registration Statements with the SEC
and shall use all reasonable efforts to have the Registration Statements
declared effective by the SEC as promptly as practicable. Centerprise shall
also take any action required to be taken under applicable state "blue sky"
or securities laws in connection with the issuance of Centerprise Common
Stock. Centerprise and the Company shall promptly furnish to each other all
information, and take such other actions, as may reasonably be requested in
connection with making such filings. All information provided and to be
provided by Centerprise and the Company, respectively, for use in the
Registration Statements shall be true and correct in all material respects
without omission of any material fact which is required to make such
information not false or misleading as of the date thereof and in light of
the circumstances under which given or made. The Company agrees promptly to
advise Centerprise if at any time during the period in which a prospectus
relating to the offering or the Merger is required to be delivered under
the Securities Act, any information contained in the prospectus concerning
the Company or the Company Subsidiaries becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy or remedy such incompletion.
8.2.2 Centerprise agrees that it will provide to the Company and its
counsel copies of drafts of the Registration Statements (and any amendments
thereto) containing material changes to the information therein as they are
prepared and will not (i) file with the SEC, (ii) request the acceleration
of the effectiveness of or (iii) circulate any prospectus forming a part
of, the Registration Statements (or any amendment thereto) unless the
Company and its counsel (x) have had at least two days to review the
revised information contained therein (which changes shall be highlighted
by computer generated marks indicating the additions and deletions made
from the prior draft reviewed by the Company's counsel) and (y) have not
objected to the substance of the information contained therein. Any
objections posed by the Company or its counsel shall be in writing and
state with specificity the material in question, the reason for the
objection, and the Company's proposed alternative. If the objection is
founded upon a rule promulgated under the Securities Act, the objection
shall cite the rule. Notwithstanding the foregoing, during the five (5)
business days immediately preceding the date scheduled for the filing of
the Registration Statements and any amendment thereto, the Company and its
counsel shall be obligated to respond to proposed changes electronically
transmitted to them within two (2) hours from the time the proposed changes
(in the case of the initial filing of the Registration Statements, from the
last circulated draft of the Registration Statements; and, in the case of
any subsequent filing of the Registration Statements or any amendment
thereof, from the most recently filed Registration Statements or amendment
thereof) are transmitted to the Company's counsel; provided, that,
Centerprise has provided to the Company or its counsel reasonable advance
notice of such proposed changes; provided, further, that such changes are
highlighted by
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computer generated marks indicating the additions and deletions made from
the prior draft reviewed by the Company's counsel.
8.2.3 Centerprise will advise the Partner Representative of the
effectiveness of the Registration Statements, advise the Partner
Representative of the entry of any stop order suspending the effectiveness
of the Registration Statements or the initiation of any proceeding for that
purpose, and, if such stop order shall be entered, use its best efforts
promptly to obtain the lifting or removal thereof. Upon the written request
of the Company, Centerprise will furnish to the Company a reasonable number
of copies of the final prospectus associated with the IPO.
8.3 Expenses and Fees. Centerprise shall pay the fees and expenses of the
independent public accountants and legal counsel to Centerprise and all filing,
printing and other reasonable, documented fees and expenses associated with the
IPO and Form S-4. The Company and its stockholders will not be liable for any
portion of the above expenses in the event the IPO is not completed. Centerprise
shall also pay the underwriting discounts and commissions payable in connection
with the sale of Centerprise Common Stock in the IPO. All other costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
8.4 Agreement to Cooperate. Subject to the terms and conditions herein
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
8.5 Public Statements. Except as may be required by law, no party hereto
nor any Affiliate of any party hereto shall issue any press release or any
written public statement with respect to this Agreement or the transactions
contemplated by this Agreement or the Other Agreements without the prior written
consent of Centerprise and the Company.
8.6 [Reserved]
8.7 Centerprise Covenants. After the date hereof and prior to the Closing
Date or earlier termination of this Agreement in accordance with its terms,
Centerprise shall comply in all material respects with all applicable Laws.
Centerprise shall not take any action that would or is reasonably likely to
result in any of the representations or warranties of Centerprise set forth in
this Agreement being untrue or in any of the conditions to the consummation of
the transactions contemplated hereunder set forth in Article X not being
satisfied.
8.8 Release of Guarantees. Centerprise shall use all commercially
reasonable efforts and good faith to have the Company's former or present
stockholders released from any and all guarantees on any indebtedness and leases
that they personally guaranteed for the benefit of the Company as set forth on
Schedule 8.8, with all such guarantees on indebtedness and leases being
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assumed by Centerprise, if necessary to achieve such releases. If any guaranteed
indebtedness is repaid in full with proceeds from the IPO and the Company's
stockholders guarantees thereafter shall have no further force or effect, then
Centerprise shall not be obligated to use any efforts to obtain a release of
such guarantee. In the event that Centerprise cannot obtain such releases from
the lenders of any such guaranteed indebtedness or lessors of any guaranteed
leases, Centerprise agrees to indemnify, defend and hold harmless the Company's
stockholders against any and all claims made by lenders or landlords under such
guarantees.
8.9 [Reserved]
8.10 Preparation and Filing of Tax Returns.
-------------------------------------
8.10.1 The Company shall be responsible for causing the timely filing
of the final pre-Closing Returns for the Company and the Company
Subsidiaries; provided, however, that Centerprise and its advisors shall
have the right to review and approve such returns prior to filing, which
approval shall not be unreasonably withheld. Centerprise shall, and shall
cause its Affiliates to, provide to the Company such cooperation and
information reasonably requested in filing any return, amended return or
claim for refund, determining a liability for Taxes or a right to refund of
Taxes or in conducting any audit or other proceeding in respect of Taxes.
The Company shall bear all costs of filing such returns.
8.10.2 Each of the Company and Centerprise shall comply with the tax
reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and shall treat the transaction as subject to
the provisions of Section 351 of the Code.
8.11 Maintenance of Insurance. The Company covenants and agrees that all
insurance policies listed, or required to be listed, on Schedule 4.20 will be
maintained in full force and effect through the Closing Date.
8.12 Administration. After the Closing, at the request of the Partner
Representative, Centerprise shall, directly or through one or more of its
subsidiaries, administer and manage the collection of amounts referred to on
Schedule 7.1.4(ii) using reasonable care and in accordance with the Company's
policies in effect at Closing.
8.13 Payment of Special Bonus. After the Closing, Centerprise shall cause
the Company to make payments of the Special Bonus to the Persons and in the
amounts set forth on a schedule to be provided by the Partner Representative to
Centerprise as soon as practicable after the Closing (which schedule shall be
substantially similar to the bonus projection schedule previously provided by
the Company to Centerprise); provided, however, that (i) the Company shall make
such payments on a monthly basis (the first payment to be made one month after
the Closing Date), (ii) the aggregate payments to be made by the Company at the
end of each month shall be limited to the AR collected by the Company during
such month, (iii) one hundred eighty days after the Closing Date the Company
shall (A) make payments of AR collected through such date and not
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yet paid out in accordance with this Section 8.13, and (B) distribute any then
remaining AR as final payment of the Special Bonus, and (iv) in no event shall
the liability of Centerprise and the Company under this Section 8.13 plus for
all Taxes payable by the Company on account of the Special Bonus exceed the
amount of the AR.
8.14 Partner Representative. The Company appoints Lawrence J. Porschen
(the "Partner Representative") as its agent and representative with full power
and authority to agree, contest or settle any claim or dispute affecting the
Company made under Article II and to otherwise act on behalf of the Company and
its stockholders in accordance with the terms of this Agreement.
ARTICLE IX
[RESERVED]
ARTICLE X
CLOSING CONDITIONS
10.1 Conditions to Each Party's Obligation to Effect the Acquisition. The
respective obligations of each party to effect the Acquisition shall be subject
to the fulfillment at or prior to the Closing of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have been
executed and the closing of the sale of Centerprise Common Stock to the
Underwriters pursuant thereto shall have occurred simultaneously with the
Closing hereunder;
(b) the closings of the transactions contemplated under each of the
Other Agreements shall have occurred simultaneously with the Closing
hereunder, unless terminated in accordance with Section 7.3 of the
applicable Other Agreement;
(c) the Registration Statements shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect
and no proceeding for that purpose shall have been instituted by the SEC or
any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or decree
shall be pending before or issued by any federal or state court which seeks
to prevent or prevents the consummation of the IPO, the Acquisition or any
of the Other Acquisitions shall have been issued and remain in effect;
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(e) the minimum price condition set forth on Schedule 2.1 shall have
been satisfied;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the
consummation of the Acquisition or any of the Other Acquisitions or make
the consummation of the Acquisition or any of the Other Acquisitions
illegal;
(g) all material governmental and third party waivers, consents and
approvals required for the consummation of the Acquisition or any of the
Other Acquisitions and the transactions contemplated hereby and by the
Other Agreements (including, without limitation, any consents listed on
Schedules 4.3.2 or 4.12) shall have been obtained and be in effect;
(h) no action, suit or proceeding with respect to the Acquisition has
been filed or threatened by a third party and remains threatened or remains
pending before any court, Governmental Authority or regulatory Person;
(i) this Agreement, the Merger and the transactions contemplated
hereby shall have been approved and adopted by the Company's stockholders
in the manner required by any applicable Law and the Company's
Organizational Documents and such approval shall remain in full force and
effect;
(j) Centerprise shall have entered into one or more credit facilities
providing for aggregate commitments of not less than $75 million; and
(k) A separate entity shall have been formed to conduct the
Attestation Practice, and such entity shall have secured all licenses,
permits, approvals and authorizations necessary to conduct the Attestation
Practice in accordance with applicable laws and regulations.
10.2 Conditions to Obligation of the Company to Effect the Acquisition.
Unless waived by Company, the obligation of the Company to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing of
the following additional conditions:
(a) Centerprise, Mergersub and each of the Founding Companies other
than the Company shall have performed in all material respects their
respective agreements contained in this Agreement and each Other Agreement
required to be performed on or prior to the Closing Date and the
representations and warranties of Centerprise contained in this Agreement
and each Other Agreement shall be true and correct in all material respects
on and as of the date made and on and as of the Closing Date as if made at
and as of such date, and the Company shall have received a certificate of
the Chief Executive Officer or President of Centerprise to that effect;
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(b) no Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy
shall have promulgated or formally proposed any statute, rule or regulation
which, when taken together with all such promulgations, would materially
impair the value to the Company of the Acquisition;
(c) the Company shall have received an opinion from Katten Muchin &
Zavis, dated as of the Closing Date, containing the substantive opinions
set forth in Exhibit 10.2(c), the final form of such opinion to be in form
and substance reasonably acceptable to the Company;
(d) each of the partners of Holdings shall have been afforded the
opportunity to enter into an incentive compensation agreement (the
"Incentive Compensation Agreement") with Centerprise substantially in the
form attached hereto as Exhibit 10.2(d);
(e) Centerprise shall have delivered to the Company a certificate,
dated as of a date no later than ten days prior to the Closing Date, duly
issued by the Delaware Secretary of State, showing that Centerprise is in
good standing;
(f) each of the partners of Holdings, the partners, members and
stockholders of the other Founding Companies who are to receive shares of
Centerprise Common Stock pursuant to the Other Agreements, and the other
stockholders of Centerprise other than those acquiring stock in the IPO
shall have entered into an agreement (the "Stockholders Agreement")
substantially in the form attached hereto as Exhibit 10.2(f);
(g) all conditions to the Acquisitions of the other Founding
Companies, on substantially the same terms as provided herein, shall have
been satisfied or waived by the applicable party and the Company;
(h) the Company shall have been afforded the opportunity to
review the executed employment agreement by and between Centerprise and
Robert C. Basten; and
(i) the Company shall have received an opinion of Katten Muchin &
Zavis, dated as of the Closing Date and based upon certain factual
representations and assumptions, that for federal income tax purposes there
will be no gain or loss recognized with respect to the Centerprise Common
Stock received in exchange for Company Stock in the Merger pursuant to
Section 351 of the Code, the final form of such opinion to be in form and
substance reasonably acceptable to the Company and the Partners.
10.3 Conditions to Obligation of Centerprise to Effect the Acquisition.
Unless waived by Centerprise, the obligation of Centerprise and Mergersub to
effect the Acquisition shall be subject to the fulfillment at or prior to the
Closing of the additional following conditions:
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(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties the Company
contained in this Agreement shall be true and correct in all material
respects on and as of the date made and on and as of the Closing Date as if
made at and as of such date, and Centerprise and the Underwriters shall
have received a Certificate of the Chief Executive Officer or President of
the Company to that effect;
(b) [Reserved];
(c) Centerprise and the Underwriters shall have received an opinion
from Jerome Mandelstamm, Esq. counsel to the Company, dated the Closing
Date, in the form attached hereto as Exhibit 10.3(c), the final form of
such opinion to be in form and substance reasonably acceptable to the
Underwriters and Centerprise;
(d) the Company and the parties thereto, as applicable, shall have
executed and delivered the Separate Practice Agreement substantially in the
form attached hereto as Exhibit 10.3(d)(A) and the Services Agreement
substantially in the form attached hereto as Exhibit 10.3(d)(B);
(e) each partner of Holdings shall have executed and delivered the
Incentive Compensation Agreement substantially in the form attached hereto
as Exhibit 10.2(d);
(f) Centerprise and the Underwriters shall have received "Comfort"
letters in customary form from the Company's independent public
accountants, dated the effective date of the Form S-1 and the Closing Date
(or such other date reasonably acceptable to Centerprise), with respect to
certain financial statements and other financial information included in
the Form S-1 and any subsequent changes in specified balance sheet and
income statement items, including total assets, working capital, total
stockholders' equity, total revenues and the total and per share amounts of
net income;
(g) the Company shall have delivered to Centerprise and the
Underwriters a certificate, dated as of a date no later than ten days prior
to the Closing Date, duly issued by the appropriate Governmental Authority
in the state of organization of the Company and each Company Subsidiary
and, unless waived by Centerprise, in each state in which the Company or
any Company Subsidiary is authorized to do business, showing the Company or
Company Subsidiary (as applicable) is in good standing;
(h) no Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy
shall have promulgated or formally proposed any statute, rule or regulation
which, when taken together with all such promulgations, would materially
impair the value to Centerprise of the Acquisition;
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(i) the partners of Holdings shall have executed the Stockholders
Agreement;
(j) the Company's stockholders and the partners of Holdings shall
have delivered to Centerprise an instrument in the form attached hereto as
Exhibit 10.3(j), dated the Closing Date, releasing the Company (and the
Company Subsidiaries) from any and all claims of such persons against the
Company (and the Company Subsidiaries) and obligations of the Company (and
the Company Subsidiaries) to such persons;
(k) the Company's interest in BBM and all Excluded Liabilities
related thereto, including without limitation under the BBM Agreement,
shall have been distributed, transferred, assigned and novated, as
applicable, in form and substance on terms and conditions acceptable to
Centerprise;
(l) the Company shall have presented evidence in form and substance
on terms and conditions satisfactory to Centerprise of its compliance with
the provisions of Section 7.1.4 hereof, including, without limitation that
as of the Closing the amount of debt of the Company and the Company
Subsidiaries shall not exceed the amount reflected on Schedule 2.1 as Debt
Assumed By Centerprise;
(m) the Company shall have terminated or have caused the termination
of any voting trusts, proxies or other agreements or understandings to
which the Company is a party or is bound with respect to any shares of
capital stock or other equity interests of the Company and the Company
Subsidiaries and shall have provided Centerprise evidence of such
termination that is acceptable to Centerprise's counsel;
(n) the Company shall have completed the Conversion and have
presented evidence of such conversion in accordance with Section 7.5;
(o) the Company shall have delivered payoff letters including a
statement of per diem interest amounts and other applicable release
documents from all institutional lenders and creditors of the Company and
the Company Subsidiaries regarding the payment in full of indebtedness at
Closing, in each case in form and substance satisfactory to Centerprise
(including, without limitation, applicable UCC-3 termination statements);
(p) the secretary of the Company shall have delivered certified
copies of the resolutions of the board of directors and shareholders of the
Company approving execution and delivery of this Agreement, the Conversion,
the Merger and the other actions, agreements and documents, necessary or
desirable to complete the transactions contemplated herein; and
(q) the Company's stockholders (including the partners of Holdings)
shall have executed and delivered the Company Stockholder Agreement in the
form of Exhibit 10.3(r) attached hereto.
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ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) pursuant to Section 7.3;
(b) the Company,
(i) if the Acquisition is not completed by November 15, 1999
other than on account of delay or default on the part of the Company
or any of its affiliates or associates;
(ii) if the Acquisition is enjoined by a final, unappealable
court order not entered at the request or with the support of the
Company or any of its affiliates or associates;
(iii) if Centerprise (A) fails to perform in any material
respect any of its material covenants in this Agreement and (B) does
not cure such default in all material respects within thirty (30)
days after written notice of such default is given to Centerprise; or
(c) by Centerprise,
(i) if the Acquisition is not completed by November 15, 1999
other than on account of delay or default on the part of Centerprise
or any of its stockholders or any of their affiliates or associates;
(ii) if the Acquisition is enjoined by a final, unappealable
court order not entered at the request or with the support of
Centerprise or any of its stockholders or any of their affiliates or
associates;
(iii) if the Company (A) fails to perform in any material
respect any of its material covenants in this Agreement and (B) does
not cure such default in all material respects within thirty (30)
days after written notice of such default is given the Company by
Centerprise; or
(d) by mutual consent of the Company and the Board of Directors of
Centerprise.
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11.2 Effect of Termination. In the event of termination of this Agreement
by either Centerprise or the Company, as provided in Section 11.1, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of the Company, Centerprise or Mergersub or their respective
officers or directors (except the obligations set forth in this Section 11.2 and
in Sections 8.1, 8.3, and 8.5, all of which shall survive the termination).
Nothing in this Section 11.2 shall relieve any party from liability for any
breach of this Agreement.
11.3 Amendment. This Agreement may not be amended except by action taken
by the Boards of Directors of Centerprise and the Company or duly authorized
committees thereof and then only by an instrument in writing signed on behalf of
each of the parties hereto and in compliance with applicable law. Centerprise
covenants and agrees that it shall not amend, modify or supplement the material
terms of any Other Agreement following the Closing without the prior written
consent of at least two thirds (2/3rds) of the members of Centerprise's Board of
Directors; provided that no waiver of any restriction set forth in Article XII
shall be of any effect unless consented to by a majority of the members of
Centerprise's Board of Directors who do not at the time of such proposed waiver
hold Restricted Shares within the meaning of this Agreement, any Other Agreement
or the Stockholders Agreement.
11.4 Waiver. At any time prior to the Closing Date, the parties hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant thereto
and (c) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE XII
[RESERVED]
ARTICLE XIII
[RESERVED]
ARTICLE XIV
[RESERVED]
45
<PAGE>
ARTICLE XV
GENERAL PROVISIONS
15.1 Brokers. The Company represents and warrants that no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee (except
for any fee described in Schedule 15.1) or commission in connection with the
Acquisition or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. Centerprise represents and
warrants that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
Acquisition or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Centerprise or its stockholders (other than
underwriting discounts and commission to be paid in connection with the IPO).
15.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
given in accordance with this Section):
15.2.1 If to Centerprise or Mergersub, to:
Centerprise Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert Basten
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
If to the Company, to:
c/o Grace & Company P.C.
3117 South Big Bend Boulevard
St. Louis, MO 63143
Attn: Larry Porschen
Facsimile No.: (314) 647-8304
46
<PAGE>
with a copy to:
Jerome Mandelstamm, Esq.
1010 Market Street
Suite 1600
St. Louis, MO 63101-2082
Facsimile No.: (314) 436-2303
15.2.3 If to the Partner Representative, to:
Lawrence Porschen
Grace & Company
3117 South Big Bend Boulevard
St. Louis, MO 63143
Facsimile No.: (314) 647-8304
15.3 Interpretation. The table of contents and headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
15.4 Certain Definitions. As used in this Agreement, (i) the term "Person"
shall mean any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated association, corporation, entity, firm, association,
organization or other business in any form whatsoever or government (whether
Federal, state, county, city or otherwise, including, without limitation, any
instrumentality, division, agency or department thereof), (ii) the term
"Affiliate" shall have the meaning given for that term in Rule 405 under the
Securities Act, and shall include each past and present Affiliate of a Person
and the members of such Affiliate's immediate family or their spouses or
children and any trust the beneficiaries of which are such individuals or
relatives, and (iii) an individual will be deemed to have "Knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or matter, or (b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the existence of
such fact or other matter and a prudent individual would conduct such
investigation; a Person, other than an individual, will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is a
partner, member or shareholder of such Person or who is otherwise serving, or
who has served, as a director, officer, or trustee (or any capacity) of such
Person has, or at any time had, Knowledge of such fact or other matter.
47
<PAGE>
15.5 Entire Agreement; Assignment. This Agreement (including the documents
and instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof and
(b) shall not be assigned by operation of law or otherwise, except that
Centerprise may assign this Agreement to any wholly-owned subsidiary of
Centerprise.
15.6 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Illinois applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
15.7 Counterparts. This Agreement may be executed via facsimile or
otherwise in two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
15.8 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and their respective successors,
permitted assigns, heirs, legal representatives and executors and except as
expressly set forth in herein, nothing in this Agreement, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
* * *
[remainder of page intentionally left blank]
48
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
CENTERPRISE ADVISORS, INC.
By: /s/ Robert C. Basten
------------------------------------------
Name:
----------------------------------------
Its:
-----------------------------------------
GRACE MERGERSUB, INC.
By: /s/ Robert C. Basten
------------------------------------------
Name:
----------------------------------------
Its: President
-----------------------------------------
GRACE & COMPANY, P.C.
By: /s/ Wayne J. Grace
------------------------------------------
Name: Wayne J. Grace
----------------------------------------
Its: President
-----------------------------------------
<PAGE>
Exhibit 2.43
------------------------------
AMENDED AND RESTATED
MERGER AGREEMENT
by and among
CENTERPRISE ADVISORS, INC.,
REPPOND MERGERSUB INC.,
RA MERGERSUB LLC,
VERASOURCE MERGERSUB INC.,
THE REPPOND COMPANY, INC.,
REPPOND ADMINISTRATORS, L.L.C. AND
VERASOURCE EXCESS RISK LTD.
September 24, 1999
------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
THE MERGER........................................................2
1.1 Merger...................................................2
1.2 Effects of the Merger....................................3
1.3 Directors and Officers of the Surviving Corporation......3
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT...............................3
2.1 Merger Consideration.....................................3
2.1.1 Basic Purchase Consideration....................3
2.1.3 Cancellation of Company Stock...................4
2.1.4 Dissenting Shares ..............................4
2.1.5 Conversion of Mergersub Stock...................4
2.2 Exchange of Certificates for Consideration...............5
2.3 Purchase Price Adjustment................................5
2.4 Earnout Payments.........................................5
2.4.1 Net Value Contingent Payment....................5
2.4.2 Example.........................................7
2.4.3 Calculation of Earn-Out Contingent Payments.....8
2.4.4 Definitions.....................................9
2.4.5 Example........................................12
2.5 Collection of Accounts Receivable.......................12
2.6 Litigation..............................................12
ARTICLE III
THE CLOSING AND CONSUMMATION DATE................................13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH OF THE COMPANIES..........13
4.1 Organization and Qualification..........................13
4.2 Company Subsidiaries....................................14
4.3 Authority; Non-Contravention; Approvals.................14
4.4 Capitalization..........................................15
4.5 Year 2000...............................................15
4.6 Financial Statements....................................16
4.7 Absence of Undisclosed Liabilities......................16
4.8 Accounts Receivable.....................................16
4.9 Absence of Certain Changes or Events....................17
4.10 Litigation..............................................19
4.11 Compliance with Applicable Laws.........................20
4.12 Licenses................................................20
4.13 Material Contracts......................................21
(i)
<PAGE>
4.14 Properties..............................................23
4.15 Intellectual Property...................................25
4.16 Taxes...................................................25
4.17 Employee Benefit Plans; ERISA...........................26
4.18 Labor Matters...........................................28
4.19 Environmental Matters...................................29
4.20 Insurance...............................................29
4.21 Interest in Customers and Suppliers; Affiliate
Transactions............................................29
4.22 Business Relationships..................................30
4.23 Compensation............................................30
4.24 Bank Accounts...........................................31
4.25 Disclosure; No Misrepresentation........................31
4.26 Title to and Transfer of Insurance Expirations..........31
ARTICLE V
[RESERVED].......................................................31
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE....................31
6.1 Organization And Qualification..........................31
6.2 Capitalization..........................................32
6.3 No Subsidiaries.........................................33
6.4 Authority; Non-Contravention; Approvals.................33
6.5 Absence of Undisclosed Liabilities......................34
6.6 Litigation..............................................34
6.7 Compliance with Applicable Laws.........................34
6.8 No Misrepresentation....................................34
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS................................35
7.1 Conduct of Business by the Companies Prior to the
Effective Time..........................................35
7.2 No-Shop.................................................37
7.3 Schedules...............................................38
7.4 Company Stockholder Meeting.............................38
ARTICLE VIII
ADDITIONAL AGREEMENTS............................................39
8.1 Access to Information...................................39
8.2 Registration Statements.................................39
8.3 Expenses and Fees.......................................41
8.4 Agreement to Cooperate..................................41
8.5 Public Statements.......................................41
8.6 [RESERVED...............................................41
8.7 Centerprise Covenants...................................41
8.8 Release of Guarantees...................................41
8.9 [RESERVED]..............................................42
8.10 Preparation and Filing of Tax Returns...................42
(ii)
<PAGE>
8.11 Insurance...............................................42
8.12 Management by Robert F. Driver Co., Inc.................42
8.13 Name of Companies.......................................42
8.14 Stockholder Representative..............................42
ARTICLE IX
[RESERVED].............................43
ARTICLE X
CLOSING CONDITIONS...............................................43
10.1 Conditions to Each Party's Obligation to Effect
the Merger..............................................43
10.2 Conditions to Obligation of the Companies to Effect
the Merger..............................................44
10.3 Conditions to Obligation of Centerprise to Effect
the Merger..............................................45
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER................................47
11.1 Termination.............................................47
11.2 Effect of Termination...................................48
11.3 Amendment...............................................48
11.4 Waiver..................................................49
ARTICLE XII
[RESERVED].......................................................49
ARTICLE XIII
NONCOMPETITION...................................................49
13.1 Centerprise Non-Solicitation............................49
ARTICLE XIV
[RESERVED].......................................................49
ARTICLE XV
GENERAL PROVISIONS...............................................49
15.1 Brokers.................................................49
15.2 Notices.................................................50
15.3 Interpretation..........................................51
15.4 Certain Definitions.....................................51
15.5 Entire Agreement; Assignment............................51
15.6 Applicable Law..........................................52
15.7 Counterparts............................................52
15.8 Parties in Interest.....................................52
(iii)
<PAGE>
LIST OF SCHEDULES
-----------------
Schedule 2.1 Consideration
Schedule 2.3 Purchase Price Adjustment
Schedule 2.4 Earnout Payments
Schedule 4.2 Investments
Schedule 4.3.2 Required Consents
Schedule 4.4 Capitalization
Schedule 4.5 Year 2000
Schedule 4.6 Financial Statements
Schedule 4.7 Liabilities
Schedule 4.8 Accounts Receivable
Schedule 4.9 Certain Changes and Events
Schedule 4.10 Litigation
Schedule 4.11 Noncompliance with Applicable Laws
Schedule 4.12 Licenses and Permits
Schedule 4.13 Material Contracts
Schedule 4.14.1-1 Real Property
Schedule 4.14.1-2(a) Exceptions Regarding Owned Property
Schedule 4.14.1-2(b) Exceptions Regarding Leased Property
Schedule 4.14.2 Tangible Personal Property; Liens
Schedule 4.15 Intellectual Property
(iv)
<PAGE>
Schedule 4.16.1-1 Taxes
Schedule 4.16.1-2 Tax Audits
Schedule 4.17.1 Employee Plans
Schedule 4.17.2 Unwritten Employee Plans
Schedule 4.18 Labor Matters
Schedule 4.19 Environmental Matters
Schedule 4.20 Insurance
Schedule 4.21 Affiliate Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 4.26 Title to and Transfer of Insurance Expirations
Schedule 6.2 Centerprise's Capitalization
Schedule 6.5 Liabilities
Schedule 7.1 Conduct of Business
Schedule 7.1.3 Terminated Agreements
Schedule 8.8 Stockholders' Guarantees
Schedule 15.1 Brokers
Schedule 15.2.3 Stockholders and Their Counsel
(v)
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit 2.1(i)(a) Form of Reppond Note
Exhibit 2.1(i)(b) Form of Verasource Note
Exhibit 2.1(i)(c) Form of RA Note
Exhibit 10.2(c) Form of Opinion of Centerprise's Counsel
Exhibit 10.2(d) Forms of Employment Agreements with Ben Reppond,
Louis R. Baransky and Scott Perry
Exhibit 10.2(f) Form of Stockholders' Agreement
Exhibit 10.2(i) Form of Letter Agreement
Exhibit 10.3(c) Form of Opinion of Counsel to Companies and
Stockholders
Exhibit 10.3(i) Form of Stockholders' Release
Exhibit 10.3(q) Form of Company Stockholder Agreement
(vi)
<PAGE>
DEFINED TERMS
-------------
Actions...................................................Section 4.10.1
Affiliate...................................................Section 15.4
Affiliate Transactions......................................Section 4.21
Agreement...................................................Introduction
Business....................................................Introduction
Centerprise.................................................Introduction
Centerprise Common Stock.....................................Section 2.1
Centerprise Material Adverse Effect........................Section 6.4.3
Centerprise Representatives................................Section 8.1.1
Centerprise Required Statutory Approvals...................Section 6.4.3
Closing......................................................Article III
Closing Date.................................................Article III
Code........................................................Introduction
Companies...................................................Introduction
Company.....................................................Introduction
Company Equity...............................................Section 2.1
Company Material Adverse Effect............................Section 4.3.3
Company Representatives....................................Section 8.1.1
Company Stockholder Agreement............................Section 10.3(q)
Contracts...................................................Section 4.13
(vii)
<PAGE>
Copyrights..................................................Section 4.15
DGCL.........................................................Section 1.1
Dissenting Shares..........................................Section 2.1.3
Driver......................................................Introduction
Earn-Out Contingent Payment ...............................Section 2.4.3
Effective Time...............................................Section 1.1
Employee Plan..........................................Section 4.17.5(a)
Environmental and Safety Requirements.......................Section 4.19
ERISA..................................................Section 4.17.5(b)
Excluded Receivables ........................................Section 2.5
Financial Statements.........................................Section 4.6
First Person...........................................Section 4.17.5(c)
Form S-1...................................................Section 4.3.3
Form S-4...................................................Section 4.3.3
Founding Companies..........................................Introduction
GAAP.......................................................Section 4.6.1
general increase............................................Section 4.23
Governmental Authority.....................................Section 4.3.2
Hazardous Materials.........................................Section 4.19
HSR Act ...................................................Section 4.3.3
Intellectual Property.......................................Section 4.15
(vii)
<PAGE>
Intellectual Property Licenses..............................Section 4.15
IPO.........................................................Introduction
Knowledge...................................................Section 15.4
Latest Balance Sheet.........................................Section 4.6
Laws........................................................Section 4.11
Leased Property...........................................Section 4.14.1
Licenses....................................................Section 4.12
Liens......................................................Section 4.3.2
Liquidated Damages Amount....................................Section 7.3
Marks.......................................................Section 4.15
Material Contracts..........................................Section 4.13
Merger......................................................Introduction
Mergersub...................................................Introduction
Mergersub Stock............................................Section 6.2.1
Merger Documents.............................................Section 1.1
Net Amounts..................................................Section 2.5
Net Value Contingent Payment...............................Section 2.4.1
1933 Act...................................................Section 4.3.3
Notes......................................................Section 2.1.1
Organizational Documents.....................................Section 4.1
Other Agreements............................................Introduction
(ix)
<PAGE>
Other Mergers...............................................Introduction
Owned Property............................................Section 4.14.1
Patents.....................................................Section 4.15
Person......................................................Section 15.4
Plan Affiliate.........................................Section 4.17.5(c)
RA..........................................................Introduction
RA Mergersub................................................Introduction
RA Note .....................................................Section 2.1
Real Property.............................................Section 4.14.1
Registration Statements....................................Section 4.3.3
Reppond.....................................................Introduction
Reppond Mergersub...........................................Introduction
Reppond Note ................................................Section 2.1
Returns...................................................Section 4.16.1
Schedules....................................................Section 7.3
SEC........................................................Section 4.3.3
Securities Act.............................................Section 4.3.3
Stockholders Agreement...................................Section 10.2(f)
Stockholder's Note and Stock Purchase Consideration .........Section 2.1
Surviving Corporation........................................Section 1.2
Taxes.....................................................Section 4.16.2
(x)
<PAGE>
Trade Secrets...............................................Section 4.15
Underwriters...............................................Section 8.1.1
Verasource..................................................Introduction
VeraSource Mergersub........................................Introduction
VeraSource Note .............................................Section 2.1
(xi)
<PAGE>
AMENDED AND RESTATED
MERGER AGREEMENT
THIS AMENDED AND RESTATED MERGER AGREEMENT (this "Agreement") is made
as of September 24, 1999, by and among Centerprise Advisors, Inc., a Delaware
corporation ("Centerprise"), Reppond Mergersub Inc., a Delaware corporation and
wholly-owned subsidiary of Centerprise ("Reppond Mergersub"), RA Mergersub LLC,
a Delaware limited liability company and wholly-owned subsidiary of Centerprise
("RA Mergersub"), Verasource Mergersub Inc., a Delaware corporation and
wholly-owned subsidiary of Centerprise ("Verasource Mergersub") (Reppond
Mergersub, RA Mergersub and Verasource Mergersub, each, as the context requires,
"Mergersub" and collectively, the "Mergersubs"), The Reppond Company, Inc., a
Washington corporation ("Reppond"), Reppond Administrators, L.L.C., a Washington
limited liability company ("RA"), and VeraSource Excess Risk Ltd., a Washington
corporation ("Verasource"), (Reppond, RA and Verasource, each individually, a
"Company," and collectively, the "Companies"). As used in this Agreement, the
term referred to as a "Stockholder" and, collectively, the "Stockholders" shall
mean the stockholders and members of the Companies.
WITNESSETH:
WHEREAS, (i) Reppond is engaged in the marketing of employee benefits
insurance, primarily group medical and dental insurance; (ii) RA provides COBRA,
IRC Section 125, single billing and direct dental reimbursement administration
services; and (iii) Verasource primarily markets stop loss insurance to brokers
and third party administration (the business provided, as it pertains to each
Company, the "Business" and collectively the "Businesses");
WHEREAS, the Boards of Directors of the Companies, Centerprise and
Mergersubs deem it advisable and in the best interests of their respective
shareholders to approve and consummate the business combination transaction
provided for herein in which RA Mergersub would merge with RA, Reppond Mergersub
would merge with Reppond and Verasource Mergersub would merge with Verasource,
with RA, Reppond and Verasource being the surviving corporations or limited
liability company, as the case may be, in the mergers (each, a "Merger,"
collectively, the "Mergers");
WHEREAS, Centerprise is entering into other agreements (the "Other
Agreements") similar to this Agreement with each of Reznick Fedder & Silverman,
P.C., Robert F. Driver Co., Inc. ("Driver"), Mann Frankfort Stein & Lipp, P.C.,
Berry, Dunn, McNeil & Parker, Chartered, Urbach Kahn & Werlin PC, Self Funded
Benefits, Inc. d/b/a Insurance Design Administrators, Grace & Company, P.C.,
Simione, Scillia, Larrow & Dowling LLC and Follmer Rudzewicz & Co., P.C. (which
companies together with the Companies are collectively referred to herein as the
"Founding Companies"), which agreements provide for the merger of a wholly-owned
subsidiary
<PAGE>
of Centerprise with each such Founding Company (the "Other Mergers")
simultaneously with the Merger;
WHEREAS, the Voting Agreement, dated as of March 31, 1999, among
Centerprise and certain of the Stockholders of the Companies has been terminated
and is no longer in force and effect;
WHEREAS, simultaneously with the consummation of the Merger,
Centerprise will close an initial public offering (the "IPO") of Centerprise
Common Stock (as defined in Section 2.1); and
WHEREAS, the parties intend the acquisition of Centerprise Common Stock
pursuant to the terms hereof to be tax-free under the provisions of Section 351
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the
mutual representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 Merger. Upon the terms and subject to the conditions set forth in
this Agreement and in reliance upon the representations and warranties set forth
herein, (i) RA Mergersub shall be merged with and into RA, the result of which
will cause the separate corporate existence of RA Mergersub to cease and RA to
continue under the laws of the State of Washington, (ii) Reppond Mergersub shall
be merged with and into Reppond, the result of which will cause the separate
corporate existence of Reppond Mergersub to cease and Reppond to continue under
the laws of the State of Washington, (iii) Verasource Mergersub shall be merged
with and into Verasource, the result of which will cause the separate corporate
existence of Verasource Mergersub to cease and Verasource to continue under the
laws of the State of Washington. As promptly as possible on the Closing Date,
the parties shall cause the Mergers to be completed by filing articles of merger
and certificates of merger, as applicable (the "Merger Documents"), with the
Secretary of State of the State of Washington, as provided in the Washington
Business Corporation Act, as amended and the Washington Limited Liability
Company Act, as amended and with the Secretary of State of the State of
Delaware, as provided in the General Corporation Law of the State of Delaware,
as amended (the "DGCL"). The Mergers shall become effective (the "Effective
Time") upon the filing of the Merger Documents with the Secretary of State of
the State of Washington and the Secretary of State of the State of Delaware or
at such later time, contemporaneously with the closing sale of the IPO, as
agreed by Centerprise and the Companies and specified in the Merger Documents.
2
<PAGE>
1.2 Effects of the Merger. At the Effective Time (a) the separate
existence of Mergersubs shall cease and (i) RA Mergersub shall be merged with
and into RA, with RA being the surviving entity, (ii) Reppond Mergersub shall be
merged with and into Reppond, with Reppond being the surviving corporation,
(iii) Verasource Mergersub shall be merged with and into Verasource, with
Verasource being the surviving corporation, (the surviving Company is sometimes
referred to herein as the "Surviving Corporation"), (b) the Certificates of
Incorporation and By-laws of the Surviving Corporation shall be amended in form
and substance acceptable to Centerprise and as specified in the Merger
Documents, (c) the Mergers shall have all the effects provided by applicable
law, and (d) the Company shall be a wholly-owned subsidiary of Centerprise.
1.3 Directors and Officers of the Surviving Corporation. From and after
the Effective Time, the directors and officers of each Mergersub shall be the
directors and officers of the Surviving Corporation until their successors are
duly elected and qualified.
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2.1 Merger Consideration.
2.1.1 Basic Purchase Consideration. At the Closing, by virtue
of the Mergers and without any action on the part of the holders thereof:
(a) the outstanding shares of capital stock of Reppond,
consisting of 500 shares of common stock, par value $1.00 per share, shall be
converted into the right to receive (i) that number of shares of common stock,
par value $.01 per share, of Centerprise ("Centerprise Common Stock") set forth
in line B1 of Schedule 2.1; provided, however, that if the actual public
offering price of the Centerprise Common Stock is below $11.90 per share, the
number of shares of Centerprise Common Stock received at Closing shall be
increased such that the value of the shares, using the initial public offering
price, equals the amount shown in line E1 of Schedule 2.1; (ii) a promissory
note (the "Reppond Note") in the form of Exhibit 2.1(i)(a) and (iii) the right
to the contingent payment described in Section 2.4 (the "Net Value Contingent
Payment") for Reppond;
(b) the outstanding shares of capital stock of Verasource,
consisting of 250 shares of common stock, par value $1.00 per share, shall be
converted into the right to receive (i) that number of shares of Centerprise
Common Stock set forth in line B2 of Schedule 2.1; provided, however, that if
the actual public offering price of the Centerprise Common Stock is below $11.90
per share, the number of shares of Centerprise Common Stock received at Closing
3
<PAGE>
shall be increased such that the value of the shares, using the actual public
offering price, equals the amount shown in line E2 of Schedule 2.1; (ii) a
promissory note (the "Verasource Note") in the form of Exhibit 2.1(i)(b) and
(iii) the right to the Net Value Contingent Payment for Verasource;
(c) the outstanding equity of RA, consisting of 500 units of
ownership interest in RA (the outstanding shares of capital stock of Reppond and
Verasource and the outstanding equity of RA, collectively, the "Company
Equity"), shall be converted into the right to receive (i) that number of shares
of Centerprise Common Stock determined in accordance with the formula set forth
in line B3 of Schedule 2.1; provided, however, that if the actual public
offering price of the Centerprise Common Stock is below $11.90 per share, the
number of shares of Centerprise Common Stock received at Closing shall be
increased such that the value of the shares, using the actual public offering
price, equals the amount shown in line E3 of Schedule 2.1; (ii) a promissory
note (the "RA Note", along with the Verasource Note and the Reppond Note, the
"Notes") in the form of Exhibit 2.1(i)(c) and (iii) the right to the Net Value
Contingent Payment for RA;2.1.2
(d) in addition to the Stockholder's Note and Stock Purchase
Consideration (as hereinafter defined) and in consideration of the Merger, Ben
Reppond will receive the right to the Earn-out Contingent Payments set forth in
Section 2.4.3.
The sum of (i) the value at Closing of the shares of Centerprise Common Stock
issued pursuant to Schedule 2.1(d) and (ii) the face amount of the Notes to be
issued to each Stockholder in respect of each Company is herein referred to as
the Stockholder's Note and Stock Purchase Consideration.
2.1.3 Cancellation of Company Stock. Each share of capital
stock of Reppond and Verasource held in treasury shall be canceled and retired
and no payment shall be made in respect thereof.
2.1.4 Dissenting Shares. Each outstanding share of capital
stock of Reppond and Verasource, the holder of which has perfected his right to
dissent under applicable law and has not effectively withdrawn or lost such
right as of the Effective Time (the "Dissenting Shares") shall not be converted
into the right to receive the consideration set forth in Section 2.1.1, and the
holder thereof shall be entitled only to such rights as are granted by
applicable law. Reppond and Verasource shall give Centerprise prompt notice upon
receipt by Reppond and Verasource of any such written demands for payment of
fair value of shares of capital stock of Reppond and Verasource and any other
instruments provided pursuant to applicable law. Any payments made in respect of
Dissenting Shares shall be made by the applicable Surviving Corporation.
2.1.5 Conversion of Mergersub Stock. At the Effective Time,
each share of Mergersub Stock issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Mergers and without any action on the
part of the holder thereof, be converted into and
4
<PAGE>
become one validly issued, fully paid and non-assessable share of the applicable
Surviving Corporation. Such newly issued shares shall thereafter constitute all
of the issued and outstanding capital stock of the applicable Surviving
Corporation.
2.2 Exchange of Certificates for Consideration. At the Closing,
Centerprise shall receive the original certificates representing the Company
Equity or other evidence of ownership in a form and substance acceptable to
Centerprise, duly endorsed in blank by the Stockholders or accompanied by blank
stock powers, in exchange for (i) Centerprise Common Stock certificates
representing the number of shares of Centerprise Common Stock determined in
accordance with Section 2.1, and (ii) delivery by Centerprise of the Notes. The
certificates representing Centerprise Common Stock to be delivered pursuant to
this Article II shall bear a restrictive legend. At the Closing, all shares or
membership interests of Company Equity shall be transferred and delivered to
Centerprise, and each of the Stockholders holding a certificate or other
evidence of ownership representing any such shares or membership interests of
Company Equity shall cease to have any rights with respect thereto, except the
right to receive the Stockholder's Note and Stock Purchase Consideration, the
Net Value Contingent Payment and the Earn-out Contingent Payments.
2.3 Purchase Price Adjustment. At Closing, the amount of capital
expenditures, not to exceed $600,000, made by the Companies for computer
hardware and software database and programming upgrades as well as tenant
improvement costs, new furniture and equipment costs, and relocation costs
associated with the expansion into the office space currently held by
ProBusiness Services, Inc. will be treated as working capital of the Companies
and to the extent that the working capital of the Companies at Closing is in
excess of $400,000, a cash payment equal to such excess amount shall be paid to
the Stockholders at Closing. The principal amount of the Notes may be adjusted
at the Closing in accordance with Schedule 7.1.3(a) and after the Closing in
accordance with the formula set forth in Schedule 2.3.
2.4 Earnout Payments.
2.4.1 Net Value Contingent Payment. In addition to the
Centerprise Common Stock and the Notes, the Stockholders shall be entitled to
receive from Centerprise the Net Value Contingent Payment, if any, for the
Calculation Period (as defined below) based on the formula set forth below which
payment shall be allocated among the Stockholders in accordance with their
ownership interest in each Company.
(a) Calculation of Net Value Contingent Payment. The Net Value
Contingent Payment, if any, shall be equal to the sum of (i) 25% x Target I Net
Value, (ii) 15% x Target II Net Value, and (iii) 10% x Target III Net Value.
(b) Definitions. For purpose of Section 2.4.1, the following
terms shall have the following meanings:
5
<PAGE>
(i) "Baseline EBITDA" shall be equal to $4,705,000.
(ii) "Calculation Period" means the twelve month
period ending on the fourth anniversary of the last day of the month in which
the Closing falls.
(iii) "Driver" means The Robert F. Driver Co., Inc.
(iv) "Driver EBITDA Percentage" means the ratio of
the Driver EBITDA compared to the Driver revenue for the Calculation Period
(which amounts shall include any portion of the Companies' EBITDA or Companies'
revenue to the extent any of the Companies are not part of Driver's operations
in the Calculation Period).
(v) "EBITDA" means earnings before interest, taxes,
depreciation and amortization, calculated in accordance with GAAP on a
consistent basis.
(vi) "EB Acquisition" means each entity or portion of
such entity acquired as part of Centerprise's employee benefits business after
December 9, 1998 (other than Driver, the Companies or Self-Funded Benefits,
Inc., d/b/a Insurance Design Administrators); provided that no such acquired
entity will be deemed to be an "EB Acquisition" if Ben Reppond shall have
objected in writing to its inclusion in such calculation on or prior to the
acquisition closing for such EB Acquisition.
(vii) "EB Operations" means Centerprise's employee
benefits business, which shall consist of the current operations of the
Companies and of Driver (excluding Self-Funded Benefits, Inc., dba Insurance
Design Administrators) plus any EB Acquisition.
(viii) "EB Operations Revenue" means the revenue of
the EB Operations during the Calculation Period.
(ix) "EB Operations EBITDA" means EB Operations
Revenue multiplied by the Driver EBITDA Percentage.
(x) "EB Acquisitions Pro Forma EBITDA" means (a) the
pro forma annual EBITDA upon which the valuation was made for each EB
Acquisition (inclusive of a 7% compounded annual growth rate from the date of
each EB Acquisition closing through the end of the Calculation Period; provided
that if there is a Termination, only EB Acquisition closings occurring prior to
the Termination shall be included) less (b) the pro forma annual EBITDA upon
which the valuation was made for any portion of the EB Operations that was sold
by Centerprise or its affiliates prior to the end of the Calculation Period;
provided that if there is a Termination, only sales prior to the Termination
shall be included. In the case of any EB Acquisition occurring during the
Calculation Period, the pro forma annual EBITDA of that EB Acquisition for
purposes of clause (a) above shall be multiplied by a fraction, the numerator of
which is the number of days from the
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<PAGE>
EB Acquisition closing through the end of the Calculation Period and the
denominator of which is 365.
(xi) "Net EBITDA" means the result obtained by the
following formula:
EB Operations EBITDA - Baseline EBITDA - EB Acquisitions Pro Forma EBITDA
(xii) "Net Value" means the result obtained by
multiplying 7.0 times Net EBITDA. In the event of a sale of the entire EB
Operations, the Net Value Contingent Payment shall be payable as of the last day
of the third month following such sale.
(xiii) "Target I Net Value" shall mean all Net Value,
if any, between $2,400,000 and including $5,000,000.
(xiv) "Target II Net Value" shall mean all Net Value,
if any, between $5,001,000 and including $10,000,000.
(xv) "Target III Net Value" shall mean all Net Value,
if any, greater than $10,000,000.
(xvi) "Termination" shall mean the termination of Ben
Reppond without Cause or upon Constructive Termination pursuant to the
Employment Agreement between Ben Reppond and Reppond dated as of the Closing
Date.
2.4.2 Example
<TABLE>
<CAPTION>
<S> <C> <C>
Net Value Contingent Payment
EB Operations EBITDA $6,105,000
Less: Baseline EBITDA ($4,705,000)
Less: EB Acquisitions Pro Forma EBITDA:
EB Acquisitions Pro Forma EBITDA $250,000
Compounded Growth Rate @ 7% for 3 years 1.225
-----------
Compounded EB Acquisition Pro Forma EBITDA $306,250
Pro Forma EBITDA of EB Acquisition sold ($ 41,429)
-----------
$264,821 ($ 264,821)
=========== ----------
Net EBITDA $1,135,179
Fixed EBITDA Multiple 7.0
Net Value $7,946,253
==========
Amount between $2,400,000 and $5,000,000 (25% x $2,600,000) $ 650,000
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Amount between $5,000,001 and $10,000,000 (15% x $2,946,253) $ 441,938
Amount in excess of $10,000,000 $ 0
-----------
Amount of Net Value Contingent Payment $1,091,938
</TABLE>
2.4.3 Calculation of Earn-Out Contingent Payments. Ben Reppond
shall be entitled to receive from Centerprise, contingent payments, if any, for
each of the twelve month periods ending on the first anniversary of the Closing
through the fifth anniversary of the Closing (each, an "Earn-Out Contingent
Payment").
(a) The Earn-Out Contingent Payment for the twelve months
ending on the first anniversary of the Closing shall be equal to the result
obtained by the following formula:
50% x (Companies' EBITDA 2000 - Companies' Pro Forma EBITDA XXXX - Required
Return) - Scott Perry's 2000 Bonus
(b) The Earn-Out Contingent Payment for the twelve months
ending on the second anniversary of the Closing shall be equal to the result
obtained by the following formula:
50% x (Companies' EBITDA 2001 - Companies' Pro Forma EBITDA XXXX - Required
Return) -Scott Perry's 2001 Bonus
(c) The Earn-Out Contingent Payment for the twelve months
ending on the third anniversary of the Closing shall be equal to the result
obtained by the following formula:
50% x (Companies' EBITDA 2002 - Companies' Pro Forma EBITDA XXXX - Required
Return) -Scott Perry's 2002 Bonus
(d) The Earn-Out Contingent Payment for the twelve months
ending on the fourth anniversary of the Closing shall be equal to the result
obtained by the following formula:
50% x (Companies' EBITDA 2003 - Companies' Pro Forma EBITDA XXXX - Required
Return) -Scott Perry's 2003 Bonus
(e) The Earn-Out Contingent Payment for the twelve months
ending on the fifth anniversary of the Closing shall be equal to the result
obtained by the following formula:
50% x (Companies' EBITDA 2004 - Companies' Pro Forma EBITDA XXXX - Required
Return) -Scott Perry's 2004 Bonus
(f) If there is a Termination at any time prior to the end of
the fifth anniversary of the Closing, Reppond shall continue to receive on each
date when any unpaid future Earn-Out Contingent Payment is due the amount of the
Earn-Out Contingent Payment then due in the manner calculated herein, except
that Reppond may elect, by written notice delivered to
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<PAGE>
Centerprise within 30 days of such Termination, to instead receive on each date
when any unpaid future Earn-Out Contingent Payment is due, an amount equal to
the most recent Earn-Out Contingent Payment received by Reppond.
2.4.4 Definitions. For purpose of Section 2.4.3, the following
terms shall have the following meanings:
(a) "Acquisition Overhead XXXX" means the expense allocated to
Overhead by each PNW Acquisition for the twelve months ending on the anniversary
date of the Closing in the applicable period, where "XXXX" is the applicable
year.
(b) "Companies' EBITDA XXXX" means the Companies' EBITDA,
including any PNW Acquisition EBITDA, for the twelve months ending on the
anniversary date of the Closing, in the applicable period, where "XXXX" is the
applicable year, as calculated in accordance with GAAP and consistent with past
practices. For purposes of calculating the Companies' EBITDA, the maximum
corporate overhead to be charged will be the lesser of (x) the Maximum Overhead
or (y) the Overhead for the Companies and the PNW Acquisitions for the relevant
period.
(c) "Companies' Overhead XXXX" means the expenses of the
Companies allocated to overhead for the twelve months ending on the anniversary
date of the Closing in the applicable year, where "XXXX" is the applicable year.
(d) "Companies' Pro Forma EBITDA XXXX" means the Companies'
EBITDA for the twelve months ending on the date of the Closing, as calculated in
accordance with GAAP and consistent with past practices, inclusive of the Growth
Rate Hurdle Percentage compounded annually from the date of the Closing through
the anniversary date of the Closing in the applicable year, where "XXXX" is the
applicable year.
(e) "Companies' Revenue XXXX" means the revenue of the
Companies for the twelve months ending on the anniversary date of the Closing in
the applicable year, where "XXXX" is the applicable year.
(f) "Driver EBITDA XXXX" means the Driver EBITDA for the
twelve months ending on the anniversary date of the Closing in the applicable
year, where "XXXX" is the applicable year.
(g) "Driver Revenue XXXX" means the Driver revenue for the
year ending on the anniversary date of the Closing in the applicable year, where
"XXXX" is the applicable year.
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<PAGE>
(h) "Earn-Out Base" shall mean the difference between
"Companies' EBITDA XXXX" and "Companies' Pro Forma EBITDA XXXX." Such amount
shall be reduced by the "Required Return", if any.
(i) "EBITDA" means earnings before interest, taxes,
depreciation and amortization, calculated in accordance with GAAP on a
consistent basis.
(j) "Growth Rate Hurdle Percentage" shall be determined based
upon the specified Trading Price per share of Centerprise Common Stock at the
conclusion of the sixtieth calendar day following the Closing. If (x) the public
offering price of Centerprise Common Stock at Closing or (y) the Specified
Trading Price of Centerprise Common Stock at the conclusion of the sixtieth day
of post-IPO trading is $14.00 or greater, the Growth Rate Hurdle Percentage
shall be 7%. If the Specified Trading Price of Centerprise Common Stock at the
conclusion of the sixtieth day of post-IPO trading is less than $14.00, the
Growth Rate Hurdle Percentage shall be determined as follows:
Specified Trading Growth Rate Hurdle
Price: Percentage:
----------------- ------------------
$13.75 6.65%
$13.50 6.29%
$13.25 5.93%
$13.00 5.57%
$12.75 5.21%
$12.50 4.84%
$12.25 4.46%
$12.00 4.06%
$11.75 or less 3.75%
In no event shall the Growth Rate Hurdle Percentage be less than 3.75%.
(k) "Maximum Overhead" shall be calculated based upon the
following formula: (Companies' Revenue XXXX + PNW Acquisition Revenue XXXX) x
(Companies' Overhead XXXX + Acquisition Overhead XXXX) / (Companies' Revenue
1999 + PNW Acquisition Pro Forma Revenue XXXX).
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<PAGE>
(l) "Overhead" means the dollar amount of overhead mutually
agreed to by Centerprise and the Stockholder Representative which shall consist
of information technology, human resources, accounting and finance, corporate
management, facilities, risk management and marketing. "Overhead" shall include
expenses incurred directly by the relevant companies and indirect expenses
reasonably allocated to the relevant companies.
(m) "PNW Acquisition" means each entity in the business of
insurance brokerage and related services within Driver's business, including
property and casualty, worker's compensation, employee benefits, surety,
personal lines and financial services (including 401(k) plans, life insurance
and annuity production) located in Washington, Montana, Idaho, Alaska and
northern Oregon (including Eugene and north of Eugene) that was acquired as part
of Centerprise's business during the applicable period.
(n) "PNW Acquisition EBITDA XXXX" means the EBITDA earned by
each PNW Acquisition for the twelve months ending on the anniversary date of the
Closing in the applicable year, where "XXXX" is the applicable year.
(o) "PNW Acquisition Pro Forma Revenue XXXX" means the pro
forma revenue for valuation purposes allocable to each PNW Acquisition for the
twelve months ending on the anniversary date of the Closing in the applicable
year, where "XXXX" is the applicable year.
(p) "PNW Acquisition Revenue XXXX" means the revenue earned by
each PNW Acquisition for the twelve months ending on the anniversary date of the
Closing in the applicable year, where "XXXX" is the applicable year.
(q) "Purchase Price" means the sum of the purchase prices,
including contingent consideration, for each PNW Acquisition, if any, acquired
by Centerprise in or prior to the relevant twelve month period and not sold
prior to the end of such period.
(r) "Required Rate of Return" means 15% per annum. Pro rata
reductions in the percentage will be made for acquisitions made in the relevant
period.
(s) "Required Return" means the product of the "Required Rate
of Return" times the "Purchase Price". In no case shall the "Required Return"
exceed "PNW Acquisition Revenue".
(t) "Scott Perry's XXXX Bonus" means any "Bonus" payable to
Scott Perry by Verasource pursuant to Section 2.2 of his employment agreement
with Verasource dated the Closing Date with respect to the twelve month period
ending in the applicable year, where "XXXX" is the applicable year.
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<PAGE>
(u) "Specified Trading Price" means the average closing price
per share of Centerprise Common Stock for the five (5) consecutive trading days
prior to and including the sixtieth calendar day following the Closing, rounded
up or down to the nearest twenty-five (25) cent increment.
In the event of a sale of entire Companies' operations
prior to the fifth anniversary of the Closing, the required payment, if any,
shall be due in sixty days from the date of such sale. Such payment shall
represent the final payment due pursuant to Section 2.4.4.
2.4.5 Example. Earn Out Contingent Payment 2000 (assuming a
PNW Acquisition of $1,000,000 in the eighth month of the twelve month period
ending in 2000):
<TABLE>
<CAPTION>
<S> <C>
Companies' EBITDA 2000 $2,100,000
Less: Companies' Pro Forma EBITDA 2000 (assuming a Growth ($1,894,000)
Rate Hurdle Percentage of 7%)
Required Return (.15 x $1,000,000 x 4/12) ($ 50,000)
-----------
Earn-Out Base $ 156,000
Fixed Earn-Out Percentage 50%
-----------
Amount of Earn-Out Contingent Payment 2000 $ 78,000
Before Scott Perry's 2000 Bonus
Scott Perry's 2000 Bonus $ 18,000
Amount of Earn-Out Contingent Payment 2000 $ 60,000
</TABLE>
2.4.6 Procedure. The procedure for determining each Contingent
Payment is set forth in Schedule 2.4.
2.5 Collection of Accounts Receivable. The Stockholders shall be
entitled to receive any amounts collected by the Companies with respect to any
accounts receivable due to the Companies from any insurance companies, which
amounts are more than 45 days past due as of December 9, 1998 (the "Excluded
Receivables"), net of any commissions or taxes owed on the Excluded Receivables
or money spent on the collection of the Excluded Receivables (the "Net
Amounts"). To the extent such Excluded Receivables are collected on or prior to
the Closing, the Net Amounts shall be first used as a setoff against any
reduction that would otherwise be made in the principal amount of the Notes
pursuant to Section 2.3, and any remaining amount shall be used to increase the
principal amount of the Notes. If any Excluded Receivables are collected after
the Closing, the Net Amounts shall be paid by Centerprise to the Stockholders on
a quarterly basis. Centerprise covenants that after the Closing it will use
reasonable commercial efforts to collect any Excluded Receivables.
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<PAGE>
2.6 Litigation. The Stockholders of Reppond shall be entitled to the
proceeds, if any, received as a result of the resolution of the matter entitled
The Reppond Company, Inc. v. Mary K. Knehr, et al. (reflected on Schedule 4.10
attached hereto), net of all attorneys' fees and other costs incurred after the
Closing. Nothing in this Section 2.6 shall require Reppond to prosecute this
matter; any and all decisions regarding the matter and the resolution thereof
shall be in the discretion of Driver in consultation with management of Reppond.
2.7 ChannelPoint Option. Following the Closing, Reppond and Driver
respectively shall transfer to Ben Reppond (without cost to Ben Reppond) the
first 6,000 options to purchase shares of common stock of ChannelPoint, Inc., a
Delaware corporation ("ChannelPoint") earned by either (i) Reppond pursuant to
the Options for Performance Agreement executed in connection with the Broker
Partnership Agreement, dated [June 30, 1999], by and between Reppond and
ChannelPoint, or (ii) Driver pursuant to the Options for Performance Agreement
executed in connection with the Broker Partnership Agreement, dated June 30,
1999, by and between Driver and ChannelPoint. If no options or less than 6,000
options are earned by Reppond or Driver, no additional consideration other than
any options so earned will be owing to Ben Reppond under this Section 2.7.
ARTICLE III
THE CLOSING AND CONSUMMATION DATE
The consummation of the Merger and the other transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Katten
Muchin & Zavis, Chicago, Illinois, contemporaneously with the closing of the
IPO, or at such other time and date as the parties hereto may mutually agree
(the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH OF THE COMPANIES
Each Company hereby represents and warrants to Centerprise, as of March
31, 1999, severally but not jointly, as to itself, as of the date hereof and,
subject to Section 7.3, as of the date on which Centerprise and the lead
Underwriter (as defined in Section 8.1.1) execute and deliver the Underwriting
Agreement related to the IPO and as of the Closing Date, as follows:
4.1 Organization and Qualification. Each of Reppond and Verasource is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Washington. RA is a limited liability company organized under
the laws of the State of Washington. The Company has the requisite power and
authority under state and federal law to
13
<PAGE>
own, lease and operate its assets and properties and to carry on its business
(or Business) as it is now being conducted and is licensed or otherwise
authorized to transact or engage in the Business and is qualified to do business
and is in good standing in each jurisdiction in which the properties owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification, license or authorization necessary. True, accurate and
complete copies of the Company's Organizational Documents, in each case as in
effect on March 31, 1999, have heretofore been delivered to Centerprise or its
representatives. "Organizational Documents" means (a) the articles or
certificate of incorporation and the bylaws of a corporation (professional or
otherwise), (b) the partnership agreement and any statement of partnership of a
general partnership, (c) the limited partnership agreement and the certificate
of limited partnership of any limited partnership, (d) the operating or limited
liability company agreement and certificate of formation of any limited
liability company, (e) any charter or similar document adopted and filed in
connection with the creation, formation, organization or governance (as
applicable) of any Person and (f) any amendment to any of the foregoing.
4.2 Company Subsidiaries. The Company does not own, directly or
indirectly, securities or other interests having the power to elect a majority
of any such Person's board of directors or similar governing body, or otherwise
having the power to direct the business and policies of such Person. Except as
set forth in Schedule 4.2, the Company does not, directly or indirectly, own, of
record or beneficially, or control any capital stock, securities convertible
into capital stock or any other equity interest in any Person.
4.3 Authority; Non-Contravention; Approvals.
4.3.1 The Company has full right, power and authority to enter
into this Agreement and, subject to the approval of the Merger and the
transactions contemplated hereby by the Stockholders, to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company has been duly authorized by all necessary
corporate action on the part of the Company, subject to the approval of the
Merger and the transactions contemplated hereby by the Stockholders. This
Agreement has been duly executed and delivered by the Company, and, assuming the
due authorization, execution and delivery hereof by Centerprise, constitutes a
valid and legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, except that such enforcement may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights generally
and (ii) general equitable principles.
4.3.2 The execution and delivery of this Agreement by the
Company does not violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any claim, lien, privilege,
mortgage, charge, hypothecation, assessment, security interest, pledge or other
encumbrance, conditional sales contract, equity charge, restriction, or adverse
claim of interest of any kind or nature whatsoever
14
<PAGE>
(each a "Lien" and collectively, the "Liens") upon the Business or any of the
properties or assets of the Company under, any of the terms, conditions or
provisions of (i) the Organizational Documents of the Company , (ii) any
statute, law, ordinance, rule, regulation, state or federal regulatory agency
bulletin, state attorney general opinion, judgment, decree, order, injunction,
writ, permit or license of any court or federal, state, provincial, local or
foreign government, or any subdivision, agency or authority of any thereof,
including any state's department of insurance ("Governmental Authority")
applicable to the Company, the Business, or properties or assets of each of the
Companies, or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which the Company is a party or by which the Company
or any of the properties or assets of the Company may be bound or affected. The
consummation by the Company of the transactions contemplated hereby will not
result in a violation, conflict, breach, right of termination, or creation or
acceleration of Liens under the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the immediately preceding sentence,
subject, in the case of the terms, conditions or provisions of the items
described in clauses (ii) or (iii) above, to obtaining (prior to the Closing
Date) such consents required from third parties set forth on Schedule 4.3.2.
4.3.3 Except for (i) the declaration of effectiveness of a
registration statement on Form S-1 (the "Form S-1") and a post-effective
amendment to the registration statement on Form S-4 (the "Form S-4") (Form S-1
and Form S-4 are collectively the "Registration Statements") with the Securities
and Exchange Commission (the "SEC") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"or the "1933 Act"), and filings, if required, with
various state securities or "blue sky" authorities, (ii) any filing which may be
required under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended (the "HSR Act"), and (iii) the Washington Office of the Insurance
Commissioner, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any Governmental Authority is necessary
for the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby, other than
such declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not,
individually or in the aggregate, have a "Company Material Adverse Effect,"
which, for purposes of this Agreement means a material adverse effect on the
operations, assets, condition (financial or other), operating results, employee
or client relations, or prospects of the Company.
4.4 Capitalization.
4.4.1 The authorized capital stock of Reppond consists of
50,000 shares of common stock, of which 500 shares are issued and outstanding.
The authorized ownership interest of RA consists of 500 units of ownership
interest, of which 500 units are issued and outstanding. The authorized capital
stock of Verasource consists of 50,000 shares of common
15
<PAGE>
stock of which 250 shares are issued and outstanding. All of the issued and
outstanding shares of the Company are validly issued and are fully paid,
nonassessable and free of preemptive rights.
4.4.2 Except as set forth on Schedule 4.4, there are no
outstanding subscriptions, options, calls, contracts, commitments, undertakings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock or membership interests of the Company or
obligating the Company to grant, extend or enter into any such agreement or
commitment or obligating the Company to convey or transfer any Company Equity.
As of the Closing Date, there will be no voting trusts, proxies or other
agreements or understandings to which the Company is a party or is bound with
respect to the voting of any shares of capital stock or other equity interests
of the Company.
4.5 Year 2000. Except as set forth on Schedule 4.5, to the Knowledge of
the Company, all of the computer software, computer firmware, computer hardware
(whether general or special purpose), and other similar or related items of
automated, computerized, and/or software system(s) that are used or relied on by
the Company in the conduct of the Business will not malfunction, will not cease
to function, will not generate incorrect data, and will not produce incorrect
results when processing, providing, and/or receiving (i) date-related data into
and between the twentieth (20th) and twenty-first (21st) centuries and (ii)
date-related data in connection with any valid date in the twentieth (20th) and
twenty-first (21st) centuries, except for any malfunctions or generations of
incorrect data or results that would not individually or in the aggregate have a
Company Material Adverse Effect. Nothing in this Section 4.5 is intended or
shall be construed as a representation or warranty with respect to embedded
systems.
4.6 Financial Statements. The Company has previously furnished to
Centerprise copies of the unaudited balance sheet of the Company as of December
31, 1997 and the audited combined balance sheet of the Companies as of December
31, 1998 (the "Latest Balance Sheet"), and the related unaudited statements of
income, shareholders' equity and cash flow of the Company for each of the years
in the three (3) year period ended December 31, 1997 and the related audited
combined statements of income, shareholders' equity and cash flow of the
Companies for the one year period ended December 31, 1998, including all notes
thereto (collectively, the "Financial Statements"). Except as set forth in
Schedule 4.6, the Financial Statements relating to the Company are accurate and
complete in all material respects, consistent with the books and records of the
Company, and fairly presents in all material respects the financial condition,
assets and liabilities of the Company as of its date and the results of
operations and cash flows for the periods related thereto, in each case in
accordance with generally accepted accounting principles applied on a consistent
basis ("GAAP").
4.7 Absence of Undisclosed Liabilities. Except as disclosed on Schedule
4.7, the Company has not, as of the date of the Latest Balance Sheet, nor has it
incurred since that
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date, any liabilities or obligations of any nature (whether known or unknown,
absolute, contingent, accrued, direct, indirect, perfected, inchoate,
unliquidated or otherwise), except (i) to the extent clearly and accurately
reflected or accrued or fully reserved against in the Financial Statements or
(ii) liabilities and obligations which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business and consistent with past custom
and practices (none of which is a liability resulting from a breach of contract,
breach of warranty, tort, infringement claim, legal violation or lawsuit). Such
liabilities include, but are not limited to, any claim or potential claim
against the Company by any employee benefit plan, client or government agency
(including, but not limited to, the IRS or Department of Labor) related to the
Company's alleged failure to properly administer or advise any employee benefit
plan or related to the sale or brokerage of any products or services relating to
any employee benefit plans of current or former clients of the Company.
4.8 Accounts Receivable. Except as set forth on Schedule 4.8, all of
the accounts receivable reflected in the Latest Balance Sheet or arising from
the date thereof until the Closing Date have arisen or will arise in the
ordinary course of the Company's Business, are not and will not be subject to
any defense, counterclaim or setoff, subject to insureds' rights to cancel
insurance coverage and have been collected or are and will be collectible in the
ordinary course of business using normal collection practices and policies
employed by the Company as of the date of this Agreement, in each case subject
to any allowance for doubtful accounts determined in accordance with the
Company's past custom and practices.
4.9 Absence of Certain Changes or Events. Except as set forth on
Schedule 4.9, since the date of the Latest Balance Sheet, the Company has
conducted its business only in the ordinary course consistent with past custom
and practices. Except as set forth on Schedule 4.9, since the date of the Latest
Balance Sheet, there has not been any:
(a) material adverse change in the operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee, client or policyholder relations or prospects of the Company;
(b) damage, destruction or loss of any property owned by the
Company , or used in the operation of the Business, whether or not
covered by insurance, having a replacement cost or fair market value in
excess of five percent (5%) of the amount of net property, plant and
equipment shown on the Latest Balance Sheet, in the aggregate;
(c) voluntary or involuntary sale, transfer, surrender,
cancellation, abandonment, waiver, release or other disposition of any
kind by the Company of any right, power, claim or debt, except the
collection of accounts in the ordinary course of business consistent
with past custom and practices;
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(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination or other labor dispute or similar occurrence that is
reasonably expected to adversely affect the Company or the Business;
(e) loan or advance by the Company to any Person, other than
as a result of services performed for, or expenses properly and
reasonably advanced for the benefit of, customers in the ordinary
course of business consistent with past custom and practices;
(f) notice (formal or otherwise) of any liability, potential
liability or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or
other distribution in respect of the Company's capital stock or other
equity interests or any direct or indirect redemption, purchase, or
other acquisition of the Company's capital stock or other equity
interests, or the payment of principal or interest on any note, bond,
debt instrument or debt to any Affiliate (as defined in Section 15.4)
of the Company, except bonuses and distributions to employees and the
Stockholders disclosed to Centerprise in writing that are consistent
with the Company's past custom and practices or as otherwise
contemplated by this Agreement;
(h) incurrence by the Company of debts, liabilities or
obligations except (i) current liabilities incurred in connection with
or for services rendered or goods supplied in the ordinary course of
business consistent with past custom and practices, (ii) liabilities on
account of taxes and governmental charges (but not penalties, interest
or fines in respect thereof), and (iii) obligations or liabilities
incurred by virtue of the execution of this Agreement;
(i) issuance by the Company of any notes, bonds, or other debt
securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
(j) entry by the Company into, or amendment or termination of,
any material commitment, contract, agreement, or transaction, other
than in the ordinary course of business and other than expiration of
contracts in accordance with their terms, except the Company may amend
any such material commitment, contract, agreement or transaction
necessary to prevent the relevant commitment, contract, agreement or
transaction from terminating due to the transactions contemplated
herein, provided that all material terms of such commitment, contract,
agreement or transaction shall remain the same;
(k) loss or threatened loss of, or any material reduction or
threatened material reduction in revenues from, any client of the
Company that accounted for revenues during
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the last twelve months in excess of five percent (5%) of the
consolidated net revenues of the Company, or change in the relationship
of the Company with any client or Governmental Authority that is
reasonably expected to adversely affect the Company or the Business;
(l) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or
amortization policies or rates) utilized by the Company;
(m) discharge or satisfaction by the Company of any material
liability or encumbrance or payment by the Company of any material
obligation or liability, other than current liabilities paid in the
ordinary course of its business consistent with past custom and
practices;
(n) sale, lease or other disposition by the Company of any
tangible assets having an aggregate replacement cost or fair market
value in excess of five percent (5%) of the amount of net property,
plant and equipment shown on the Latest Balance Sheet other than in the
ordinary course of business, or the sale, assignment or transfer by the
Company of any trademarks, service marks, trade names, corporate names,
copyright registrations, trade secrets, lists of past and present
customers, lists of potential customers, insurance policy expiration
data or rights, research sales data, analyses, sales and marketing
materials, scheduling and service methods, sales and service manuals,
or other intangible assets or disclosure of any proprietary or
confidential information of the Company relating to or used in
connection with the Business to any Person other than an employee,
agent, attorney, accountant or other representative of the Company that
has agreed in writing to maintain the confidentiality of any such
proprietary confidential information;
(o) capital expenditures or commitments therefor by the
Company in excess of $50,000 individually or $100,000 in the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the
Company or creation of any easements, Liens or other interests against
or on any of the Real Property (as defined in Section 4.14.1);
(q) adoption, amendment or termination of any Employee Plan
(as defined in Section 4.17.5(a)) or increase in the benefits provided
under any Employee Plan, or promise or commitment to undertake any of
the foregoing in the future; or
(r) an occurrence or event not included in clauses (a) through
(q) that has resulted or, based on information of which the Company has
Knowledge, is reasonably expected to result in a Company Material
Adverse Effect.
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4.10 Litigation. Except as set forth on Schedule 4.10 (which shall
disclose the parties to, nature of and relief sought for each matter to be
disclosed on Schedule 4.10):
4.10.1 There is no suit, action, proceeding, investigation,
claim or order pending or, to the Knowledge of the Company, threatened against
the Company, or with respect to the Merger, or with respect to any Employee
Plan, any fiduciary of any such plan (or pending or, to the Knowledge of the
Company, threatened against any of the officers, directors, members, partners or
employees of the Company with respect to its business or proposed business
activities), or to which the Company is otherwise a party, or that is reasonably
expected to have a Company Material Adverse Effect, before any court, or before
any Governmental Authority (each an "Action" and collectively, the "Actions");
nor, to the Knowledge of the Company, is there any basis for any such Action.
4.10.2 The Company is not subject to any unsatisfied or
continuing judgment, order or decree of any court or Governmental Authority. The
Company is not, to its knowledge, exposed, from a legal standpoint, to any
liability or disadvantage that is reasonably expected to result in a Company
Material Adverse Effect, and the Company is not a party to any legal action to
recover monies due it or for damages sustained by it, other than collection of
past due charges for services rendered or expenses incurred by the Company.
4.10.3 Schedule 4.10 lists the insurer for each Action covered
by insurance or designates such Action, or a portion of such Action, as
uninsured and lists the individual and aggregate policy limits for the insurance
covering each insured Action and the applicable policy deductibles for each
insured Action.
4.10.4 Schedule 4.10 sets forth all material closed litigation
matters to which the Company was a party during the five (5) year period
preceding the Closing Date, the date such litigation was commenced and
concluded, and the nature of the resolution thereof (including amounts paid in
settlement or judgment).
4.11 Compliance with Applicable Laws. Except as set forth on Schedules
4.11 and 4.19, the Company and every person acting on behalf of the Company has
complied in all material respects with all laws, rules, regulations, regulatory
agency bulletins, attorney general opinions, writs, injunctions, decrees, and
orders (collectively, "Laws") applicable to the Company, and every person acting
on behalf of the Company in relation to the operation of the Business except
where failure to so comply would not result in a Company Material Adverse
Effect, and has not received any notice of any alleged claim or threatened
claim, violation of, citation for non-compliance with, or liability or potential
responsibility under, any such Law which has not heretofore been cured and for
which there is no remaining liability and, to the Knowledge of the Company, no
event has occurred or circumstances exist that (with or without notice or lapse
of time) is reasonably expected to constitute or result in a violation by the
Company or any Person acting on behalf of the Company of any Law or that gives
rise to any liability on the part of the
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Company under any Law. The Company has not received notice of potential claims,
allegations, grievances or complaints against or pertaining to the Business,
including any consumer complaints from any state departments of insurance.
4.12 Licenses. Schedule 4.12 lists all Licenses maintained by the
Company and each Licensed Person that are material to the conduct of the
Business. "Licenses" means all notifications, licenses, permits, franchises,
certificates, approvals, exemptions, classifications, qualifications,
registrations and other similar documents and authorizations, and applications
therefor held by the Company and each Person acting on behalf of the Company
whose activities require Licenses ("Licensed Person") and issued or submitted to
the Company or any Licensed Persons by any Governmental Authority or other
Person. All such Licenses are valid, binding and in full force and effect.
Except as described on Schedule 4.12, the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby will
not adversely affect any such Licenses. To the Knowledge of the Company, the
Company has taken all necessary action to maintain such Licenses. Except as set
forth in Schedule 4.12, no loss or expiration of any such License is pending or,
to the Company's Knowledge, threatened or reasonably foreseeable. Except as set
forth in Schedule 4.12, no Person engages in or transacts the Business on behalf
of the Company or Licensed Person in any State without a License, nor does the
Company engage in or transact the Business in any State without a License.
4.13 Material Contracts. Except as listed or described on Schedule 4.13
(such contracts, or those which should have been listed on Schedule 4.13, are
herein referred to as the "Material Contracts"), as of or on the date hereof,
the Company is not a party to or bound by, any written or oral leases,
agreements or other contracts or legally binding contractual rights or
contractual obligations or contractual commitments (each a "Contract" and
collectively, the "Contracts") relating to or in any way affecting the operation
or ownership of the Business that are of a type described below and no such
agreements are currently in negotiation or proposed:
(a) any consulting agreement pursuant to which the Company is
to receive consulting services (other than consulting agreements that
may be terminated by the Company on not more than 30 days notice
without penalty), employment agreement, change-in-control agreement, or
collective bargaining arrangement with any labor union;
(b) any Contract for capital expenditures or the acquisition
or construction of fixed assets in excess of $50,000;
(c) any Contract for the purchase, maintenance or acquisition,
or the sale or furnishing, of materials, supplies, merchandise,
machinery, equipment, parts or other property or services (except if
such Contract is made in the ordinary course of business and requires
aggregate future payments of less than $25,000);
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(d) any Contract, other than trade payables in the ordinary
course of business, relating to the borrowing of money, or the guaranty
of another Person's borrowing of money, including, without limitation,
any notes, mortgages, indentures and other obligations, guarantees of
performance, agreements and instruments for or relating to any lending
or borrowing, including assumed indebtedness, other than any contract
with an insurance carrier under which the Company is responsible for
the payment of insurance premiums whether or not such premiums are
first collected by the Company;
(e) any Contract granting any Person a Lien on all or any part
of the assets of the Company;
(f) any Contract for the cleanup, abatement or other actions
in connection with Hazardous Materials (as defined in Section 4.19),
the remediation of any existing environmental liabilities or relating
to the performance of any environmental audit or study;
(g) any Contract granting to any Person an option or a first
refusal, first-offer or similar preferential right to purchase or
acquire any material assets of the Company;
(h) any Contract with any agent, distributor or representative
which is not terminable by the Company upon ninety (90) calendar days
or less notice without penalty;
(i) any Contract under which such Company is (A) a lessee or
sublessee of any machinery, equipment, vehicle or other tangible
personal property, or (B) a lessor of any tangible personal property
owned by such Company, in either case having an original purchase price
or requiring aggregate lease payments in excess of $50,000;
(j) any Contract under which the Company has granted or
received a license or sublicense or under which it is obligated to pay
or has the right to receive a royalty, license fee or similar payment,
in either case which provides for payments over the life of such
Contract in excess of $25,000, except such Contracts with insurance
companies whereby the Company is acting as an insurance producer and
has the right to receive any commission payments;
(k) any Contract concerning an Affiliate Transaction (as
defined in Section 4.21);
(l) any Contract providing for the indemnification or holding
harmless of any officer, director, employee or other Person;
(m) any Contract (A) for purchase or sale by the Company of
any real property on which the Company conducts any aspect of the
Business, (B) granting any options to
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lease or purchase all or any portion of the Real Property, or (C)
providing for labor, services or materials to the Real Property
(including, without limitation, brokerage or management services)
involving aggregate future payments of more than $25,000;
(n) any Contract limiting, restricting or prohibiting the
Company from conducting business anywhere in the United States or
elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to
the Leased Property (as defined in Section 4.14.1);
(q) any Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the
Company, which, if amended, modified or terminated as a result of,
relating to or in connection with a failure to provide prior notice, or
gain such consent or approval, would result in a Company Material
Adverse Effect;
(r) any Contract under which the Company would be considered
an employee benefit plan "administrator" as such term is defined in
Section 3(16) of ERISA or a "fiduciary" as such term is defined in
Section 3(21) of ERISA; or
(s) any other Contract, whether or not made in the ordinary
course of business, which involves future payments by the Company in
excess of $25,000.
The Company has provided Centerprise or its counsel with a true and
complete copy of each written Material Contract and a true and complete summary
of each oral Material Contract, in each case including all amendments or other
modifications thereto. Except as set forth on Schedule 4.13, each Material
Contract is a valid and binding obligation of, and enforceable in accordance
with its terms against the Company and, to the Knowledge of the Company, the
other parties thereto, and is in full force and effect, subject only to
bankruptcy, reorganization, receivership and other laws affecting creditors'
rights generally and equitable principles. Except as set forth on Schedule 4.13,
the Company has performed in all material respects all obligations required to
be performed by it as of the date hereof and will have performed in all material
respects all obligations required to be performed by it as of the Closing Date
under each Material Contract and the Company has not, nor, to the Knowledge of
the Company, no other party to any Material Contract is in breach or default
thereunder, and, to the Knowledge of the Company, there exists no condition
which would, with or without the lapse of time or the giving of notice, or both,
constitute a breach or default thereunder. The Company has not been notified
that any party to any Material Contract intends to cancel, terminate, not renew,
or exercise an option under any Material Contract, whether in connection with
the transactions contemplated hereby or otherwise.
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4.14 Properties.
4.14.1 Schedule 4.14.1-1 is a correct and complete list, and a
brief description of, all real estate in which the Company has an ownership
interest (the "Owned Property") and all real property leased by the Company (the
"Leased Property"). Except as lessee of Leased Property, the Company is not a
lessee under or otherwise a party to any lease, sublease, license, concession or
other agreement, whether written or oral, pursuant to which another Person has
granted to the Company the right to use or occupy all or any portion of any real
property.
The Company has good and marketable fee simple title to the Owned
Property and, assuming good title in the Landlord, a valid leasehold interest in
the Leased Property (the Owned Property and the Leased Property being sometimes
referred to herein as "Real Property"), in each case free and clear of all
Liens, assessments or restrictions (including, without limitation, inchoate
liens arising out of the provision of labor, services or materials to any such
real estate) other than (a) mortgages shown on the Financial Statements as
securing specified liabilities or obligations, with respect to which no default
(or event that, with notice or lapse of time or both, would constitute a
default) exists, (b) Liens for current taxes not yet due, (c) (i) minor
imperfections of title, including utility and access easements depicted on
subdivision plats for platted lots that do not impair the intended use of the
property, if any, none of which materially impairs the current operations of the
Company or the Business, and (ii) zoning laws and other land use restrictions or
restrictive covenants that do not materially impair the present use of the
property subject thereto, and (d) Liens, assessments, and restrictions pursuant
to and by virtue of the terms of the lease of the Leased Property. The Real
Property constitutes all real properties reflected on the Financial Statements
or used or occupied by the Company in connection with the Business or otherwise.
With respect to the Owned Property, except as reflected on Schedule
4.14.1-2(a):
(a) the Company is in exclusive possession thereof and no
easements, licenses or rights are necessary to conduct the Business
thereon in addition to those which exist as of the date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority
materially adverse to the Owned Property and, to the Knowledge of the
Company, there is no threatened condemnation or proceeding with respect
thereto;
(c) there is no violation of any covenant, condition,
restriction, easement or agreement of any Governmental Authority that
affects the Owned Property or the ownership, operation, use or
occupancy thereof;
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(d) no portion of any parcel of the Owned Property is subject
to any roll-back tax, dual or exempt valuation tax and no portion of
any Owned Property is omitted from the appropriate tax rolls; and
(e) all assessments and taxes currently due and payable on
such Owned Property have been paid.
With respect to the Leased Property, except as reflected on Schedule
4.14.1-2(b):
(i) the Company is in exclusive, peaceful and
undisturbed possession thereof and, to the Knowledge of each of the
Companies, no easements, licenses or rights are necessary to conduct
the Business thereon in addition to those which exist as of the date
hereof; and
(ii) to the Knowledge of the Company, no portion
thereof is subject to any pending condemnation proceeding or proceeding
by any public or quasi-public authority materially adverse to the
Leased Property and there is no threatened condemnation or proceeding
with respect thereto.
4.14.2 The Latest Balance Sheet and/or Schedule 4.14.2 reflect
all material tangible personal property owned by each of the Companies, except
as sold or otherwise disposed of or acquired in the ordinary course of business.
Except as set forth on Schedule 4.14.2, the Company has good and marketable
title to, or a valid leasehold interest in, or valid license of, such personal
property (including, without limitation, machinery, equipment and computers), in
each case free and clear of any Liens (other than Liens that are part of such
leasehold or license), and each such asset is in working order and has been
maintained in a commercially reasonable manner and does not contain, to the
Knowledge of the Company, any material defect. Except as set forth on Schedule
4.14.2, no personal property (including, without limitation, software and
databases maintained on off-premises computers) used by the Company in
connection with the Business is held under any lease, security agreement,
conditional sales contract or other title retention or security arrangement or
is located other than on the Real Property.
4.15 Intellectual Property. The (i) patents, patent applications,
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered trademarks, trade names, company names, assumed
business names and service marks (collectively, the "Marks"), (iii) copyrights
(the "Copyrights"), and (iv) know how, trade secrets, confidential information,
software, technical information, data, process technology, plans and drawings,
lists of past and present customers, lists of potential customers, insurance
expiration data and rights, business plans, performance standards, catalogues,
research sales data, analyses, and programs, sales and marketing materials,
scheduling and service methods, sales and service manuals and all other
proprietary, confidential and other similar information (in whatever form
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or medium) relating to or used in connection with the Business (collectively,
the "Trade Secrets"), and the business and goodwill of the Company as a going
concern owned, used or licensed by the Company (collectively, the "Intellectual
Property") are all those necessary to enable the Company to conduct and to
continue to conduct the Business substantially as it is currently conducted.
Schedule 4.15 contains a complete and accurate list of all material Patents,
Marks and Copyrights and a brief description of all material Trade Secrets
owned, used by or directly licensed to the Company, and a list of all material
license agreements and arrangements with respect to any of the Intellectual
Property to which the Company is a party, whether as licensee, licensor or
otherwise (collectively, the "Intellectual Property Licenses"). Except as set
forth on Schedule 4.15, (i) all of the Intellectual Property is owned, or to the
Knowledge of the Company used under a valid Intellectual Property License, by
the Company and is free and clear of all Liens and other adverse claims; (ii)
the Company has not received any written notice that it is or has infringed on,
misappropriated or otherwise conflicted with, and otherwise has no Knowledge
that it is infringing on, misappropriating, or otherwise conflicting with the
intellectual property rights of any third parties; (iii) there is no claim
pending or, to the Knowledge of the Company, threatened against the Company with
respect to the alleged infringement or misappropriation by the Company of, or a
conflict with, any intellectual property rights of others; (iv) the operation of
any aspect of the Business in the manner in which it has heretofore been
operated or is presently operated does not give rise to any such infringement or
misappropriation; and (v) there is no infringement or misappropriation of the
Intellectual Property by a third party or claim, pending or, to the Knowledge of
the Company, threatened against any third party with respect to the alleged
infringement or misappropriation of the Intellectual Property.
4.16 Taxes.
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4.16.1 Except as set forth on Schedule 4.16.1-1, the Company
has timely and accurately prepared and filed or will timely and accurately
prepare and file all federal, state (including any state premium filings), local
and foreign returns, declarations and reports, information returns and
statements (collectively, the "Returns") for Taxes (as defined in Section
4.16.2) required to be filed by or with respect to the Company before the
Closing Date, and has paid or caused to be paid, or has made adequate provision
or set up an adequate accrual or reserve for the payment of, all Taxes required
to be paid in respect of the periods for which Returns are due on or prior to
the Closing Date, and will establish an adequate accrual or reserve for the
payment of all Taxes payable in respect of the period, including portions
thereof, subsequent to the last of said periods required to be so accrued or
reserved, in each case in accordance with GAAP up to and including the Closing
Date. All such Returns are or will be true and correct in all material respects.
The Company has delivered to Centerprise true and complete copies of all Returns
referred to in the first sentence of this Section 4.16.1 (including any
amendments thereof) for the five (5) most recent taxable years. The Company is
not delinquent in the payment of any Tax, and no material deficiencies for any
Tax, assessment or governmental charge have been threatened, claimed, proposed
or assessed. No waiver or extension of time to assess any Taxes has been given
or requested. No written claim, or any other claim, by any taxing authority in
any jurisdiction where the Company does not file Tax returns is pending pursuant
to which the Company is or may be subject to taxation by that jurisdiction. The
Company's Returns were last audited by the Internal Revenue Service or
comparable state, local or foreign agencies on the dates set forth on Schedule
4.16.1-2.
4.16.2 For purposes of this Agreement, the term "Taxes" shall
mean all taxes, charges, withholdings, fees, levies, penalties, additions,
interest or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, employment, withholding, social security,
occupation, use, service, service use, license, payroll, franchise, transfer and
recording taxes, fees and charges, windfall profits, severance, customs, import,
export, employment or similar taxes, charges, fees, levies or other assessments,
imposed by the United States, or any state (including any state premium tax
filings), local, foreign or provincial government or subdivision or any agency
thereof, whether computed on a separate, consolidated, unitary, combined or any
other basis.
4.17 Employee Benefit Plans; ERISA.
4.17.1 Other than any liability for payment of benefits in the
ordinary course of plan operation under any plan or policy listed on Schedule
4.17.1 or as otherwise described on Schedule 4.17.1, the Company has not and is
not reasonably expected to have any liability (including contingent liability)
whether direct or indirect (and regardless of whether it would be derived from a
current or former Plan Affiliate as defined in Section 4.17.5(c)) with respect
to any of the following (whether written, unwritten or terminated): (i) any
employee welfare benefit plan, as defined in Section 3(1) of "ERISA," including,
but not limited to, any medical plan, life insurance plan, short-term or
long-term disability plan or dental plan; (ii) any "employee pension
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benefit plan," as defined in Section 3(2) of ERISA (as defined in Section
4.17.5(b)), including, but not limited to, any excess benefit plan, top hat plan
or deferred compensation plan or arrangement, nonqualified retirement plan or
arrangement, qualified defined contribution or defined benefit arrangement; or
(iii) any other benefit plan, policy, program, arrangement or agreement,
including, but not limited to, any material fringe benefit plan or program,
personnel policy, bonus or incentive plan, stock option, restricted stock, stock
bonus, holiday pay, vacation pay, sick pay, bonus program, service award, moving
expense, reimbursement program, tool allowance, safety equipment allowance,
deferred bonus plan, salary reduction agreement, change-of-control agreement,
employment agreement or consulting agreement.
4.17.2 A complete copy of each written Employee Plan (as
defined in Section 4.17.5(a)) as amended to the Closing, together with audited
financial statements, if any, for the three (3) most recent plan years; a copy
of each trust agreement or other funding vehicle with respect to each such plan;
a copy of any and all determination letters, rulings or notices issued by a
Governmental Authority with respect to such plan; a copy of the Form 5500 Annual
Report for the three (3) most recent plan years; and a copy of each and any
general explanation or communication which was required to be distributed or
otherwise provided to participants in such plan and which describes all or any
relevant aspect of each plan, including summary plan descriptions and/or summary
of material modifications, have been delivered or made available to Centerprise.
A description of each unwritten Employee Plan, including a description of
eligibility, participation, benefits, funding arrangements and assets or other
relevant aspects of the obligation, is set forth on Schedule 4.17.2.
4.17.3 Except as is not reasonably expected to give rise to
any liability (including contingent liability), whether direct or indirect, to
the Company, each Employee Plan (i) has been and is operated and administered in
compliance with its terms; (ii) has been and is operated, administered,
maintained and funded in compliance with the applicable requirements of the Code
in such a manner as to qualify, where appropriate and intended, for both Federal
and state purposes, for income tax exclusions, tax-exempt status, and the
allowance of deductions and credits with respect to contributions thereto; (iii)
where appropriate, has received a favorable determination letter from the
Internal Revenue Service upon which the sponsor of the plan may currently rely;
(iv) has been and currently complies in form and in operation in all respects
with all applicable requirements of ERISA and the Code and any applicable
reporting and disclosure requirements of Federal and state laws, including but
not limited to the requirement of Part 6 of subtitle B of Title I of ERISA and
Section 4980B of the Code. With respect to each Employee Plan, no Person has:
(i) entered into any nonexempt "prohibited transaction," as such terms are
defined in ERISA or the Code; (ii) breached a fiduciary obligation or (iii) any
liability for any failure to act or comply in connection with the administration
or investment of the assets of such plan; and no Employee Plan has any liability
and there is no liability in connection with any Employee Plan, other than a
liability (i) which is expressly and adequately reflected in the Latest Balance
Sheets, (ii) which is discretionary or terminable at will by the Company without
incurring any such liability, or (iii) which is adequately funded under a
funding arrangement separate from
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the assets of the Company or a Plan Affiliate (and only to the extent of such
funding). Any contribution made or accrued with respect to any Employee Plan is
fully deductible by the Company or a Plan Affiliate.
4.17.4 Neither the Company nor a Plan Affiliate has ever
sponsored, maintained, contributed to or been required to contribute to, or has
any liability, whether direct or indirect, with respect to any Employee Plan
which is or has ever been (i) a "multiemployer plan" as defined in Section 4001
of ERISA, (ii) a "multiemployer plan" within the meaning of Section 3(37) of
ERISA, (iii) a "multiple employer plan" within the meaning of Code Section
413(c), (iv) a "multiple employer welfare arrangement" within the meaning of
Section 3(40) of ERISA, (v) subject to the funding requirements of Section 412
of the Code or to Title IV of ERISA, or (vi) provides for post-retirement
medical, life insurance or other welfare-type benefits other than any benefits
required under Section 4980B of the Code.
4.17.5 As used in this Agreement, the following terms shall
have the following respective meanings:
(a) the term "Employee Plan" shall mean any plan, policy,
program, arrangement or agreement described in Section 4.17.1, whether
or not scheduled;
(b) the term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended; and
(c) with respect to any Person ("First Person"), the term
"Plan Affiliate" shall mean any other Person with whom the First Person
constitutes or has constituted all or part of a controlled group, or
which would be treated or have been treated with the First Person as
under common control or whose employees would be or have been treated
as employed by the First Person, under Section 414 of the Code or
Section 4001(b) of ERISA and any regulations, administrative rulings
and case law interpreting the foregoing.
4.18 Labor Matters. Except as set forth on Schedule 4.18, there is no,
and within the last three (3) years the Company has not experienced any, strike,
picketing, boycott, work stoppage or slowdown or other similar labor dispute,
union organizational activity, allegation, charge or complaint of unfair labor
practice, employment discrimination or other matters relating to the employment
of labor pending or, to the Knowledge of the Company, threatened against the
Company, or which might affect the Company; nor, to the Knowledge of the
Company, is there any basis for any such allegation, charge, or complaint. There
is no request for representation pending and, to the Knowledge of the Company,
no question concerning representation has been raised. There is no grievance
pending that is reasonably expected to result in a Company Material Adverse
Effect nor any arbitration proceeding arising out of a union agreement. To the
Knowledge of the Company, no key employee and no group of employees has
announced or otherwise indicated any plans to terminate employment with the
Company. The
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Company has complied with all applicable laws relating to the employment of
labor, including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes. The
Company is not liable for any arrears of wages or any taxes or penalties for
failure to comply with any such laws, ordinances or regulations.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19,
(i) the Company is operating and has operated its business in compliance with
all applicable Environmental and Safety Requirements (as defined later in this
Section); (ii) to the actual knowledge of the senior officers of the Company,
without any duty to inquire (notwithstanding the definition of "Knowledge" in
Section 15.4), there are no Hazardous Materials (as defined later in this
Section) present at, on or under any real property currently or formerly owned,
leased or used by the Company (other than those present in office supplies and
cleaning/maintenance materials) for which the Company is or is reasonably
expected to be responsible, or otherwise have any liability, for response costs
under any Environmental and Safety Requirements; (iii) the Company has disposed
of all waste materials generated by the Company at any real property currently
or formerly owned, leased or used by the Company in compliance with applicable
Environmental and Safety Requirements; and (iv) there are and have been no
facts, events, occurrences or conditions at or related to any real property
currently or formerly owned, leased or used by the Company that is reasonably
expected to cause or give rise to liabilities or response obligations of the
Company under any Environmental and Safety Requirements. The term "Environmental
and Safety Requirements" means any federal, state and local laws, statutes,
regulations or other requirements relating to the protection, preservation or
conservation of the environment or worker health and safety, all as amended or
reauthorized. The term "Hazardous Materials" means "hazardous substances," as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq., "hazardous wastes," as defined by the
Resource Conservation Recovery Act, 42 U.S.C. Section 6901 et seq., asbestos in
any form or condition, polychlorinated biphenyls and any other material,
substance or waste to which liability or standards of conduct may be imposed
under any Environmental and Safety Requirement.
4.20 Insurance. The Company has in full force and effect commercially
reasonable amounts of insurance (including, but not limited to, errors and
omissions insurance up to $1,000,000 in the aggregate for each of RA and
Verasource and up to $1,250,000 in the aggregate for Reppond) to protect the
Company's ownership or interest in, and operation of, its assets against the
types of liabilities, customarily insured against in connection with operations
similar to the Business, and all premiums due on such policies have been paid.
To the Company's Knowledge, the Company has complied with the provisions of all
such policies and is not in default under any of such policies. Schedule 4.20
contains a complete and correct list of all such insurance policies. The Company
has not received any notice of cancellation or nonrenewal, or intent to cancel
or nonrenew, or increase premiums with respect to such insurance policies.
Schedule 4.20 also contains a list of all claims or asserted claims reported to
insurers under such policies relating to the ownership or interest in the
Company's assets, or operation of the Business,
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including all errors and omissions claims and similar types of claims, actions
or proceedings asserted against the Company arising out of the Business at any
time within the past three (3) years.
4.21 Interest in Customers and Suppliers; Affiliate Transactions.
Except as described on Schedule 4.21, and except for ownership as an investment
of not more than one percent (1%) of any class of capital stock of any
publicly-traded company, the Company nor any Affiliate of the Company (i)
possesses, directly or indirectly, any financial interest in, or is a director,
officer, employee or affiliate of any Person that is a client, supplier,
customer, lessor, lessee or competitor of the Company , (ii) owns, directly or
indirectly, in whole or in part, or has any interest in any tangible or
intangible property used in the conduct of the Business, or (iii) is a party to
an agreement or relationship, that involves the receipt by such Person of
compensation or property from the Company other than through a customary
employment relationship or through distributions made with respect to the
Company Equity (provided such distributions have been made consistent with the
Company's past custom and practices). Schedule 4.21 sets forth the parties to
and the date, nature and amount of each transaction during the last five years
involving the transfer of any cash, property or rights to or from the Company
from, to or for the benefit of any Affiliates (other than customary employment
relationships or distributions made with respect to the Company Equity)
("Affiliate Transactions"), and any existing commitments of the Company to
engage in the future in any Affiliate Transactions. Except as disclosed, each
Affiliate Transaction and each transaction with former Affiliates of the Company
was effected on terms equivalent to those that have been established in an
arm's-length transaction.
4.22 Business Relationships. Schedule 4.22 lists all clients of the
Company representing one percent (1%) or more of the Company's revenues for the
twelve (12) months ended December 31, 1998. Except as set forth on Schedule
4.22, since December, 31, 1998, none of such clients has canceled or
substantially reduced its business with the Company nor are any of such clients
threatening to do so. To the Knowledge of the Company, no policyholders, current
clients or customers, retail producers, licensed agents and brokers, bona-fide
associations and/or groups, or insurance carriers that accounts for one percent
(1%) or more of the Company's consolidated net revenue or supplier of the
Company, will cease to do business with, or substantially reduce its business
with, the Company after the consummation of the transactions contemplated
hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
names and current total compensation, including, without limitation, salary and
bonuses paid to employees and draws or other distributions paid to partners,
members or owners, of each Person who earned from the Company in 1998 total
compensation in excess of $100,000. Except as set forth in Schedule 4.23, no
Person listed thereon has received any bonus or increase in compensation and
there has been no "general increase" in the compensation or rate of compensation
payable to any employees, partners, members or owners of the Company since the
date of the Latest Balance Sheet, other than in the Company's ordinary course of
business, consistent with past custom and
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practices nor since that date has there been any oral or written promise to
employees, partners, members or owners of any bonus or increase in compensation,
other than in the Company's ordinary course of business, consistent with past
custom and practices. The term "general increase" as used herein means any
increase generally applicable to a class or group, but does not include
increases granted to individuals for merit, length of service or change in
position or responsibility made on the basis of the custom and past practices of
the Company. Schedule 4.23 includes the date and amount of the last bonus or
similar distribution or increase in compensation for each listed individual.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each
bank in which the Company has an account or safe deposit box, the number of each
such account or box, and the names of all Persons authorized to draw thereon or
to have access thereto.
4.25 Disclosure; No Misrepresentation. No representation or warranty of
the Company contained in this Agreement or in any of the certification,
schedules, lists, documents, exhibits, or other instruments delivered or to be
delivered to Centerprise as contemplated by any provision hereof contains any
untrue statement regarding a material fact or omits to state a material fact
necessary in order to make the statements made herein or therein not misleading.
To the Knowledge of the Company, there is no fact or circumstance that has not
been disclosed to Centerprise herein that has or is reasonably expected to have
a Company Material Adverse Effect.
4.26 Title to and Transfer of Insurance Expirations. Except as set
forth on Schedule 4.26, as of the effective date of this Agreement, the Company
has good and valid rights, free and clear of any known restrictions, to
Insurance Expirations (as hereinafter defined). For the purpose of this Section
4.26, "Insurance Expirations" is defined as the right to service, continue and
renew, and collect all commissions and other amounts on, all insurance policies
of every type and description produced or placed by or through the Company,
including all of (i) the expiration data relating to such policies of insurance
produced or placed by or through the Company, (ii) all books, records and files
pertaining to all insurance policies, including, without limitation, all
computerized data records and all other records and files regardless of the
media in or on which such data, records or files are maintains, and (iii) the
customer and prospective customer lists used by the Company.
ARTICLE V
[RESERVED]
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE
Centerprise represents and warrants to each of the Companies as of
March 31, 1999 and, subject to Section 7.3, as of the date on which Centerprise
and the lead Underwriter execute and deliver the Underwriting Agreement related
to the IPO and as of the Closing Date as follows:
6.1 Organization And Qualification. Each of Centerprise and each
Mergersub is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. True, accurate and complete copies of
each of Centerprise's and Mergersub's Certificate of Incorporation and By-laws,
as in effect on the date hereof, including all amendments thereto, have
heretofore been delivered to each of the Companies.
6.2 Capitalization.
6.2.1 The authorized capital stock of Centerprise consists of
20,000 shares of Centerprise Common Stock, of which 17,500 shares were
outstanding as of the date hereof. All of the issued and outstanding shares of
Centerprise Common Stock are validly issued and are fully paid, nonassessable
and free of preemptive rights. Immediately prior to the Closing Date, the
authorized capital stock of Centerprise will consist of 50,000,000 shares of
Centerprise Common Stock, of which the number of shares set forth in the Form
S-1 will be issued and outstanding, and 10,000,000 shares of Preferred Stock,
par value $0.01 per share, none of which will be issued and outstanding. Other
than (i) shares of Centerprise Common Stock issued pursuant to a split of the
shares outstanding as of the date of this Agreement, (ii) shares of Centerprise
Common Stock issued in accordance with the Merger and the Other Mergers, and
(iii) shares of Centerprise Common Stock that may be issued to new members of
management in lieu of shares previously issued to current members of management,
but which will not increase the number of shares of outstanding Centerprise
Common Stock, no shares of Centerprise Common Stock will be issued prior to the
consummation of the IPO. Each Mergersub's authorized capital stock consists
solely of 100 shares of common stock, par value $.01 per share (the "Mergersub
Stock"), all of which are issued and outstanding, are owned free and clear of
any Liens by Centerprise , and are fully paid, nonassessable and free of
pre-emptive rights.
6.2.2 Except as set forth on Schedule 6.2, as of the date
hereof, there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement obligating Centerprise to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of the capital stock
of Centerprise or obligating Centerprise to grant, extend or enter into any such
agreement or commitment. There
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are no voting trusts, proxies or other agreements or understandings to which
Centerprise is a party or is bound with respect to the voting of any shares of
capital stock of Centerprise. The shares of Centerprise Common Stock issued to
the Stockholders in the Merger will at the Closing Date be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights and
issued pursuant to an effective registration statement as required by the 1933
Act or an exemption thereof.
6.2.3 The Notes have been duly authorized and when duly
executed, authenticated, issues and delivered will be duly and validly issued
and outstanding and will constitute the valid and legally binding obligations of
Centerprise enforceable in accordance with their terms.
6.3 No Subsidiaries. Except for Centerprise's ownership of 100% of the
capital stock of Professional Service Group, Inc., a Delaware corporation and
Mergersubs (and similar entries created for similar purposes with respect to
other Agreements), Centerprise has no subsidiaries and it does not own any
capital stock of any corporation or any equity or other interest of any nature
whatsoever in any Person.
6.4 Authority; Non-Contravention; Approvals.
6.4.1 Each of Centerprise and each Mergersub has all requisite
right, power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been approved by the Board
of Directors of Centerprise and each Mergersub, and no other corporate
proceedings on the part of Centerprise or each Mergersub are necessary to
authorize the execution and delivery of this Agreement or the consummation by
Centerprise and each Mergersub of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Centerprise and each Mergersub
and, assuming the due authorization, execution and delivery hereof by each of
the Companies constitutes a valid and legally binding agreement of Centerprise
and each Mergersub, enforceable against each of them in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
6.4.2 The execution and delivery of this Agreement by
Centerprise and each Mergersub do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
Lien upon any of the properties or assets of Centerprise or any Mergersub under
any of the terms, conditions or provisions of (i) the Certificate of
Incorporation or By-laws of Centerprise or any Mergersub, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or Governmental Authority applicable to Centerprise or
any Mergersub or any of their respective properties or assets, or (iii) any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which Centerprise or any Mergersub is now a party or by which
Centerprise, each Mergersub or any
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of their respective properties or assets, may be bound or affected. The
consummation by Centerprise or any Mergersub of the transactions contemplated
hereby will not result in any violation, conflict, breach, right of termination
or acceleration or creation of Liens under any of the terms, conditions or
provisions of the items described in clauses (i) through (iii) of the
immediately preceding sentence, subject, in the case of the terms, conditions or
provisions of the items described in clause (ii) above, to obtaining (prior to
the Closing Date) Centerprise Required Statutory Approvals (as defined in
Section 6.4.3) and, in the case of the terms, conditions or provisions of the
items described in clause (iii) above, to obtaining (prior to the Closing Date)
consents required from commercial lenders, lessors or other third parties.
6.4.3 Except with respect to (i) the declaration of the
effectiveness of the Registration Statements by the SEC and filings, if
required, with various state securities or blue sky authorities, and (ii) any
filing which may be required under the HSR Act (the filings and approvals
referred to in clauses (i) through (iii) are collectively referred to as the
"Centerprise Required Statutory Approvals") no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the execution and
delivery of this Agreement by Centerprise or any Mergersub or the consummation
by Centerprise or any Mergersub of the transactions contemplated hereby, other
than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be, are
not reasonably expected to, in the aggregate, have a material adverse effect on
the business operations, properties, assets, condition (financial or other),
results of operations or prospects of Centerprise and its subsidiaries, taken as
a whole (a "Centerprise Material Adverse Effect").
6.5 Absence of Undisclosed Liabilities. Except as set forth on Schedule
6.5, neither Centerprise nor any Mergersub has incurred any liabilities or
obligations (whether known or unknown, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise) of any nature. Except as set
forth on Schedule 6.5, neither Centerprise nor any Mergersub has engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is it bound by any obligation or undertaking.
6.6 Litigation. There are no claims, suits, actions or proceedings
pending or, to the Knowledge of Centerprise or Mergersub, threatened against,
relating to or affecting Centerprise, before any court, Governmental Authority
or any arbitrator that seek to restrain or enjoin the consummation of the Merger
or the IPO or which could reasonably be expected, either alone or in the
aggregate with all such claims, actions or proceedings, to have a Centerprise
Material Adverse Effect. Centerprise is not subject to any unsatisfied or
continuing judgment, order or decree of any court or Governmental Authority.
Centerprise is not a party to any legal action to recover monies due it or for
damages sustained by it.
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6.7 Compliance with Applicable Laws. Each of Centerprise and each
Mergersub has complied in all material respects with all Laws applicable to it,
and has not received any notice of any alleged claim or threatened claim,
violation of or liability or potential responsibility under any such Law which
has not heretofore been cured and for which there is no remaining liability and,
to the Knowledge of Centerprise, no event has occurred or circumstances exist
that (with or without notice or lapse of time) may constitute or result in a
violation by Centerprise or each Mergersub of any Law or may give rise to any
liability on the part of the Centerprise or any Mergersub under any Law.
6.8 No Misrepresentation. None of the representations and warranties of
Centerprise set forth in this Agreement or in any of the certificates,
schedules, lists, documents, exhibits, or other instruments delivered or to be
delivered to any of the Companies as contemplated by any provision hereof
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading. To the Knowledge of Centerprise, there is no fact or circumstance
that has not been disclosed to the Companies herein that has or is reasonably
expected to have a Centerprise Material Adverse Effect.
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS
7.1 Conduct of Business by the Companies Prior to the Effective Time.
7.1.1 Except as otherwise contemplated by this Agreement and
Schedule 7.1, after the date hereof and prior to the Closing Date or earlier
termination of this Agreement, unless Centerprise shall otherwise agree in
writing, each of the Companies shall:
(a) in all material respects conduct its businesses in the
ordinary and usual course and consistent with past customs and
practices;
(b) not (i) amend its Organizational Documents, (ii) split,
combine or reclassify its outstanding capital stock or (iii) declare,
set aside or pay any dividend or distribution payable in cash, stock,
property or otherwise except dividends or distributions which (A) are
consistent with past customs and practices and (B) do not result in a
Company Material Adverse Effect;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
options, warrants or rights of any kind to acquire any shares of, its
capital stock or equity interests of any class, (ii) any debt with
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voting rights or (iii) any debt or equity securities convertible into
or exchangeable for, or any rights, warrants, calls, subscriptions, or
options to acquire, any such capital stock, debt with voting rights or
convertible securities;
(d) not (i) incur or become contingently liable with respect
to any indebtedness for borrowed money other than (A) borrowings in the
ordinary course of business in a manner consistent with past customs
and practices, (B) borrowings to refinance existing indebtedness on
commercially reasonable terms, or (C) liability related to placing
insurance with insurance companies and collecting premiums therefor in
the ordinary course of business, (ii) redeem, purchase, acquire or
offer to purchase or acquire any shares of its capital stock or equity
interests or any options, warrants or rights to acquire any of its
capital stock or equity interests or any security convertible into or
exchangeable for its capital stock or equity interests, (iii) sell,
pledge, dispose of or encumber any assets or businesses other than
dispositions in the ordinary course of business in a manner consistent
with past customs and practices or (iv) enter into any contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
(e) use commercially reasonable efforts to (i) preserve intact
its business organizations and goodwill, (ii) keep available the
services of its present officers and key employees, and (iii) preserve
the goodwill and business relationships with clients and others having
business relationships with it and not engage in any action, directly
or indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of Centerprise to report operational matters of
materiality and the general status of ongoing operations;
(g) not (i) increase in any manner the base compensation of,
or enter into any new bonus or incentive agreement or arrangement with,
any of its employees, partners, members or owners, except in the
ordinary course of business in a manner consistent with past customs
and practices of such Company, as applicable, (ii) pay or agree to pay
any additional pension, retirement allowance or other employee benefit
under any Employee Plan to any such Person, whether past or present,
(iii) enter into any new employment, severance, consulting, or other
compensation agreement with any of its existing employees, partners,
members or owners, (iv) amend or enter into a new Employee Plan (except
as required by Law) or amend or enter into a new collective bargaining
agreement, or (v) engage in any new Affiliate Transaction;
(h) comply in all material respects with all applicable Laws;
(i) not make any material investment in, directly or
indirectly, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest
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in or substantial portion of the assets of, or by any other manner, any
businesses or any Person or division thereof or otherwise acquire or
agree to acquire any assets in each case which are material to it other
than in the ordinary course of business in a manner consistent with
past customs and practices;
(j) not sell, lease, license, encumber or otherwise dispose
of, or agree to sell, lease, license, encumber or otherwise dispose of,
any of its assets;
(k) maintain with financially responsible insurance companies
the insurance described in Section 4.20 herein;
(l) except as may be permitted by Section 7.1.1(b), maintain a
level of working capital consistent with historic levels and past
customs and practices; and
(m) collect and bill receivables in the ordinary and usual
course and consistent with past custom and practices.
7.1.2 Notwithstanding the fact that such action might
otherwise be permitted pursuant to this Article, the Companies shall not take
any action that would or is reasonably likely to result in any of the
representations or warranties of the Companies set forth in this Agreement being
untrue or in any of the conditions to the consummation of the transactions
contemplated hereunder set forth in Article X not being satisfied.
7.1.3 Prior to the Closing, the Companies, shall terminate,
without any liability to the Companies, all agreements relating to the voting of
the Companies' capital stock, and all agreements and obligations of the
Companies relating to borrowed money and/or involving payments to or for the
benefit of a present or former Stockholder of the Companies, or an Affiliate or
family member of a present or former Stockholder of the Companies, including
without limitation, those set forth on Schedule 7.1.3(a), but excluding (A)
those listed on Schedule 7.1.3(b), and (B) items approved by Centerprise in
writing.
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7.2 No-Shop.
(a) After the date hereof and prior to the Closing Date or
earlier termination of this Agreement, each of the Companies shall (i)
not, and each of the Companies shall use its diligent efforts to cause
any officer, director or employee of, or any attorney, accountant,
investment banker, financial advisor or other agent retained by any
Company not to, initiate, solicit, negotiate, encourage, or provide
non-public or confidential information to facilitate, any proposal or
offer to acquire all or any substantial part of the business and
properties of any Company, or any capital stock or other equity
interest of any Company, whether by merger, purchase of assets or
otherwise, whether for cash, securities or any other consideration or
combination thereof, or enter into any joint venture or partnership or
similar arrangement, and (ii) promptly advise Centerprise of the terms
of any communications any Company may receive or become aware of
relating to any bid for part or all of any Company. Notwithstanding the
foregoing, if the underwriters' internal sales force presentation or
"road show" for the IPO has not started by October 15, 1999, then from
and after such date, any Company may (through its authorized agents)
conduct limited discussions with potential acquirers of the Company for
the sole purpose of assessing the potential terms and conditions of an
acquisition proposal involving the Company. Notwithstanding the
preceding sentence, the Company shall not (i) disclose any non-public
or confidential information regarding the Company to any such third
party or (ii) enter into any agreement (including a letter of intent or
term sheet) with such third party unless this Agreement has been
terminated pursuant to Article XI.
(b) The Company (i) acknowledges that a breach of any of their
covenants contained in this Section 7.2 will result in irreparable harm
to Centerprise which will not be compensable in money damages; and (ii)
agrees that such covenant shall be specifically enforceable and that
specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
7.3 Schedules. Each party hereto agrees that with respect to the
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement or amend and deliver to the other parties all the schedules to this
Agreement (the "Schedules") to correct any matter which would constitute a
breach of any such party's representations and warranties herein; provided,
however, that no amendment or supplement to a Schedule that constitutes or
reflects a Company Material Adverse Effect or affects Schedule 4.2, Schedule 4.4
or Schedule 8.8 may be made unless Centerprise and a majority of the Founding
Companies consent to such amendment or supplement. No amendment or supplement to
a Schedule shall be made later than three (3) business days prior to the
anticipated effectiveness of the Form S-1. For all purposes of this Agreement,
including, without limitation, for purposes of determining whether the
conditions set forth in Sections 10.2 and 10.3 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 7.3. In the event that (i) any Company seeks to amend
or
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supplement a Schedule pursuant to this Section 7.3, (ii) such amendment or
supplement constitutes or reflects a Company Material Adverse Effect or affects
Schedule 4.2, Schedule 4.4 or Schedule 8.8, and (iii) Centerprise and a majority
of the Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section 7.3,
unless this Agreement is so terminated in connection with an amendment of or
supplement to a Schedule relating to a breach of a representation or warranty as
of March 31, 1999, in which case the Companies shall pay to Centerprise as
Centerprise's exclusive remedy (notwithstanding anything to the contrary) and as
liquidated damages, and not as a penalty, an amount equal to $2,000,000 (the
"Liquidated Damages Amount"). Each of the Companies agrees that in the case of
such termination, Centerprise and the Founding Companies will sustain immediate
and irreparable economic harm and loss of goodwill and that actual losses
suffered by such parties will be difficult, if not impossible, to ascertain, but
the Liquidated Damages Amount set forth herein is reasonable and has been
arrived at after a good faith effort to estimate such losses. Payment of the
Liquidated Damages Amount shall be made in cash to Centerprise within thirty
(30) days of a termination pursuant to this Section 7.3 in connection with an
amendment of or supplement to a Schedule relating to a breach of a
representation or warranty as of the date of this Agreement.
7.4 Company Stockholder Meeting. The Company shall take all action in
accordance with applicable laws and its Organizational Documents necessary to
duly call, give notice of, convene and hold a meeting of the Stockholders to be
held on the earliest practicable date determined in consultation with
Centerprise to consider and vote upon approval of the Merger, this Agreement and
the transactions contemplated hereby by the Stockholders, and the Company's
Board of Directors or Managers shall recommend approval of the Merger, this
Agreement and the transactions contemplated hereby by the Stockholders. If the
Merger, this Agreement and the transactions contemplated hereby are approved by
the Stockholders, the Companies shall not call, give notice of, convene or hold
any other meeting of its Stockholders to rescind or modify such approval or
consider any other transaction.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Access to Information.
8.1.1 Each of the Companies shall afford to Centerprise and
its accountants, counsel, financial advisors and other representatives,
including without limitation the underwriters engaged in connection with the IPO
(each an "Underwriter" and collectively, the "Underwriters") and their counsel
(collectively, the "Centerprise Representatives"), and to the Founding Companies
and their accountants, counsel, financial advisors and other representatives,
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and Centerprise shall afford to each of the Companies and its accountants,
counsel, financial advisors and other representatives (the "Company
Representatives"), upon reasonable notice, full access during normal business
hours throughout the period prior to the Closing Date to all of its respective
properties, books, contracts, commitments and records (including, but not
limited to, financial statements and Tax Returns) and, during such period, shall
furnish promptly to one another all due diligence information requested by the
other party. Centerprise shall hold and shall use its best efforts to cause the
Centerprise Representatives to hold, and each of the Companies shall hold and
shall use its best efforts to cause the Company Representatives to hold, in
strict confidence all non-public information furnished to it in connection with
the transactions contemplated by this Agreement, except that each of Centerprise
and each of the Companies may disclose any information that it is required by
law or judicial or administrative order to disclose. In addition, Centerprise
will cause each of the other Founding Companies and their members and
stockholders to enter into a provision similar to this Section 8.1 requiring
each such Founding Company to keep confidential any information obtained by such
Founding Company in connection with the transactions contemplated by this
Agreement.
8.1.2 In the event that this Agreement is terminated in
accordance with its terms, each party shall promptly return to the disclosing
party all non-public written material provided pursuant to this Section 8.1 or
pursuant to the Other Agreements and shall not retain any copies, extracts or
other reproductions of such written material. In the event of such termination,
all documents, memoranda, notes and other writings prepared by Centerprise or
any Company based on the information in such material shall be destroyed (and
Centerprise and each of the Companies shall use their respective reasonable best
efforts to cause their advisors and representatives to similarly destroy such
documents, memoranda and notes), and such destruction (and reasonable best
efforts) shall be certified in writing by an authorized officer supervising such
destruction.
8.2 Registration Statements.
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8.2.1 Centerprise has filed the Registration Statements with
the SEC and shall use all reasonable efforts to have the Registration Statements
declared effective by the SEC as promptly as practicable. Centerprise shall also
take any action required to be taken under applicable state "blue sky" or
securities laws in connection with the issuance of Centerprise Common Stock.
Centerprise and each of the Companies shall promptly furnish to each other all
information, and take such other actions, as may reasonably be requested in
connection with making such filings. All information provided and to be provided
by Centerprise and each of the Companies, respectively, for use in the
Registration Statements shall be true and correct in all material respects
without omission of any material fact which is required to make such information
not false or misleading as of the date thereof and in light of the circumstances
under which given or made. Each of the Companies agrees promptly to advise
Centerprise if at any time during the period in which a prospectus relating to
the offering of the Merger is required to be delivered under the Securities Act,
any information contained in the prospectus concerning each of the Companies
becomes incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy or remedy such incompletion.
8.2.2 Centerprise agrees that it will provide to the Companies
and its counsel copies of drafts of the Registration Statements (and any
amendments thereto) containing material changes to the information therein as
they are prepared and will not (i) file with the SEC, (ii) request the
acceleration of the effectiveness of or (iii) circulate any prospectus forming a
part of, the Registration Statements (or any amendment thereto) unless the
Companies and their counsel (x) have had at least two days to review the revised
information contained therein (which changes shall be highlighted by computer
generated marks indicating the additions and deletions made from the prior draft
reviewed by the Companies' counsel) and (y) have not objected to the substance
of the information contained therein. Any objections posed by the Companies or
their counsel shall be in writing and state with specificity the material in
question, the reason for the objection, and the Companies' proposed alternative.
If the objection is founded upon a rule promulgated under the Securities Act,
the objection shall cite the rule. Notwithstanding the foregoing, during the
five (5) business days immediately preceding the date scheduled for the filing
of the Registration Statements and any amendment thereto, the Companies and
their counsel shall be obligated to respond to proposed changes electronically
transmitted to them within two (2) hours from the time the proposed changes (in
the case of the initial filing of the Registration Statements, from the last
circulated draft of the Registration Statements; and, in the case of any
subsequent filing of the Registration Statements or any amendment thereof, from
the most recently filed Registration Statements or amendment thereof) are
transmitted to the Companies' counsel; provided, that, Centerprise has provided
to the Companies or their counsel reasonable advance notice of such proposed
changes; provided, further, that such changes are highlighted by computer
generated marks indicating the additions and deletions made from the prior draft
reviewed by the Companies' counsel.
8.2.3 Centerprise will advise the Stockholder Representative
of the effectiveness of the Registration Statements, advise the Stockholder
Representative of the entry
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of any stop order suspending the effectiveness of the Registration Statements or
the initiation of any proceeding for that purpose, and, if such stop order shall
be entered, use its best efforts promptly to obtain the lifting or removal
thereof. Upon the written request of any Company, Centerprise will furnish to
such Company a reasonable number of copies of the final prospectus associated
with the IPO.
8.3 Expenses and Fees. Centerprise shall pay the fees and expenses of
the independent public accountants and legal counsel to Centerprise and all
filing, printing and other reasonable, documented fees and expenses associated
with the IPO and Form S-4. The Companies and their Stockholders will not be
liable for any portion of the above expenses in the event the IPO is not
completed. Centerprise shall also pay the underwriting discounts and commissions
payable in connection with the sale of Centerprise Common Stock in the IPO.
Subject to Sections 8.11 and 11.2, all other costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses; provided, however, that Centerprise
shall pay the fees and expenses of Hales Capital Advisors, LLC described in
Schedule 15.1 in connection with the Merger.
8.4 Agreement to Cooperate. Subject to the terms and conditions herein
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
8.5 Public Statements. Except as may be required by law, no party
hereto nor any Affiliate of any party hereto shall issue any press release or
any written public statement with respect to this Agreement or the transactions
contemplated by this Agreement or the Other Agreements without the prior written
consent of Centerprise and each of the Companies.
8.6 [RESERVED]
8.7 Centerprise Covenants. After the date hereof and prior to the
Closing Date or earlier termination of this Agreement in accordance with its
terms, Centerprise shall comply in all material requests with all applicable
laws. Centerprise shall not take any action that would or is reasonably likely
to result in any of the representations or warranties of Centerprise set forth
in this Agreement being untrue or in any of the conditions to the consummation
of the transactions contemplated hereunder set forth in Article X not being
satisfied.
8.8 Release of Guarantees. Centerprise shall use all commercially
reasonable efforts and good faith to have the Stockholders released from any and
all guarantees on any indebtedness and leases that they personally guaranteed
for the benefit of the Company as set forth on Schedule 8.8, with all such
guarantees on indebtedness and leases being assumed by Centerprise, if necessary
to achieve such releases. If any guaranteed indebtedness is repaid in full
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with proceeds from the IPO and the Stockholders' guarantees thereafter shall
have no further force and effect, then Centerprise shall not be obligated to use
any efforts to obtain release of such guarantee. In the event that Centerprise
cannot obtain such releases from the lenders of any such guaranteed indebtedness
or lessors of any guaranteed leases, Centerprise agrees to indemnify, defend and
hold harmless the Stockholders against any and all claims made by lenders or
landlords under such guarantees.
8.9 [RESERVED]
8.10 Preparation and Filing of Tax Returns.
8.10.1 Each Company shall be responsible for causing the
timely filing of the final pre-Closing Returns for such Company; provided
however, that Centerprise and its advisors shall have the right to review and
approve such returns prior to filing, which approval shall not be unreasonably
withheld. Centerprise shall, and shall cause its Affiliates to, provide to each
Company such cooperation and information as any of them reasonably requested in
filing any return, amended return or claim for refund, determining a liability
for Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Each Company shall bear all costs of filing such
returns.
8.10.2 Each of the Company and Centerprise shall comply with
the tax reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and shall treat the transaction as subject to the
provisions of Section 351 of the Code.
8.11 Insurance. Each Company covenants and agrees that all insurance
policies listed, or required to be listed, on Schedule 4.20 will be maintained
in full force and effect through the Closing Date. Each Company will purchase
directors' and officers' liability and errors and omissions insurance (or
maintain its existing insurance) for the Company and its Stockholders for a
period of five (5) years after the Closing Date or provide comparable coverage
providing at least the same benefits as those coverage amounts and deductibles
for other agencies similarly situated in the insurance industry. Centerprise
shall cause Robert F. Driver Co., Inc. to bear one-half of the expense of such
insurance.
8.12 Management by Robert F. Driver Co., Inc. Each of the Companies
acknowledges that its day-to-day management and operations shall be governed and
supervised by Robert F. Driver Co., Inc. or as otherwise provided by
Centerprise.
8.13 Name of Companies. Centerprise shall cause the Companies to be
operated under a name in which "Reppond" is equally as prominent or more
prominent than "Driver" if the name "Driver" is used to describe the Company.
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8.14 Stockholder Representative. Each Company appoints Ben Reppond (the
"Stockholder Representative") as its agent and representative with full power
and authority to agree, contest or settle any claim or dispute affecting the
Company made under Article II and to otherwise act on behalf of the Company and
its Stockholders in accordance with the terms of this Agreement.
ARTICLE IX
[RESERVED]
ARTICLE X
CLOSING CONDITIONS
10.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have
been executed and the closing of the sale of Centerprise Common Stock
to the Underwriters pursuant thereto shall have occurred simultaneously
with the Closing hereunder;
(b) the closings of the transactions contemplated under each
of the Other Agreements shall have occurred simultaneously with the
Closing hereunder, unless terminated in accordance with Section 7.3 of
the applicable Other Agreement;
(c) the Registration Statements shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in
effect and no proceeding for that purpose shall have been instituted by
the SEC or any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or
decree shall be pending or issued by any federal or state court which
seeks to prevent or prevents the consummation of the IPO, the Merger or
any of the Other Mergers shall have been issued and remain in effect;
(e) the minimum price condition set forth on line F of
Schedule 2.1 shall have been satisfied.
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(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government
or governmental agency in the United States which would prevent the
consummation of the Merger or any of the Other Mergers or make the
consummation of the Merger or any of the Other Mergers illegal;
(g) all material governmental and third party waivers,
consents and approvals required for the consummation of the Merger or
any of the Other Mergers and the transactions contemplated hereby and
by the Other Agreements (including, without limitation, any consents
listed on Schedules 4.3.2 or 4.12) shall have been obtained and be in
effect;
(h) No action, suit or proceeding with respect to the Merger
has been filed or threatened by a third party and remains threatened or
remains pending before any court, Governmental Authority or regulatory
Person;
(i) This Agreement, the Merger and the transactions
contemplated hereby shall have been approved and adopted by the
Stockholders in the manner required by any applicable Law and each
Company's Organizational Documents and such approval shall remain in
full force and effect; and
(j) Centerprise shall have entered into one or more credit
facilities providing for aggregate commitments of not less than $75
million.
10.2 Conditions to Obligation of the Companies to Effect the Merger.
Unless waived by the Companies, the obligation of the Companies to effect the
Merger shall be subject to the fulfillment at or prior to the Closing of the
following additional conditions:
(a) Centerprise, Mergersub and each of the Founding Companies
shall have performed in all material respects their agreements
contained in this Agreement and each Other Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of Centerprise contained in this Agreement and each Other
Agreement shall be true and correct in all material respects on and as
of the date made and on and as of the Closing Date as if made at and as
of such date, and the Companies shall have received a certificate of
the Chief Executive Officer or President of Centerprise to that effect;
(b) no Governmental Authority shall have promulgated or
formally proposed any statute, rule or regulation which, when taken
together with all such promulgations, would materially impair the value
to the Companies of the Merger;
(c) the Companies shall have received an opinion from Katten
Muchin & Zavis, dated as of the Closing Date, containing the
substantive opinions set forth in
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Exhibit 10.2(c), the final form of such opinion to be in form and
substance reasonably acceptable to the Companies;
(d) Each of Ben Reppond, Louis Baransky and Scott Perry shall
have been afforded the opportunity to enter into an employment
agreement (the "Employment Agreement") with one of the Companies
substantially in the form attached hereto as Exhibit 10.2(d);
(e) Centerprise shall have delivered to the Companies a
certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State, showing
that Centerprise is in good standing;
(f) each of the Stockholders, the partners, the members and
the stockholders, partners and members of the Founding Companies who
are to receive shares of Centerprise Common Stock pursuant to the Other
Agreements, and the other stockholders of Centerprise other than those
acquiring stock in the IPO shall have entered into an agreement (the
"Stockholders Agreement") substantially in the form attached hereto as
Exhibit 10.2(f);
(g) all conditions to the Mergers of the Founding Companies,
on substantially the same terms as provided herein, shall have been
satisfied or waived by the applicable party and the Companies; and
(h) the Companies shall have received an opinion of Katten
Muchin & Zavis, dated as of the Closing Date and based upon certain
factual representations and assumptions that for federal income tax
purposes there will be no gain or loss recognized with respect to the
Centerprise Common Stock received for their Company Equity in the
Merger pursuant to Section 351 of the Code, the final form of such
opinion to be in form and substance reasonably acceptable to the
Companies.
(i) Driver shall have signed and delivered to the Stockholders
the Letter Agreement between the Stockholders and Driver substantially
in the form attached hereto as Exhibit 10.2(i).
10.3 Conditions to Obligation of Centerprise to Effect the Merger.
Unless waived by Centerprise, the obligation of Centerprise and Mergersub to
effect the Merger shall be subject to the fulfillment at or prior to the Closing
of the additional following conditions:
(a) each of the Companies shall have performed in all material
respects its agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of each of the Companies contained in this Agreement shall
be true and correct in all material respects on and as of the date
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made and on and as of the Closing Date as if made at and as of such
date, and Centerprise and the Underwriters shall have received a
Certificate of the Chief Executive Officer or President of each of the
Companies to that effect;
(b) Reserved;
(c) Centerprise and the Underwriters shall have received an
opinion from Orrick, Herrington & Sutcliffe, LLP and/or Pete Lewicki,
counsel to each of the Companies, dated the Closing Date, in the form
attached hereto as Exhibit 10.3(c), the final form of such opinion to
be in form and substance reasonably acceptable to the Underwriters and
Centerprise;
(d) each of Ben Reppond, Louis Baransky and Scott Perry shall
have executed and delivered the Employment Agreement referred to in
Section 10.2(d);
(e) Centerprise and the Underwriters shall have received
"Comfort" letters in customary form from each of the Companies'
independent public accountants, dated the effective date of the Form
S-1 and the Closing Date (or such other date reasonably acceptable to
Centerprise), with respect to certain financial statements and other
financial information included in the Form S-1 and any subsequent
changes in specified balance sheet and income statement items,
including total assets, working capital, total stockholders' equity,
total revenues and the total and per share amounts of net income;
(f) each of the Companies shall have delivered to Centerprise
and the Underwriters a certificate, dated as of a date no later than
ten days prior to the Closing Date, duly issued by the appropriate
Governmental Authority in the state of organization of each Company,
unless waived by Centerprise, in each state in which each Company is
authorized to do business, showing such Company (as applicable) is in
good standing, authorized to do business and/or in compliance with all
laws and regulations, whichever is applicable;
(g) no Governmental Authority shall have promulgated or
formally proposed any statute, rule, regulation or bulletin, or
otherwise promulgated a policy pursuant to its authority under any
statute, which, when taken together with all such promulgations, would
materially impair the value to Centerprise of the Merger;
(h) the Stockholders shall have executed the Stockholders
Agreement;
(i) Reserved;
(j) Reserved;
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(k) each of the Companies shall have terminated or have caused
the termination of any voting trusts, proxies or other agreements or
understandings to which any such Company or is a party or is bound with
respect to any shares of capital stock or other equity interests of
such Company and shall have provided Centerprise evidence of such
termination that is acceptable to Centerprise's counsel;
(l) to the extent any of the Companies' contracts and
agreements with insurance carriers, referring agents and insurance
producers (collectively referred to as "Insurance Entities") will be
terminated as a result of this Agreement or the transactions
contemplated herein, each of the Companies shall have: (i) entered into
new contracts with each of the Insurance Entities under the same
material terms and conditions as the previous contracts and agreements
terminated as a result of this Agreement or the transactions
contemplated herein; or (ii) obtained amendments or waivers of the
contracts and agreement with each of Insurance Entities such that the
contracts and agreements will not terminate as a result of this
Agreement or the transactions contemplated herein, provided that such
amendments or waivers do not modify the material terms of such
contracts or agreements, except where the failure to have entered into
such contracts or to have obtained such amendments or waiver would not
have a Company Material Adverse Effect;
(m) each of the Companies has provided to Centerprise
certified copies of all licenses and registrations necessary for such
Company to conduct their Business, and each of the Companies has
modified or amended the information given the relevant Government
Authorities in obtaining such licenses and registrations necessary to
prevent this Agreement or the transactions contemplated herein from
canceling or terminating such licenses and registrations;
(n) the Company shall have presented evidence satisfactory to
Centerprise of its compliance with the provisions of Section 7.1.3
hereof;
(o) as applicable, the Companies shall have delivered to
Centerprise a payoff letter including a statement of per diem interest
amounts and other applicable release documents from all such lenders or
creditors regarding the payment in full of such indebtedness (which
will be paid in accordance with Schedule 7.1.3(a) at Closing) in each
case in form and substance satisfactory to Centerprise (including,
without limitation, applicable UCC-3 termination statements);
(p) the secretary of the Companies shall have delivered
certified copies of the resolutions of the board of directors and
shareholders of the Company approving execution and delivery of this
Agreement, the Merger and the other actions, agreements and documents
necessary or desirable to complete the transactions contemplated
herein; and
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(q) the Stockholders shall have executed and delivered the
Company Stockholder Agreement in the form of Exhibit 10.3(q) attached
hereto.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) pursuant to Section 7.3;
(b) by all of the Companies,
(i) if the Merger is not completed by November 15,
1999 other than on account of delay or default on the part of
any of the Companies or any of their affiliates or associates;
(ii) if the Merger is enjoined by a final,
unappealable court order not entered at the request or with
the support of each of the Companies or any of its affiliates
or associates;
(iii) if Centerprise (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
respects within thirty (30) days after written notice of such
default is given to Centerprise; or
(c) by Centerprise,
(i) if the Merger is not completed by November 15,
1999 other than on account of delay or default on the part of
Centerprise or any of its stockholders or any of their
affiliates or associates;
(ii) if the Merger is enjoined by a final,
unappealable court order not entered at the request or with
the support of Centerprise or any of its stockholders or any
of their affiliates or associates;
(iii) if any Company (A) fails to perform in any
material respect any of its material covenants in this
Agreement and (B) does not cure such default in all material
respects within thirty (30) days after written notice of such
default is given to such Company by Centerprise; or
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(d) by mutual consent of all of the Boards of Directors
or Managers of the Companies and the Board of Directors of Centerprise.
11.2 Effect of Termination. In the event of termination of this
Agreement by either Centerprise or the Companies, as provided in Section 11.1,
this Agreement shall forthwith become void and there shall be no further
obligation on the part of the Companies, Centerprise, Mergersub or their
respective officers or directors (except the obligations set forth in this
Section 11.2 and in Sections 8.1, 8.3, and 8.5, all of which shall survive the
termination). Nothing in this Section 11.2 shall relieve any party from
liability for any breach of this Agreement.
11.3 Amendment. This Agreement may not be amended except by action
taken by the Boards of Directors of Centerprise and the Company or duly
authorized committees thereof and then only by an instrument in writing signed
on behalf of each of the parties hereto and in compliance with applicable law.
11.4 Waiver. At any time prior to the Closing Date, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE XII
[RESERVED]
ARTICLE XIII
NONCOMPETITION
13.1 Centerprise Non-Solicitation. Centerprise will not, for a period
of two (2) years following the date hereof, for any reason whatsoever, directly
or indirectly, for themselves or on behalf of or in conjunction with any other
Person, solicit to employ any Person who is an employee of any of the companies
(and with whom Centerprise had contact or with which such employee was
specifically identified to Centerprise during its due diligence investigation of
the Companies) for the purpose or with the intent of enticing such employee away
from or out of the employee of any of the Companies or hire such Person.
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ARTICLE XIV
[RESERVED]
ARTICLE XV
GENERAL PROVISIONS
15.1 Brokers. Each of the Companies represents and warrants that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee (except for any fee described in Schedule 15.1) or commission in
connection with the Merger or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. Centerprise
represents and warrants that no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Centerprise or its stockholders (other than
underwriting discounts and commission to be paid in connection with the IPO).
15.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
given in accordance with this Section):
15.2.1 If to Centerprise or Mergersub, to:
Centerprise Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert Basten
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
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15.2.2 If to the Companies, to:
The Reppond Company, Inc.
10900 Northeast Fourth Street
Suite 1200
Bellevue, WA 98004
Attn: Ben Reppond
Facsimile No.: (425) 974-4404
with a copy to:
Orrick, Herrington & Sutcliffe, LLP
400 Sansome Street
San Francisco, CA 94111-5759
Attn: Geoffrey P. Leonard, Esq.
Facsimile No.: (415) 773-5759
15.2.3 If to the Stockholder Representative, addressed to the
addresses set forth on Schedule 15.2.3. with copies to such
counsel as set forth on such schedule 15.2.3.
15.3 Interpretation. The table of contents and headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
15.4 Certain Definitions. As used in this Agreement, (i) the term
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated association, corporation, entity, firm,
association, organization or other business in any form whatsoever or government
(whether Federal, state, county, city or otherwise, including, without
limitation, any instrumentality, division, agency or department thereof), (ii)
the term "Affiliate" shall have the meaning given for that term in Rule 405
under the Securities Act, and shall include each past and present Affiliate of a
Person and the members of such Affiliate's immediate family or their spouses or
children and any trust the beneficiaries of which are such individuals or
relatives, and (iii) an individual will be deemed to have "Knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or matter, or (b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the course
53
<PAGE>
of conducting a reasonably comprehensive investigation concerning the existence
of such fact or other matter and a prudent individual would conduct such
investigation; a Person, other than an individual, will be deemed to have
"Knowledge" of a particular fact or other matter if any Person who is a partner,
member or shareholder of such Person or who is otherwise serving, or who has
served, as a director, officer or trustee (or any capacity) of such Person has,
or at any time had, knowledge of such fact or other matter.
15.5 Entire Agreement; Assignment. This Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof including, without limitation, the Letter of Intent dated December
28, 1998 and the Merger Agreement dated as of March 31, 1999, and (b) shall not
be assigned by operation of law or otherwise, except that Centerprise may assign
this Agreement to any wholly-owned subsidiary of Centerprise.
15.6 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Illinois applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
15.7 Counterparts. This Agreement may be executed via facsimile or
otherwise in two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
15.8 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and their respective
successors, permitted assigns, heirs, legal representatives and executors and
except as expressly set forth in herein, nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
* * *
---------------------
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54
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
as of the date first written above.
CENTERPRISE ADVISORS, INC.
By: /s/ Robert C. Basten
--------------------------------
Name:
------------------------------
Its:
-------------------------------
REPPOND MERGERSUB INC.
By: /s/ Robert C. Basten
--------------------------------
Name:
------------------------------
Its:
-------------------------------
RA MERGERSUB LLC
By: /s/ Robert C. Basten
--------------------------------
Name:
------------------------------
Its:
-------------------------------
VERASOURCE MERGERSUB INC.
By: /s/ Robert C. Basten
--------------------------------
Name:
------------------------------
Its:
-------------------------------
<PAGE>
THE REPPOND COMPANY, INC.
By: /s/ Ben Reppond
--------------------------------
Name:
------------------------------
Its:
-------------------------------
REPPOND ADMINISTRATORS, L.L.C.
By: /s/ Ben Reppond
--------------------------------
Name:
------------------------------
Its:
-------------------------------
VERASOURCE EXCESS RISK LTD.
By: /s/ Ben Reppond
--------------------------------
Name:
------------------------------
Its:
-------------------------------
<PAGE>
Exhibit 2.44
AMENDED AND RESTATED
MERGER AGREEMENT
by and among
CENTERPRISE ADVISORS, INC.,
SSLD MERGERSUB LLC,
and
SIMIONE, SCILLIA, LARROW & DOWLING LLC
September 24, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
THE MERGER 2
1.1 The Merger 2
1.2 Effects of the Merger 2
1.3 Managers and Officers of the Surviving Company 2
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT 3
2.1 Merger Consideration 3
2.1.1 Basic Purchase Consideration 3
2.1.2 Intentionally Omitted 3
2.1.3 Intentionally Omitted 3
2.1.4 Conversion of Company Interests 3
2.1.5 Exchange of Certificates 3
2.2 Post-Closing Adjustments to Basic Purchase Consideration 4
2.2.1 Adjustments for Net Working Capital Shortfall/Excess 4
2.2.2 Preliminary Balance Sheet and Adjustment 4
2.2.3 Interim Adjustment 4
2.2.4 Final Adjustment 4
2.2.5 Disputes 4
2.2.6 Payment of Adjustments 5
2.3 Post-Closing Management of AR 5
2.4 Assignment of Uncollected AR. 5
2.5 Definitions 5
ARTICLE III
THE CLOSING AND CONSUMMATION DATE 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER 6
4.1 Organization and Qualification 7
4.2 Company Subsidiaries 7
4.3 Authority; Non-Contravention; Approvals 7
4.4 Capitalization 9
4.5 Year 2000 10
4.6 Financial Statements 10
4.7 Absence of Undisclosed Liabilities 10
</TABLE>
i
<PAGE>
4.8 Unbilled Fees and Expenses 10
4.9 Absence of Certain Changes or Events 11
4.10 Litigation 13
4.11 Compliance with Applicable Laws 14
4.12 Licenses 14
4.13 Material Contracts 14
4.14 Properties 17
4.15 Intellectual Property 19
4.16 Taxes 19
4.17 Employee Benefit Plans; ERISA 20
4.18 Labor Matters 22
4.19 Environmental Matters 23
4.20 Insurance 23
4.21 Interest in Customers and Suppliers; Affiliate Transactions 23
4.22 Business Relationships 24
4.23 Compensation 24
4.24 Bank Accounts 25
4.25 Professional Credentials 25
4.26 Disclosure; No Misrepresentation 25
ARTICLE V
[RESERVED] 25
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE 25
6.1 Organization And Qualification 25
6.2 Capitalization 26
6.3 No Subsidiaries 27
6.4 Authority; Non-Contravention; Approvals 27
6.5 Absence of Undisclosed Liabilities 28
6.6 Litigation 28
6.7 Compliance with Applicable Laws 28
6.8 No Misrepresentation 29
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS 29
7.1 Conduct of Business by the Seller and the Company
Prior to the Effective Time 29
7.2 No-Shop 31
7.3 Schedules 32
2
<PAGE>
Page
----
7.4 Company Member Meeting; Seller Member Meeting 33
7.5 Asset Transfer 33
ARTICLE VIII
ADDITIONAL AGREEMENTS 34
8.1 Access to Information 34
8.2 Registration Statements 34
8.3 Expenses and Fees 36
8.4 Agreement to Cooperate 36
8.5 Public Statements 36
8.7 Centerprise Covenants. 36
8.8 Release of Guarantees 36
8.9 [Reserved] 36
8.10 Preparation and Filing of Tax Returns 37
8.11 Maintenance of Insurance 37
8.12 Administration 37
8.13 Member Representative 37
ARTICLE IX
[RESERVED] 37
ARTICLE X
CLOSING CONDITIONS 37
10.1 Conditions to Each Party's Obligation to Effect the Merger 37
10.2 Conditions to Obligation of the Seller and the
Company to Effect the Merger 39
10.3 Conditions to Obligation of Centerprise to Effect the Merger 40
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER 42
11.1 Termination 42
11.2 Effect of Termination 43
11.3 Amendment 43
11.4 Waiver 43
ARTICLE XII
[RESERVED] 44
i
<PAGE>
Page
----
ARTICLE XIII
[RESERVED] 44
ARTICLE XIV
[RESERVED] 44
ARTICLE XV
GENERAL PROVISIONS 44
15.1 Brokers 44
15.2 Notices 44
15.3 Interpretation 45
15.4 Certain Definitions 46
15.5 Entire Agreement; Assignment 46
15.6 Applicable Law 46
15.7 Counterparts 46
15.8 Parties in Interest 46
ii
<PAGE>
Page
----
LIST OF SCHEDULES
-----------------
Schedule 2.1 Consideration
Schedule 2.5 Net Working Capital Adjustment Items
Schedule 4.2 Company Subsidiaries
Schedule 4.3.2 Required Consents
Schedule 4.4 Capitalization
Schedule 4.7 Liabilities
Schedule 4.9 Certain Changes and Events
Schedule 4.10 Litigation
Schedule 4.11 Noncompliance with Applicable Laws
Schedule 4.12 Licenses and Permits
Schedule 4.13 Material Contracts
Schedule 4.14.1-1 Real Property
Schedule 4.14.1-2(a) Exceptions Regarding Owned Property
Schedule 4.14.1-2(b) Exceptions Regarding Leased Property
Schedule 4.14.2 Tangible Personal Property; Liens
Schedule 4.15 Intellectual Property
Schedule 4.16.1-1 Taxes
Schedule 4.16.1-2 Tax Audits
Schedule 4.17.1 Employee Plans
Schedule 4.17.2 Unwritten Employee Plans
Schedule 4.18 Labor Matters
iii
<PAGE>
Schedule 4.19 Environmental Matters
Schedule 4.20 Insurance
Schedule 4.21 Affiliate Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 6.2 Centerprise's Capitalization
Schedule 6.5 Liabilities
Schedule 7.1.4 Terminated Employee Plans and Agreements
Schedule 7.5 Retained Assets and Retained Liabilities
Schedule 8.8 Release of Guarantees
Schedule 15.1 Brokers
iv
<PAGE>
Page
----
LIST OF EXHIBITS
----------------
Exhibit 10.2(c) Form of Opinion of Centerprise's Counsel
Exhibit 10.2(d) Form of Incentive Compensation Agreement
Exhibit 10.2(f) Form of Stockholders Agreement
Exhibit 10.3(c) Form of Opinion of Counsel to the Company
Exhibit 10.3(d)(A) Form of Separate Practice Agreement
Exhibit 10.3(d)(B) Form of Services Agreement
Exhibit 10.3(j) Form of Release
Exhibit 10.3(t) Form of Company Member Agreement
v
<PAGE>
Page
----
DEFINED TERMS
-------------
Accounting Licenses Section 4.12
Acquisition Introduction
Actions Section 4.10.1
Affiliate Section 15.4
Affiliate Transactions Section 4.21
Agreement Introduction
AR Section 2.5(a)
Arbitrator Section 2.2.5
Asset Transfer Introduction
Attestation Practice Introduction
Basic Purchase Consideration Section 2.1.1
Business Introduction
Cash Consideration Section 2.1.1
Centerprise Introduction
Centerprise Accountants Section 2.2.2
Centerprise Common Stock Section 2.1.1
Centerprise Material Adverse Effect Section 6.4.3
Centerprise Representatives Section 8.1.1
Centerprise Required Statutory Approvals Section 6.4.3
Closing Article III
Closing Balance Sheet Section 2.2.2
Closing Date Article III
Code Introduction
Company Introduction
vi
<PAGE>
Page
----
Company Interests Section 2.1.1
Company Material Adverse Effect Section 4.3.3
Company Subsidiary(ies) Section 4.2
Contracts Section 4.13
Copyrights Section 4.15
Disputed Item Section 2.2.5
Effective Time Section 1.1
Employee Plan Section 4.17.5(a)
Environmental and Safety Requirements Section 4.19
ERISA Section 4.17.5(b)
Final Adjustment Section 2.2.4
Financial Statements Section 4.6
First Person Section 4.17.5(c)
Form S-1 Section 4.3.3
Form S-4 Section 4.3.3
Founding Companies Introduction
GAAP Section 4.6
general increase Section 4.23
Governmental Authority Section 4.3.2
Hazardous Materials Section 4.19
herein Section 15.3
hereof Section 15.3
hereunder Section 15.3
HSR Act Section 4.3.3
Incentive Compensation Agreement Section 10.2(d)
Intellectual Property Section 4.15
Intellectual Property Licenses Section 4.15
Interim Adjustment Section 2.2.3
IPO Introduction
Knowledge Section 15.4
vii
<PAGE>
Page
----
Latest Balance Sheet Section 4.6
Laws Section 4.11
Leased Property Section 4.14.1
Licenses Section 4.12
Lien(s) Section 4.3.2
Liquidated Damages Amount Section 7.3
Marks Section 4.15
Material Contracts Section 4.13
Member Representative Section 8.13
Merger Introduction
Merger Documents Section 1.1
Mergersub Introduction
Net Working Capital Section 2.5(b)
1933 Act Section 4.3.3
NewCo Introduction
Organizational Documents Section 4.1
Other Agreements Introduction
Other Mergers Introduction
Owned Property Section 4.14.1
Patents Section 4.15
Person Section 15.4
Plan Affiliate Section 4.17.5(c)
Real Property Section 4.14.1
Registration Statements Section 4.3.3
Resolution Period Section 2.2.5
Retained Assets Section 7.5
Retained Liabilities Section 7.5
Returns Section 4.16.1
Schedules Section 7.3
SEC Section 4.3.3
viii
<PAGE>
Page
----
Securities Act Section 4.3.3
Seller Introduction
Seller Interests Section 4.4
Seller Representatives Section 8.1.1
Special Bonus Plan Section 2.5(c)
Stock Consideration Section 2.1.1
Stockholders Agreement Section 10.2(f)
Surviving Company Section 1.2
Target Section 2.5(d)
Tax Accrual Section 2.5(e)
Taxes Section 4.16.2
Territory Section 13.1(a)
Trade Secrets Section 4.15
Underwriters Section 8.1.1
ix
<PAGE>
AMENDED AND RESTATED
MERGER AGREEMENT
THIS AMENDED AND RESTATED MERGER AGREEMENT (this "Agreement") is made as of
September 24, 1999, by and among Centerprise Advisors, Inc., a Delaware
corporation ("Centerprise "), SSLD Mergersub LLC, a Delaware limited liability
company and wholly-owned subsidiary of Centerprise ("Mergersub"), and Simione,
Scillia, Larrow & Dowling LLC, a Connecticut limited liability company (the
"Seller").
WITNESSETH:
WHEREAS, the Seller engages directly, and indirectly through the Company
Subsidiaries, in the business of providing accounting, tax and other related
services (such business provided by the Seller is referred to as the
"Business");
WHEREAS, prior to, and in anticipation of, completion of the transactions
contemplated hereby (a) the Seller will form and transfer, assign and convey to
a wholly-owned limited liability company ("Newco" or the "Company") all of the
Seller's right, title and interest in and to all of its assets and liabilities
(the "Asset Transfer") other than the Retained Assets and Retained Liabilities,
and (b) the Seller will retain those Retained Assets and Retained Liabilities
required to provide services related to the practice of accounting that,
pursuant to applicable laws and regulations, may only be conducted by certified
public accountants (the "Attestation Practice");
WHEREAS, the Managers and Board of Directors of the Seller, the Company,
Mergersub and Centerprise, respectively, deem it advisable and in the best
interests of their respective security holders to approve and consummate the
business combination transactions provided herein in which the Company would
merge with and into Mergersub, with Mergersub being the surviving entity in the
merger (the "Merger");
WHEREAS, Centerprise is entering into other agreements (the "Other
Agreements") substantially similar to this Agreement with each of Reznick Fedder
& Silverman, P.C., Robert F. Driver Company, Inc., Mann Frankfort Stein & Lipp,
P.C., The Reppond Company, Inc., Reppond Administrators, LLC, Verasource Excess
Risk Ltd., Berry, Dunn, McNeil & Parker, Chartered, Urbach Kahn & Werlin PC,
Self Funded Benefits, Inc. d/b/a Insurance Design Administrators, Grace &
Company, P.C., and Follmer Rudzewicz & Co., P.C. (which companies together with
the Seller are collectively referred to herein as the "Founding Companies"),
which agreements provide for the merger of a wholly-owned subsidiary of
Centerprise with each such Founding Company (the "Other Mergers") simultaneously
with the Merger; Centerprise has provided a side letter to each holder of equity
interests of the Seller to such effect;
<PAGE>
WHEREAS, the Voting Agreement, dated as of March 31, 1999, among
Centerprise and certain of the managers of the Seller has been terminated and is
and is no longer in force and effect;
WHEREAS, simultaneously with the consummation of the Merger, Centerprise
will close an initial public offering (the "IPO") of Centerprise Common Stock
(as defined in Section 2.1.1); and
WHEREAS, the parties intend the acquisition of Centerprise Common Stock
pursuant to the terms hereof to be tax-free under the provisions of Section 351
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in this
Agreement and in reliance upon the representations and warranties set forth
herein, the Company shall be merged with and into Mergersub, the result of which
will cause the separate corporate existence of the Company to cease and
Mergersub to continue under the laws of the State of Delaware. As promptly as
possible on the Closing Date, the parties shall cause the Merger to be completed
by filing certificates of merger (the "Merger Documents"), with the Secretary of
State of the State of Delaware, as provided in the Delaware Limited Liability
Company Act. The Merger shall become effective (the "Effective Time") upon the
filing of the Merger Documents with the Secretary of State of the State of
Delaware or at such later time, contemporaneously with the closing of the IPO,
as agreed by Centerprise and the Company and specified in the Merger Documents.
1.2 Effects of the Merger. At the Effective Time (i) the separate existence of
the Company shall cease and the Company shall be merged with and into Mergersub,
with Mergersub being the surviving company in the Merger (the Mergersub is
sometimes referred to herein as the "Surviving Company"), (ii) the Certificate
of Formation and Operating Agreement of the Mergersub shall survive and continue
as specified in the Merger Documents, (iii) the Merger shall have all the
effects provided by applicable law, and (iv) the Surviving Company shall be a
wholly-owned subsidiary of Centerprise.
<PAGE>
1.3 Managers and Officers of the Surviving Company. From and after the
Effective Time, the managers and officers of Mergersub shall be the managers and
officers of the Surviving Company until their successors are duly elected and
qualified.
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2.1 Merger Consideration.
2.2.1 Basic Purchase Consideration. At the Closing, by virtue of the Merger
and without any action on the part of the holders thereof, the outstanding
membership interests of the Company (collectively, the "Company Interests")
shall be converted into the right to receive: (a) that number of shares of
Centerprise common stock, par value $.01 per share (the "Centerprise Common
Stock ") shown on line T of Schedule 2.1; provided, however, that if the initial
public offering price of the Centerprise Common Stock is below $11.90 per share,
the number of shares of Centerprise Common Stock received at the Closing shall
be increased such that the value of the shares, using the actual public offering
price, equals the amounts shown on line U of Schedule 2.1 (the "Stock
Consideration") and (b) the amount of cash shown on line S of Schedule 2.1 (the
"Cash Consideration "). The sum of the Cash Consideration and the Stock
Consideration is herein referred to as "Basic Purchase Consideration."
2.1.2 Intentionally Omitted.
2.1.3 Intentionally Omitted.
2.1.4 Conversion of Company Interests. At the Effective Time, the Company
Interests shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into and become interests of the Surviving
Company. Such newly issued interests shall thereafter constitute all of the
issued and outstanding membership interests of the Surviving Company.
2.1.5 Exchange of Certificates. At the Closing, the Seller shall deliver to
Centerprise the original Company Interest certificates, if any, duly endorsed in
blank by the Seller or accompanied by blank assignments separate from
certificate or other applicable documents of conveyance satisfactory to
Centerprise, in exchange for the allocated share of (a) Centerprise Common Stock
certificates representing the Stock Consideration and (b) payment of the Cash
Consideration by certified check, cashier's check or wire transfer of
immediately available funds to a bank account or bank accounts in the amounts
and manner specified by the Member Representative in a writing delivered to
Centerprise at least three (3) business days prior to the Closing Date. The
interests represented by the Company Interest certificates (or other documents
of ownership, if any) so delivered to Centerprise shall be canceled. Until
<PAGE>
surrendered as contemplated by this Section 2.1.5, each certificate (or other
documents of ownership, if any) representing the Company Interests represents
only the right to receive Basic Purchase Consideration, as adjusted in
accordance with this Article II.
2.2 Post-Closing Adjustments to Basic Purchase Consideration.
2.2.1 Adjustments for Net Working Capital Shortfall/Excess. The Basic
Purchase Consideration shall be (a) reduced dollar-for-dollar to the
extent Net Working Capital on the Closing Date is less than the Target or
(b) increased dollar-for-dollar to the extent Net Working Capital on the
Closing Date is greater than the Target.
2.2.2 Preliminary Balance Sheet and Adjustment. At or about the Closing,
the Company will prepare, and the firm of PricewaterhouseCoopers LLP (the
"Centerprise Accountants") will review, a balance sheet of the Company, as
of the Closing Date, in accordance with GAAP and consistent with the
accounting policies and practices used in connection with the preparation
of the Financial Statements (the "Closing Balance Sheet") along with a
preliminary calculation of any excess or shortfall of Net Working Capital
as compared to the Target.
2.2.3 Interim Adjustment. As soon as practicable, the Company will prepare
and deliver to Centerprise a revised calculation of Net Working Capital
reflecting all collections of AR up to the date 90 days from the Closing
Date. Within 10 days of receipt of such calculation, Centerprise will
deliver to the Member Representative a written report indicating the
amount and nature of any adjustment to the Basic Purchase Consideration
determined in accordance with Section 2.2.1 (the "Interim Adjustment").
2.2.4 Final Adjustment. As soon as practicable, the Company will prepare
and deliver to Centerprise a final calculation of Net Working Capital
revised to reflect all collections of AR up to the date 180 days from the
Closing Date. Centerprise will review such calculation and any records,
work papers and other documents related thereto. Within 10 days of receipt
of such calculation, Centerprise will deliver to the Member Representative
a written report indicating the amount and nature of any adjustment to the
Basic Purchase Consideration determined in accordance with Section 2.2.1
(the "Final Adjustment").
2.2.5 Disputes. The parties hereto shall not object to the Interim
Adjustment which shall be binding on the parties hereto, and shall
withhold all objections until delivery of the Final Adjustment report. If
the Member Representative does not object (or otherwise respond) in
writing to the Final Adjustment report within 30 days after its delivery,
the Final Adjustment shall automatically become final, binding and
conclusive on all parties hereto. Any objection to the Final Adjustment
report shall be in writing and shall specify the item or items in dispute
(each a "Disputed Item").
<PAGE>
If the Member Representative and Centerprise are unable to resolve
any Disputed Item within 30 days after notice from the Member
Representative that a dispute exists (the "Resolution Period"), then a
representative from the office of a nationally recognized accounting firm
chosen by the Member Representative and Centerprise (the "Arbitrator") will
arbitrate the dispute. The Member Representative and Centerprise shall,
within 20 days after expiration of the Resolution Period, present their
respective positions with respect to any Disputed Item to the Arbitrator
together with such materials as the Arbitrator deems appropriate. To the
extent any Disputed Item is similar to a disputed item under the Other
Agreements, the Arbitrator shall arbitrate the Disputed Item based on the
submitted materials and without regard to the disputed item under the Other
Agreements. The Arbitrator shall, after the submission of the materials,
submit a written decision on each Disputed Item to the Member
Representative and Centerprise and such determination shall be final and
binding on the parties hereto. The arbitration shall be conducted in
Chicago, Illinois. The parties hereto agree that the cost of the Arbitrator
shall be borne by the non-prevailing party or as determined by the
Arbitrator.
2.2.6 Payment of Adjustments. In the event Net Working Capital is less
than the Target, the Seller's members shall pay the amount of the shortfall
to Centerprise. In the event Net Working Capital is greater than the
Target, Centerprise shall pay the amount of the excess to the Seller's
members. Any payment required to be made pursuant to this paragraph shall
be made, within ten days of delivery of the report indicating any
adjustment, by wire transfer of immediately available funds to an account
designated in writing by the party that is to receive payment of such
adjustment. In respect of the Final Adjustment, the party making a payment
required by such adjustment shall make such payment within ten days after
the Final Adjustment becomes final and shall receive credit for or return
of any amount previously paid in connection with the Interim Adjustment.
2.3 Post-Closing Management of AR. Following the Closing, the billing,
servicing, administering and collection of the AR shall be conducted by the
Company. The Company shall take all such actions as may be necessary or
advisable to collect the AR in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in accordance with the
Company's credit and collection policy in effect at Closing. The Company may
modify, adjust or write-off AR from time to time in accordance with the
Company's credit and collection policy in effect at Closing. Unless otherwise
required by contract or law, payments by an obligor in respect of services
rendered or expenses advanced by the Company shall be applied as follows: in the
event any such payment specifically references the invoice being paid or clearly
relates to an outstanding invoice, the payment will be applied to the
corresponding invoice; and, in any other case, the payment will be applied to
satisfy AR relating to such obligor in the order that such AR arose. Any
adjustment, modification or write-off affecting AR and fees and expenses
receivable and unbilled fees and expenses of the Company incurred after Closing
with respect to the same client engagement shall be allocated ratably to the
pre-Closing and post-Closing periods.
<PAGE>
2.4 Assignment of Uncollected AR. If any AR remain uncollected by the Company
as of 180 days after the Closing Date, the Company will assign the uncollected
AR to the Seller's members. Notwithstanding the foregoing, the Company will
retain the sole right to service, administer and collect the uncollected AR in
accordance with Section 2.3.
2.5 Definitions. For purposes of this Agreement, the following terms shall
have the following meanings:
(a) "AR" means any fees and expenses receivable and unbilled fees
and expenses of the Company on the Closing Date.
(b) "Net Working Capital" means an amount determined as of the
Closing Date, whenever calculated, equal to the difference between: (i) the
sum of any AR, prepaid expenses and other current assets less (ii) the sum
of accounts payable, accrued current liabilities, the items listed on
Schedule 2.5, the Tax Accrual and the portion of employer-paid FICA
attributable to Medicare, payable in connection with deferred compensation
and the Special Bonus Plan. For purposes of this Section 2.5(b), the
Special Bonus Plan accrual shall not constitute a current liability.
(c) "Special Bonus Plan" means the Seller's Special Bonus Plan.
(d) "Target" means an amount equal to 1% of the Company's net
revenues for the four quarter period ending on the last day of the calendar
quarter prior to Closing.
(e) "Tax Accrual" means an amount equal to the product of (i) Net
Working Capital (calculated before deduction of the Tax Accrual) less an
amount equal to any tax deductions realized by Centerprise as a result of
any payments pursuant to the Special Bonus Plan and (ii) the sum of 34%
plus the effective state tax rate on the Company (net of any federal tax
benefit). A negative Tax Accrual shall be treated as a current asset for
purposes of Section 2.5(b)(i).
ARTICLE III
THE CLOSING AND CONSUMMATION DATE
The consummation of the Merger and the other transactions contemplated by
this Agreement (the "Closing ") shall take place at the offices of Katten Muchin
& Zavis, Chicago, Illinois, contemporaneously with the closing of the IPO, or at
such other time and date as the parties hereto may mutually agree (the "Closing
Date ").
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to Centerprise, as of March 31, 1999
and, subject to Section 7.3, as of the date on which Centerprise and the lead
Underwriter (as defined in Section 8.1.1) execute and deliver the Underwriting
Agreement related to the IPO and as of the Closing Date, as follows (provided,
however, that all representations and warranties with respect to the Company
shall be as of the Closing Date):
4.1 Organization and Qualification. The Seller is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Connecticut. The Company is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Company Interests are free and clear of all Liens, and the Seller has good
and marketable title to such Company Interests. Each Company Subsidiary (as
defined in Section 4.2) is duly organized, validly existing and in good standing
under the laws of the state of its organization set forth on Schedule 4.2. Each
of the Company and the Company Subsidiaries has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted, and is qualified to do business and
is in good standing in each jurisdiction in which the properties owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary. True, accurate and complete copies of the Seller's and
each Company Subsidiary's Organizational Documents, in each case as in effect on
March 31, 1999 have heretofore been delivered to Centerprise. "Organizational
Documents" means (a) the articles or certificate of incorporation and the bylaws
of a corporation (professional or otherwise), (b) the partnership agreement and
any statement of partnership of a general partnership, (c) the limited
partnership agreement and the certificate of limited partnership of any limited
partnership, (d) the operating or limited liability company agreement and
certificate of formation of any limited liability company, (e) any charter or
similar document adopted and filed in connection with the creation, formation,
organization or governance (as applicable) of any Person and (f) any amendment
to any of the foregoing.
4.2 Company Subsidiaries. Schedule 4.2 sets forth the name (including any
assumed names), jurisdiction of organization and ownership of the issued and
outstanding equity interests of each Person in which the Seller or the Company
owns, directly or indirectly, securities or other interests having the power to
elect a majority of such Person's board of directors or similar governing body,
or otherwise having the power to direct the business and policies of such Person
(each a "Company Subsidiary" and collectively, the "Company Subsidiaries").
Except as set forth on Schedule 4.2, the Seller or the Company does not,
directly or indirectly, own, of record or beneficially, or control any capital
stock, securities convertible into capital stock or any other equity interest in
any Person.
<PAGE>
4.3 Authority; Non-Contravention; Approvals.
4.3.1 The Seller has full right, power and authority to enter into this
Agreement and, subject to the approval of the Merger and the transactions
contemplated hereby by the Seller's managers and members, to consummate the
transactions contemplated hereby. The execution, delivery and performance
of this Agreement by the Seller have been duly authorized by all necessary
corporate action on the part of the Company and the Seller, subject to the
approval of the Merger and the transactions contemplated hereby by the
Seller's managers and members. This Agreement has been duly executed and
delivered by the Seller, and, assuming the due authorization, execution and
delivery hereof by Centerprise, constitutes a valid and legally binding
agreement of the Seller, enforceable against the Seller in accordance with
its terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
4.3.2 The execution and delivery of this Agreement by the Seller does not
violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any claim,
lien, privilege, mortgage, charge, hypothecation, assessment, security
interest, pledge or other encumbrance, conditional sales contract, equity
charge, restriction, or adverse claim of interest of any kind or nature
whatsoever (each a "Lien" and collectively, the "Liens"), upon any of the
properties or assets of the Seller, the Company or any Company Subsidiary
under, any of the terms, conditions or provisions of (i) the Organizational
Documents of the Seller, the Company or any Company Subsidiary, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or federal, state,
provincial, local or foreign government, or any subdivision, agency or
authority of any thereof ("Governmental Authority ") applicable to the
Seller, the Company, any Company Subsidiary, or the Business, properties or
assets of the Seller, the Company or any Company Subsidiary, except for
those items discussed in (ii) above relating to regulating, licensing or
permitting the practice of public accountancy, or (iii) any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which the Seller, the Company or any Company Subsidiary is a party or by
which the Seller, the Company, any Company Subsidiary or any of the
properties or assets of the Seller, the Company or any Company Subsidiary
may be bound or affected. The consummation by the Seller and the Company of
the transactions contemplated hereby will not result in a violation,
conflict, breach, right of termination, creation or acceleration of Liens
under the terms, conditions or provisions of the items described in clauses
(i) through (iii) of the immediately preceding sentence, subject in the
case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Closing Date) such consents
required from
<PAGE>
third parties set forth on Schedule 4.3.2 and except for those items
described in (ii) and (iii) above, relating to regulating, licensing or
permitting the practice of public accountancy and any filing which may be
required under the HSR Act.
4.3.3 Except for (i) the declaration of effectiveness of a registration
statement on Form S-1 (the "Form S-1") and a post-effective amendment to
the registration statement on Form S-4 (the "Form S-4") (Form S-1 and Form
S-4 are collectively the "Registration Statements") with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Act of 1933, as
amended (the "Securities Act" or the "1933 Act"), and filings, if required,
with various state securities or "blue sky" authorities, (ii) any filing
which may be required under the Hart-Scott-Rodino Antitrust Improvement Act
of 1976, as amended (the "HSR Act"), and (iii) any filing which may be
required by any Governmental Authority or self-regulatory organization
regulating, licensing or permitting the practice of public accountancy, no
declaration, filing or registration with, notice to, or authorization,
consent or approval of, any Governmental Authority is necessary for the
execution and delivery of this Agreement by the Seller or the consummation
by the Seller of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not,
individually or in the aggregate, have a "Company Material Adverse Effect,"
which, for purposes of this Agreement means a material adverse effect on
the operations, assets, condition (financial or other), operating results,
employee or client relations, or prospects of the Seller, the Company or
any Company Subsidiary.
4.4 Capitalization.
4.4.1 The equity ownership of the Seller and the Company as of March 31,
1999 is truly and accurately set forth on Schedule 4.4 hereto. The
authorized capital stock (or other equity ownership interests) of each of
the Company Subsidiaries, if any, and the number of such shares (or other
equity ownership interests) issued and outstanding is completely and
accurately set forth in Schedule 4.4. All of the membership interests of
the Seller, the Company, and such Company Subsidiary's issued and
outstanding shares (or other equity ownership interests), are validly
issued and are fully paid, nonassessable and free of preemptive rights. The
Seller's members own beneficially and of record all of the membership
interests of the Seller (the "Seller Interests") as set forth in Schedule
4.4, which interests constitute all of the outstanding membership interests
of the Seller. The Seller is the sole member of the Company and owns
beneficially and of record all of the membership interests of the Company
as set forth on Schedule 4.4, which interests constitute all of the
outstanding membership interests of the Company. The Seller or the Company,
as applicable, owns all shares (or other equity ownership interests) of the
Company Subsidiaries as indicated on Schedule 4.4, in each case free and
clear of all Liens, and the Seller or the Company, as applicable, has good
and marketable title to such shares (or other equity ownership interests)
of the Company Subsidiaries. All of such issued and outstanding shares (or
other equity
<PAGE>
ownership interests) are validly issued, fully paid, nonassessable and free
of preemptive rights. Upon the delivery of and payment for the Company
Interests at the Closing as provided in this Agreement, Centerprise will
acquire good and valid title to such Company Interests, free and clear of
any Lien other than any Lien created by Centerprise.
4.4.2 Except as set forth on Schedule 4.4 or in connection with the
Conversion, there are no outstanding subscriptions, options, calls,
contracts, commitments, undertakings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement to issue, deliver or
sell, or cause to be issued, delivered or sold, additional membership
interests (or other equity ownership interests) of the Seller or the
Company or equity interests of any Company Subsidiary or obligating the
Seller or the Company or any Company Subsidiary to grant, extend or enter
into any such agreement or commitment or obligating the Seller or the
Company or any Company Subsidiary to convey or transfer any membership
interests in the Company or Company Subsidiary stock (or other equity
ownership interests), as the case may be. As of the Closing Date, there
will be no voting trusts, proxies or other agreements or understandings to
which the Seller or the Company or any Company Subsidiary is a party or is
bound with respect to the voting of any shares of capital stock or other
equity interests of the Seller, the Company or any Company Subsidiary.
4.5 Year 2000. To the Knowledge of the Seller, all of the computer software,
computer firmware, computer hardware (whether general or special purpose), and
other similar or related items of automated, computerized, and/or software
system(s) that are used or relied on by the Seller, the Company or any Company
Subsidiary in the conduct of the Business will not malfunction, will not cease
to function, will not generate incorrect data, and will not produce incorrect
results when processing, providing, and/or receiving (i) date-related data into
and between the twentieth (20th) and twenty-first (21st) centuries and (ii)
date-related data in connection with any valid date in the twentieth (20th) and
twenty-first (21st) centuries, except for any malfunctions or generations of
incorrect data or results that would not individually or in the aggregate have a
Company Material Adverse Effect. Nothing in this Section 4.5 is intended or
shall be construed as a representation or warranty with respect to embedded
systems.
4.6 Financial Statements. The Seller has previously furnished to Centerprise
copies of the audited consolidated balance sheet of the Seller as of December 31
in each of the years 1997 and 1998 (the "Latest Balance Sheet"), and the related
audited consolidated statements of income, members' equity and cash flow for
each of the years in the three (3) year period ended December 31, 1998,
including all notes thereto (collectively, the "Financial Statements"). Each of
the Financial Statements is accurate and complete in all material respects, is
consistent with the books and records of the Seller and the Company Subsidiaries
(which, in turn, are accurate and complete in all material respects), and fairly
presents in all material respects the financial condition, assets and
liabilities of the Seller and the Company Subsidiaries as of its
<PAGE>
date and the results of operations and cash flows for the periods related
thereto, in each case in accordance with generally accepted accounting
principles, applied on a consistent basis ("GAAP").
4.7 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
4.7, neither the Seller, the Company nor any Company Subsidiary had, as of the
date of the Latest Balance Sheet, nor has it incurred since that date, any
liabilities or obligations of any nature (whether known or unknown, absolute,
contingent, accrued, direct, indirect, perfected, inchoate, unliquidated or
otherwise), except (i) to the extent clearly and accurately reflected or accrued
or fully reserved against in the Financial Statements or (ii) liabilities and
obligations which have arisen after the date of the Latest Balance Sheet in the
ordinary course of business and consistent with past custom and practices (none
of which is a liability resulting from a breach of contract, breach of warranty,
tort, infringement claim, legal violation or lawsuit).
4.8 Unbilled Fees and Expenses. At the Closing, all unbilled fees and expenses
at net realizable value reflected in the records of the Company and the Company
Subsidiaries arose in the ordinary course of business and will be billable in
the ordinary course of business using normal billing practices and adjustments
employed as of the date of this Agreement by the Company and each Company
Subsidiary. Upon such billing any such amounts will be collectible in the
ordinary course of business using normal collection practices and policies
employed by the Company and each Company Subsidiary (net of any allowance for
doubtful accounts determined in accordance with the Seller's and the Company
Subsidiaries' past practice and custom).
4.9 Absence of Certain Changes or Events. Except as set forth on Schedule 4.9,
since the date of the Latest Balance Sheet, each of the Seller, the Company and
the Company Subsidiaries has conducted its business only in the ordinary course
consistent with past custom and practices. Except as set forth on Schedule 4.9
(setting forth, without limitation, payments of accounts receivable to Seller's
members and employees of the Company or Seller as bonus compensation or
otherwise), since the date of the Latest Balance Sheet, there has not been any:
(a) material adverse change in the operations, condition (financial or
otherwise), operating results, assets, liabilities, employee or client
relations or prospects of the Seller, the Company or any Company
Subsidiary;
(b) damage, destruction or loss of any property owned by the Seller, the
Company or any Company Subsidiary, or used in the operation of the
Business, whether or not covered by insurance, having a replacement cost or
fair market value in excess of five percent (5%) of the amount of net
property, plant and equipment shown on the Latest Balance Sheet, in the
aggregate;
(c) voluntary or involuntary sale, transfer, surrender, cancellation,
abandonment, waiver, release or other disposition of any kind by the
Seller, the Company or any Company Subsidiary of any right, power, claim,
or debt, except the collection of
<PAGE>
accounts and billing of work-in-process, each in the ordinary course of
business consistent with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union organizational
activity, allegation, charge or complaint of employment discrimination or
other labor dispute or similar occurrence that is reasonably expected to
adversely affect the Seller, the Company, a Company Subsidiary or the
Business;
(e) loan or advance by the Seller, the Company or any Company Subsidiary to
any Person, other than as a result of services performed for, or expenses
properly and reasonably advanced for the benefit of, customers in the
ordinary course of business consistent with past custom and practices;
(f) notice (formal or otherwise) of any liability, potential liability or
claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or other
distribution in respect of the Seller's or the Company's capital stock or
other equity interests or any direct or indirect redemption, purchase, or
other acquisition of the Seller's or the Company's or any Company
Subsidiary's capital stock or other equity interests, or the payment of
principal or interest on any note, bond, debt instrument or debt to any
Affiliate (as defined in Section 15.4) of the Seller, the Company or any
Company Subsidiary, except bonuses and distributions to employees and
members of the Seller disclosed to Centerprise in writing that are
consistent with the Seller's past custom and practices or as otherwise
contemplated by this Agreement;
(h) incurrence by the Seller, the Company or any Company Subsidiary of
debts, liabilities or obligations except current liabilities incurred in
connection with or for services rendered or goods supplied in the ordinary
course of business consistent with past custom and practices, liabilities
on account of taxes and governmental charges (but not penalties, interest
or fines in respect thereof), and obligations or liabilities incurred by
virtue of the execution of this Agreement;
(i) issuance by the Seller, the Company or any Company Subsidiary of any
notes, bonds, or other debt securities or any equity securities or
securities convertible into or exchangeable for any equity securities;
(j) entry by the Seller, the Company or any Company Subsidiary into, or
amendment or termination of, any material commitment, contract, agreement,
or transaction, other than in the ordinary course of business and other
than expiration of contracts in accordance with their terms;
(k) loss or threatened loss of, or any material reduction or threatened
material reduction in revenues from, any client of the Seller, the Company
or any Company
<PAGE>
Subsidiary that accounted for revenues during the last twelve months in
excess of one percent (1%) of the consolidated net revenues of the Seller,
the Company and the Company Subsidiaries, or change in the relationship of
the Seller, the Company or any Company Subsidiary with any client or
Governmental Authority that is reasonably expected to adversely affect the
Seller, the Company, any Company Subsidiary or the Business;
(l) change in accounting principles, methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) utilized by the Seller, the Company or any Company Subsidiary;
(m) discharge or satisfaction by the Seller, the Company or any Company
Subsidiary of any material liability or encumbrance or payment by the
Seller, the Company or any Company Subsidiary of any material obligation or
liability, other than current liabilities paid in the ordinary course of
its business consistent with past custom and practices;
(n) sale, lease or other disposition by the Seller, the Company or any
Company Subsidiary of any tangible assets (having an aggregate replacement
cost or fair market value in excess of five percent (5%) of the amount of
net property, plant and equipment shown on the Latest Balance Sheet) other
than in the ordinary course of business, or the sale, assignment or
transfer by the Seller, the Company or any Company Subsidiary of any
trademarks, service marks, trade names, corporate names, copyright
registrations, trade secrets or other intangible assets, or disclosure of
any proprietary confidential information of the Seller, the Company or any
Company Subsidiary to any Person other than an employee, agent, attorney,
accountant or other representative of the Seller or the Company that has
agreed to maintain the confidentiality of any such proprietary confidential
information;
(o) capital expenditures or commitments therefor by the Seller, the Company
or any Company Subsidiary in excess of $50,000 individually or $100,000 in
the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the Seller, the
Company or any Company Subsidiary or creation of any easements, Liens or
other interests against or on any of the Real Property (as defined in
Section 4.14.1);
(q) adoption, amendment or termination of any Employee Plan (as defined in
Section 4.17.5(a)) or increase in the benefits provided under any Employee
Plan, or promise or commitment to undertake any of the foregoing in the
future; or
(r) an occurrence or event not included in clauses (a) through (q) that has
resulted or, based on information of which the Seller or the Company has
Knowledge, is reasonably expected to result in a Company Material Adverse
Effect.
<PAGE>
4.10 Litigation. Except as set forth on Schedule 4.10 (which shall disclose
the parties to, nature of and relief sought for each matter to be disclosed on
Schedule 4.10):
4.10.1 There is no suit, action, proceeding, investigation, claim or order
pending or, to the Knowledge of the Seller, threatened against the Seller,
the Company or any Company Subsidiary, or with respect to the Merger, or
with respect to any Employee Plan, or any fiduciary of any such plan (or
pending or, to the Knowledge of the Seller, threatened against any of the
officers, directors, stockholders, members, partners or employees of the
Seller, the Company or any Company Subsidiary with respect to its business
or proposed business activities), or to which the Seller, the Company or
any Company Subsidiary is otherwise a party, or that is reasonably expected
to have a Company Material Adverse Effect, before any court, or before any
Governmental Authority (each an "Action" and collectively, the "Actions");
nor, to the Knowledge of the Seller, is there any basis for any such
Action.
4.10.2 Neither the Seller, the Company nor any Company Subsidiary is
subject to any unsatisfied or continuing judgment, order or decree of any
court or Governmental Authority. Neither the Company nor any Company
Subsidiary, to the Seller's Knowledge, is otherwise exposed, from a legal
standpoint, to any liability or disadvantage that is reasonably expected to
result in a Company Material Adverse Effect, and neither the Seller, the
Company nor any Company Subsidiary is a party to any legal action to
recover monies due it or for damages sustained by it, other than collection
of past due charges for services rendered or expenses incurred by the
Seller or the Company.
4.10.3 Schedule 4.10 lists the insurer for each Action covered by insurance
or designates such Action, or a portion of such Action, as uninsured and
lists the individual and aggregate policy limits for the insurance covering
each insured Action and the applicable policy deductibles for each insured
Action.
4.10.4 Schedule 4.10 sets forth all material closed litigation matters to
which the Company or any Company Subsidiary was a party during the five (5)
year period preceding the Closing Date, the date such litigation was
commenced and concluded, and the nature of the resolution thereof
(including amounts paid in settlement or judgment).
4.11 Compliance with Applicable Laws. Except as set forth on Schedules
4.11 and 4.19, each of the Seller, the Company and the Company Subsidiaries has
complied in all material respects with all laws, rules, regulations, writs,
injunctions, decrees, and orders (collectively, the "Laws") applicable to it or
to the operation of the Business, and neither the Seller, the Company nor any
Company Subsidiary has received any notice of any alleged claim or threatened
claim, violation of or liability or potential responsibility under any such Law
which has not heretofore been cured and for which there is no remaining
liability and, to the Knowledge of the Seller, no event has occurred or
circumstances exist that (with or without notice or lapse of time) is reasonably
expected to constitute or result in a violation by the
<PAGE>
Seller, the Company or any Company Subsidiary of any Law that gives rise to any
liability on the part of the Seller, the Company or any Company Subsidiary under
any Law.
4.12 Licenses. Schedule 4.12 lists all Licenses used by the Seller, the
Company and the Company Subsidiaries that are material to the conduct of the
Business. "Licenses" means all notifications, licenses, permits, franchises,
certificates, approvals, exemptions, classifications, registrations and other
similar documents and authorizations, and applications therefor, held by the
Company or any Company Subsidiary and issued by, or submitted by the Seller, the
Company or any Company Subsidiary to, any Governmental Authority or other
Person, other than those relating to the practice of public accountancy.
Section B of Schedule 4.12 lists all licenses, certificates, approvals,
registrations and other similar documents and authorizations, and applications
therefor, relating to the practice of public accountancy (the "Accounting
Licenses") held by the Seller, the Company or a Company Subsidiary and issued
by, or submitted by the Seller, the Company or any Company Subsidiary to, any
Governmental Authority or other Person. All such Licenses and Accounting
Licenses are valid, binding and in full force and effect. Except as described
on Schedule 4.12, the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not adversely
affect any such Licenses. To the Knowledge of the Seller, the Seller, the
Company and the Company Subsidiaries have taken all necessary action to maintain
such Licenses. Except as set forth on Schedule 4.12, no loss or expiration of
any such License is pending or, to the Seller's Knowledge, threatened or
reasonably foreseeable.
4.13 Material Contracts. Except as listed or described on Schedule 4.13 (such
contracts, or those which should have been listed on Schedule 4.13, are herein
referred to as the "Material Contracts"), as of or on the date hereof, neither
the Seller, the Company nor any Company Subsidiary is a party to or bound by,
any written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments (each a
"Contract" and collectively, the "Contracts") relating to or in any way
affecting the operation or ownership of the Business that are of a type
described below and no such agreements are currently in negotiation or proposed:
(a) any consulting agreement pursuant to which the Seller, the Company or a
Company Subsidiary is to receive consulting services (other than consulting
agreements that may be terminated by the Seller, Company or a Company
Subsidiary on not more than 30 days notice without penalty), employment
agreement, change-in-control agreement, or collective bargaining
arrangement with any labor union;
(b) any Contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $50,000;
(c) any Contract for the purchase, maintenance or acquisition, or the sale
or furnishing, of materials, supplies, merchandise, machinery, equipment,
parts or other property or services (except if such Contract is made in the
ordinary course of business and requires aggregate future payments of less
than $25,000);
<PAGE>
(d) any Contract, other than trade payables in the ordinary course of
business, relating to the borrowing of money, or the guaranty of another
Person's borrowing of money, including, without limitation, any notes,
mortgages, indentures and other obligations, guarantees of performance,
agreements and instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(e) any Contract granting any Person a Lien on all or any part of the
assets of the Seller, the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions in connection
with Hazardous Materials (as defined in Section 4.19), the remediation of
any existing environmental liabilities or relating to the performance of
any environmental audit or study;
(g) any Contract granting to any Person an option, first refusal, first-
offer or similar preferential right to purchase or acquire any material
assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative which is not
terminable by the Seller, the Company or a Company Subsidiary upon ninety
(90) calendar days or less notice without penalty;
(i) any Contract under which the Seller, the Company or any Company
Subsidiary is (A) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property, or (B) a lessor of any
tangible personal property owned by the Seller, the Company or any Company
Subsidiary, in either case having an original purchase price or requiring
aggregate lease payments in excess of $50,000;
(j) any Contract under which the Seller, the Company or any Company
Subsidiary has granted or received a license or sublicense or under which
it is obligated to pay or has the right to receive a royalty, license fee
or similar payment, in any case which provides for payments over the life
of such Contract in excess of $25,000;
(k) any Contract concerning an Affiliate Transaction (as defined in Section
4.21);
(l) any Contract providing for the indemnification or holding harmless of
any officer, director, employee or other Person;
(m) any Contract (A) for purchase or sale by the Seller, the Company or any
Company Subsidiary of any real property on which the Seller, the Company or
any Company Subsidiary conducts any aspect of the Business, (B) granting
any options to lease or purchase all or any portion of the Real Property,
or (C) providing for labor,
<PAGE>
services or materials to the Real Property (including, without limitation,
brokerage or management services) involving aggregate future payments of
more than $25,000;
(n) any Contract limiting, restricting or prohibiting the Seller, the
Company or any Company Subsidiary from conducting business anywhere in the
United States or elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to the Leased
Property (as defined in Section 4.14.1);
(q) any Contract requiring prior notice, consent or other approval upon a
change of control in the equity ownership of the Seller, the Company or any
Company Subsidiary, which, if amended, modified or terminated as a result
of, relating to or in connection with a failure to provide prior notice, or
gain such consent or approval, would result in a Company Material Adverse
Effect; or
(r) any other Contract, whether or not made in the ordinary course of
business, which involves future payments by the Seller, the Company or any
Company Subsidiary in excess of $25,000.
The Seller has provided Centerprise with a true and complete copy of each
written Material Contract and a true and complete summary of each oral Material
Contract, in each case including all amendments or other modifications thereto.
Except as set forth on Schedule 4.13, each Material Contract is a valid and
binding obligation of, and enforceable in accordance with its terms against, the
Seller, the Company or a Company Subsidiary, as applicable, and, to the
Knowledge of the Seller, the other parties thereto, and is in full force and
effect, subject only to bankruptcy, reorganization, receivership and other laws
affecting creditors' rights generally and equitable principles. Except as set
forth on Schedule 4.13, the Seller, the Company or one of the Company
Subsidiaries, as applicable, has performed in all material respects all
obligations required to be performed by it as of the date hereof and will have
performed in all material respects all obligations required to be performed by
it as of the Closing Date under each Material Contract and neither the Seller,
the Company nor any Company Subsidiary, as applicable, nor, to the Knowledge of
the Seller, any other party to any Material Contract is in breach or default
thereunder, and, to the Knowledge of the Seller, there exists no condition which
would, with or without the lapse of time or the giving of notice, or both,
constitute a breach or default thereunder. The Seller has not been notified
that any party to any Material Contract intends to cancel, terminate, not renew,
or exercise an option under any Material Contract, whether in connection with
the transactions contemplated hereby or otherwise.
<PAGE>
4.14 Properties.
4.14.1 Schedule 4.14.1-1 is a correct and complete list, and a brief
description of, all real estate in which the Seller, the Company or any of
the Company Subsidiaries has an ownership interest (the "Owned Property")
and all real property leased by the Seller and the Company (the "Leased
Property"). Except as lessee of Leased Property, neither the Seller, the
Company nor any Company Subsidiary is a lessee under or otherwise a party
to any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which another Person has granted to the
Seller, the Company or any Company Subsidiary the right to use or occupy
all or any portion of any real property.
The Seller, the Company or one or more of the Company Subsidiaries has
good and marketable fee simple title to the Owned Property and, assuming
good title in the landlord, a valid leasehold interest in the Leased
Property (the Owned Property and the Leased Property being sometimes
referred to herein as "Real Property"), in each case free and clear of all
Liens, assessments or restrictions (including, without limitation, inchoate
liens arising out of the provision of labor, services or materials to any
such real estate) other than (a) mortgages shown on the Financial
Statements as securing specified liabilities or obligations, with respect
to which no default (or event that, with notice or lapse of time or both,
would constitute a default) exists, (b) Liens for current taxes not yet
due, (c) (i) minor imperfections of title, including utility and access
easements depicted on subdivision plats for platted lots that do not impair
the intended use of the property, if any, none of which materially impairs
the current operations of the Seller, the Company, any Company Subsidiary
or the Business, and (ii) zoning laws and other land use restrictions or
restrictive covenants that do not materially impair the present use of the
property subject thereto and (d) Liens, assessments and restrictions
pursuant to and by virtue of the terms of the lease of the Leased Property.
The Real Property constitutes all real properties reflected on the
Financial Statements or used or occupied by the Seller, the Company or any
Company Subsidiary in connection with the Business or otherwise.
With respect to the Owned Property, except as reflected on Schedule
4.14.1-2(a):
(a) the Seller, the Company or one of the Company Subsidiaries is in
exclusive possession thereof and no easements, licenses or rights are
necessary to conduct the Business thereon in addition to those which exist
as of the date hereof;
(b) no portion thereof is subject to any pending condemnation proceeding
or proceeding by any public or quasi-public authority materially adverse to
the Owned Property and, to the Knowledge of the Seller, there is no
threatened condemnation or proceeding with respect thereto;
<PAGE>
(c) there is no violation of any covenant, condition, restriction,
easement or agreement of any Governmental Authority that affects the Owned
Property or the ownership, operation, use or occupancy thereof;
(d) no portion of any parcel of the Owned Property is subject to any roll-
back tax, dual or exempt valuation tax, and no portion of any Owned
Property is omitted from the appropriate tax rolls; and
(e) all assessments and taxes currently due and payable on such Owned
Property have been paid.
With respect to the Leased Property, except as reflected on Schedule
4.14.1-2(b):
(i) the Seller, the Company and/or one of the Company
Subsidiaries is in exclusive, peaceful and undisturbed possession thereof
and, to the Knowledge of the Seller, no easements, licenses or rights are
necessary to conduct the Business thereon in addition to those which exist
as of the date hereof; and
(ii) to the Knowledge of the Seller, no portion thereof is
subject to any pending condemnation proceeding or proceeding by any public
or quasi-public authority materially adverse to the Leased Property and
there is no threatened condemnation or proceeding with respect thereto.
4.14.2 The Latest Balance Sheet and/or Schedule 4.14.2 reflect all material
tangible personal property owned by the Seller or any Company Subsidiary,
except as sold or otherwise disposed of or acquired in the ordinary course
of business. Except as set forth on Schedule 4.14.2, the Seller, the
Company or one of the Company Subsidiaries has good and marketable title
to, or a valid leasehold interest in, or valid license of, such personal
property (including, without limitation, machinery, equipment and
computers), in each case free and clear of any Liens (other than Liens that
are part of such leasehold or license), and each such asset is in working
order and has been maintained in a commercially reasonable manner and does
not contain, to the Knowledge of the Seller, any material defect. Except as
set forth in Schedule 4.14.2, no personal property (including, without
limitation, software and databases maintained on off-premises computers)
used by the Seller, the Company or any Company Subsidiary in connection
with the Business is held under any lease, security agreement, conditional
sales contract or other title retention or security arrangement or is
located other than on the Real Property.
4.15 Intellectual Property. The (i) patents, patent applications, inventions
and discoveries that may be patentable (collectively, the "Patents"), (ii)
registered and unregistered trademarks, trade names, company names, assumed
business names and service marks (collectively, the "Marks"), (iii) copyrights
(the "Copyright"), and (iv) know how, trade secrets, confidential information,
client lists, software, technical information, data, process
<PAGE>
technology, plans and drawings (collectively, the "Trade Secrets") owned, used
or licensed by the Seller, the Company or any Company Subsidiary (collectively,
the "Intellectual Property") are all those necessary to enable the Seller, the
Company and the Company Subsidiaries to conduct and to continue to conduct the
Business substantially as it is currently conducted. Schedule 4.15 contains a
complete and accurate list of all material Patents, Marks and Copyrights and a
brief description of all material Trade Secrets owned, used by or directly
licensed to the Seller, the Company or any Company Subsidiary, and a list of all
material license agreements and arrangements with respect to any of the
Intellectual Property to which the Seller, the Company or any Company Subsidiary
is a party, whether as licensee, licensor or otherwise (collectively, the
"Intellectual Property Licenses"). Except as set forth on Schedule 4.15, (i)
all of the Intellectual Property is owned or, to the Knowledge of Seller, used
under a valid Intellectual Property License, by the Seller, the Company or one
of the Company Subsidiaries, and is free and clear of all Liens and other
adverse claims; (ii) neither the Seller, the Company nor any Company Subsidiary
has received any written notice that it is or has infringed on, misappropriated
or otherwise conflicted with, or otherwise has Knowledge that it is infringing
on, misappropriating, or otherwise conflicting with the intellectual property
rights of any third parties; (iii) there is no claim pending or, to the
Knowledge of Seller, threatened against the Seller, the Company or any Company
Subsidiary with respect to the alleged infringement or misappropriation by the
Seller, the Company or any Company Subsidiary, or a conflict with, any
intellectual property rights of others; (iv) the operation of any aspect of the
Business in the manner in which it has heretofore been operated or is presently
operated does not give rise to any such infringement or misappropriation; and
(v) there is no infringement or misappropriation of the Intellectual Property by
a third party or claim, pending or, to the Knowledge of the Seller, threatened,
against any third party with respect to the alleged infringement or
misappropriation of the Intellectual Property.
<PAGE>
4.16 Taxes.
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4.16.1 Except as set forth on Schedule 4.16.1-1, each of the Seller,
the Company and the Company Subsidiaries has timely and accurately prepared
and filed or been included in or will timely and accurately prepare and
file or be included in all federal, state, local and foreign returns,
declarations and reports, information returns and statements (collectively,
the "Returns") for Taxes (as defined in Section 4.16.2) required to be
filed by or with respect to the Company or the Company Subsidiaries before
the Closing Date, and has paid or caused to be paid, or has made adequate
provision or set up an adequate accrual or reserve for the payment of, all
Taxes required to be paid in respect of the periods for which Returns are
due on or prior to the Closing Date, and will establish an adequate accrual
or reserve for the payment of all Taxes payable in respect of the period,
including portions thereof, subsequent to the last of said periods required
to be so accrued or reserved, in each case in accordance with GAAP up to
and including the Closing Date. All such Returns are or will be true and
correct in all material respects. The Seller and the Company have delivered
to Centerprise true and complete copies of all Returns referred to in the
first sentence of this Section 4.16.1 (including any amendments thereof)
for the five (5) most recent taxable years. Neither the Company nor any
Company Subsidiary is delinquent in the payment of any Tax, and no material
deficiencies for any Tax, assessment or governmental charge have been
threatened, claimed, proposed or assessed, in each case in writing. No
waiver or extension of time to assess any Taxes has been given or
requested. No written claim, or any other claim, by any taxing authority in
any jurisdiction where the Seller, the Company or any Company Subsidiary
does not file Tax returns is pending pursuant to which the Seller, the
Company or Company Subsidiary, as applicable, is or may be subject to
taxation by that jurisdiction. The Seller's, the Company's and the Company
Subsidiaries' Returns were last audited by the Internal Revenue Service or
comparable state, local or foreign agencies on the dates set forth on
Schedule 4.16.1-2.
4.16.2 For purposes of this Agreement, the term "Taxes" shall mean all
taxes, charges, withholdings, fees, levies, penalties, additions, interest
or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, employment, withholding, social
security, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, windfall
profits, severance, customs, import, export, employment or similar taxes,
charges, fees, levies or other assessments, imposed by the United States,
or any state, local, foreign or provincial government or subdivision or any
agency thereof, whether computed on a separate, consolidated, unitary,
combined or any other basis.
4.17 Employee Benefit Plans; ERISA.
-----------------------------
4.17.1 Except as described in Schedule 4.17.1, neither the Seller, the
Company nor any Company Subsidiary has or is reasonably expected to have
any liability (including contingent liability) whether direct or indirect
(and regardless of whether it would be
<PAGE>
derived from a current or former Plan Affiliate, as defined in Section
4.17.5(c)) with respect to any of the following (whether written, unwritten
or terminated): (i) any employee welfare benefit plan, as defined in
Section 3(1) of ERISA (as defined in Section 4.17.5(b)), including, but not
limited to, any medical plan, life insurance plan, short-term or long-term
disability plan or dental plan; (ii) any "employee pension benefit plan,"
as defined in Section 3(2) of ERISA, including, but not limited to, any
excess benefit plan, top hat plan or deferred compensation plan or
arrangement, nonqualified retirement plan or arrangement, qualified defined
contribution or defined benefit arrangement; or (iii) any other benefit
plan, policy, program, arrangement or agreement, including, but not limited
to, any material fringe benefit plan or program, personnel policy, bonus or
incentive plan, stock option, restricted stock, stock bonus, holiday pay,
vacation pay, sick pay, bonus program, service award, moving expense,
reimbursement program, tool allowance, safety equipment allowance, deferred
bonus plan, salary reduction agreement, change-of-control agreement,
employment agreement or consulting agreement.
4.17.2 A complete copy of each written Employee Plan (as defined in
Section 4.17.5(a)) as amended to the Closing, together with audited
financial statements, if any, for the three (3) most recent plan years; a
copy of each trust agreement or other funding vehicle with respect to each
such plan; a copy of any and all determination letters, rulings or notices
issued by a Governmental Authority with respect to such plan; a copy of the
Form 5500 Annual Report for the three (3) most recent plan years; and a
copy of each and any general explanation or communication which was
required to be distributed or otherwise provided to participants in such
plan and which describes all or any relevant aspect of each plan, including
summary plan descriptions and/or summary of material modifications, have
been delivered to Centerprise. A description of each unwritten Employee
Plan, including a description of eligibility, participation, benefits,
funding arrangements and assets or other relevant aspects of the
obligation, is set forth in Schedule 4.17.2.
4.17.3 Except as is not reasonably expected to give rise to any
liability (including contingent liability), whether direct or indirect, to
the Seller, the Company or any Company Subsidiary, each Employee Plan (i)
has been and is operated and administered in compliance with its terms;
(ii) has been and is operated, administered, maintained and funded in
compliance with the applicable requirements of the Code in such a manner as
to qualify, where appropriate and intended, for both Federal and state
purposes, for income tax exclusions, tax-exempt status, and the allowance
of deductions and credits with respect to contributions thereto; (iii)
where appropriate, has received a favorable determination letter from the
Internal Revenue Service upon which the sponsor of the plan may currently
rely; (iv) has been and currently complies in form and in operation in all
respects with all applicable requirements of ERISA and the Code and any
applicable reporting and disclosure requirements of Federal and state laws,
including but not limited to the requirement of Part 6 of subtitle B of
Title I of ERISA and Section 4980B of the Code. With respect to each
Employee Plan, no Person has:
<PAGE>
(i) entered into any nonexempt "prohibited transaction," as such terms are
defined in ERISA or the Code; (ii) breached a fiduciary obligation or (iii)
any liability for any failure to act or comply in connection with the
administration or investment of the assets of such plan; and no Employee
Plan has any liability and there is no liability in connection with any
Employee Plan, other than a liability (i) which is expressly and adequately
reflected in the Latest Balance Sheets, (ii) which is discretionary or
terminable at will by the Seller, the Company or one of the Company
Subsidiaries without incurring any such liability, or (iii) which is
adequately funded under a funding arrangement separate from the assets of
the Seller, the Company, any Company Subsidiary or a Plan Affiliate (and
only to the extent of such funding). Any contribution made or accrued with
respect to any Employee Plan is fully deductible by the Seller, the
Company, a Company Subsidiary or a Plan Affiliate.
4.17.4 Neither the Seller, the Company nor any Company Subsidiary or
Plan Affiliate has ever sponsored, maintained, contributed to or been
required to contribute to, or has any liability, whether direct or indirect,
with respect to any Employee Plan which is or has ever been (i) a
"multiemployer plan" as defined in Section 4001 of ERISA, (ii) a
"multiemployer plan" within the meaning of Section 3(37) of ERISA, (iii) a
"multiple employer plan" within the meaning of Code Section 413(c), (iv) a
"multiple employer welfare arrangement" within the meaning of Section 3(40)
of ERISA, (v) subject to the funding requirements of Section 412 of the Code
or to Title IV of ERISA, or (vi) provides for post-retirement medical, life
insurance or other welfare-type benefits.
4.17.5 As used in this Agreement, the following terms shall have the
following respective meanings:
(a) the term "Employee Plan" shall mean any plan, policy,
program, arrangement or agreement described in Section 4.17.1, whether or
not scheduled;
(b) the term "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended; and
(c) with respect to any Person ("First Person"), the term
"Plan Affiliate" shall mean any other Person with whom the First Person
constitutes or has constituted all or part of a controlled group, or which
would be treated or have been treated with the First Person as under common
control or whose employees would be or have been treated as employed by the
First Person, under Section 414 of the Code or Section 4001(b) of ERISA and
any regulations, administrative rulings and case law interpreting the
foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no, and
within the last three (3) years neither the Seller, the Company nor any Company
Subsidiary has experienced any, strike, picketing, boycott, work stoppage or
slowdown or other similar labor dispute,
<PAGE>
union organizational activity, allegation, charge or complaint of unfair labor
practice, employment discrimination or other matters relating to the employment
of labor pending or, to the Knowledge of the Seller, threatened against the
Seller, the Company or any Company Subsidiary, or that is reasonably expected to
affect the Seller, the Company or any Company Subsidiary; nor, to the Knowledge
of the Seller, is there any basis for any such allegation, charge, or complaint.
There is no request for representation pending and, to the Knowledge of the
Seller, no question concerning representation has been raised. There is no
grievance pending that is reasonably expected to result in a Company Material
Adverse Effect nor any arbitration proceeding arising out of a union agreement.
To the Knowledge of the Seller, no employee who is key to the Business and no
group of employees has announced or otherwise indicated any plans to terminate
employment with the Seller, the Company or any Company Subsidiary. Each of the
Seller, the Company and any Company Subsidiary has complied with all applicable
laws relating to the employment of labor, including provisions thereof relating
to wages, hours, equal opportunity, collective bargaining and the payment of
social security and other taxes. Neither the Seller, the Company nor any Company
Subsidiary is liable for any arrears of wages or any taxes or penalties for
failure to comply with any such laws, ordinances or regulations.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19, (i)
each of the Seller, Company and the Company Subsidiaries is operating and has
operated its business in compliance with all applicable Environmental and Safety
Requirements (as defined later in this Section); (ii) to the actual knowledge of
the managers of the Seller, without any duty to inquire (notwithstanding the
definition of "Knowledge" in Section 15.4), there are no Hazardous Materials (as
defined later in this Section) present at, on or under any real property
currently or formerly owned, leased or used by the Seller, the Company or
Company Subsidiary (other than those present in office supplies and
cleaning/maintenance materials) for which the Seller, the Company or a Company
Subsidiary is or is reasonably expected to be responsible, or otherwise have any
liability, for response costs under any Environmental and Safety Requirements;
(iii) each of the Seller, the Company and the Company Subsidiaries has disposed
of all waste materials generated by the Seller, the Company or such Company
Subsidiary at any real property currently or formerly owned, leased or used by
the Seller, the Company or Company Subsidiary in compliance with applicable
Environmental and Safety Requirements; and (iv) there are and have been no
facts, events, occurrences or conditions at or related to any real property
currently or formerly owned, leased or used by the Seller, the Company or
Company Subsidiary that is reasonably expected to cause or give rise to
liabilities or response obligations of the Seller, the Company or any Company
Subsidiary under any Environmental and Safety Requirements. The term
"Environmental and Safety Requirements" means any federal, state and local
laws, statutes, regulations or other requirements relating to the protection,
preservation or conservation of the environment or worker health and safety, all
as amended or reauthorized. The term "Hazardous Materials" means "hazardous
substances," as defined by the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq., "hazardous wastes,"
as defined by the Resource Conservation Recovery Act, 42 U.S.C. (S) 6901 et
seq., asbestos in any form or condition, polychlorinated biphenyls and any other
material, substance or waste to which
<PAGE>
liability or standards of conduct may be imposed under any Environmental and
Safety Requirement.
4.20 Insurance. Each of the Seller, the Company and the Company Subsidiaries
has in full force and effect commercially reasonable amounts of insurance to
protect the Seller's the Company's and Company Subsidiaries' ownership or
interest in, and operation of, its assets against the types of liabilities,
including professional malpractice, customarily insured against in connection
with operations similar to the Business, and all premiums due on such policies
have been paid. To the Seller's Knowledge, each of the Seller, the Company and
the Company Subsidiaries has complied with the provisions of all such policies
and is not in default under any of such policies. Schedule 4.20 contains a
complete and correct list of all such insurance policies. Neither the Company
nor any Company Subsidiary has received any notice of cancellation or intent to
cancel or increase premiums with respect to such insurance policies. Schedule
4.20 also contains a list of all claims or asserted claims reported to insurers
under such policies relating to the ownership or interest in the Seller's, the
Company's and the Company Subsidiaries' assets, or operation of the Business,
including all professional malpractice claims and similar types of claims,
actions or proceedings asserted against the Seller, the Company or any Company
Subsidiary arising out of the Business at any time within the past three (3)
years.
4.21 Interest in Customers and Suppliers; Affiliate Transactions. Except
as described on Schedule 4.21 and except for ownership as an investment of not
more than one percent (1%) of any class of capital stock of any publicly-traded
company, none of the Seller, any of its members, any Affiliate of its members,
any Affiliate of the Seller, the Company nor any Company Subsidiary (i)
possesses, directly or indirectly, any financial interest in, or is a director,
officer, employee or affiliate of, any Person that is a client, supplier,
customer, lessor, lessee or competitor of the Seller, the Company or any Company
Subsidiary, (ii) owns, directly or indirectly, in whole or in part, or has any
interest in any tangible or intangible property used in the conduct of the
Business, or (iii) is a party to an agreement or relationship, that involves the
receipt by such Person of compensation or property from the Seller, the Company
or any Company Subsidiary other than through a customary employment relationship
or through distributions made with respect to the Seller Interests or equity
interests in any Company Subsidiary (provided such distributions have been made
consistent with the Seller's, the Company's or any Company Subsidiary's, as the
case may be, past custom and practices). Schedule 4.21 sets forth the parties
to and the date, nature and amount of each transaction during the last five
years involving the transfer of any cash, property or rights to or from the
Seller, the Company or any Company Subsidiary from, to or for the benefit of any
Affiliates (other than customary employment relationships or distributions made
with respect to the Seller Interests) ("Affiliate Transactions"), and any
existing commitments of the Seller, the Company or any Company Subsidiary to
engage in the future in any Affiliate Transactions. Except as disclosed, each
Affiliate Transaction and each transaction with former Affiliates of the Seller,
the Company or any Company Subsidiary was effected on terms equivalent to those
that would have been established in an arm's-length transaction.
<PAGE>
4.22 Business Relationships. Schedule 4.22 lists all clients of the Seller, the
Company and each Company Subsidiary representing one percent (1%) or more of the
Seller's or the Company's, as applicable, consolidated net revenues for the
twelve (12) months ended December 31, 1998. Except as set forth on Schedule
4.22, since December 31, 1998, none of such clients has canceled or
substantially reduced its business with the Seller, the Company or Company
Subsidiary, as applicable, nor are any of such clients threatening to do so. To
the Knowledge of the Seller, no client that accounts for one percent (1%) or
more of the Seller's or the Company's consolidated net revenue, or supplier of
the Seller, the Company or any Company Subsidiary, will cease to do business
with, or substantially reduce its business with, the Seller, the Company or any
Company Subsidiary, as applicable, after the consummation of the transactions
contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the names
and current total compensation, including, without limitation, salary and
bonuses paid to employees and draws or other distributions paid to partners,
members or owners of each Person who earned from the Seller, the Company or a
Company Subsidiary in 1998 total compensation in excess of $100,000. Except as
set forth in Schedule 4.23, no Person listed thereon has received any bonus or
increase in compensation and there has been no "general increase" in the
compensation or rate of compensation payable to any employees, partners, members
or owners of the Seller, the Company or any Company Subsidiary since the date of
the Latest Balance Sheet, other than in the Seller's or the Company's and
Company Subsidiaries' ordinary course of business, consistent with past custom
and practices, nor since that date has there been any oral or written promise to
employees, partners, members or owners of any bonus or increase in compensation,
other than in the Seller's or the Company's and Company Subsidiaries ordinary
course of business, consistent with past custom and practices. The term
"general increase" as used herein means any increase generally applicable to a
class or group, but does not include increases granted to individuals for merit,
length of service or change in position or responsibility made on the basis of
the custom and past practices of the Seller, the Company or any Company
Subsidiary. Schedule 4.23 includes the date and amount of the last bonus or
similar distribution or increase in compensation for each listed individual.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each bank in
which the Seller, the Company or any Company Subsidiary has an account or safe
deposit box, the number of each such account or box, and the names of all
Persons authorized to draw thereon or to have access thereto.
4.25 Professional Credentials. Each member of Seller is a Certified Public
Accountant in good standing in one of the States of the United States or the
District of Columbia, and entitled to practice in one of the jurisdictions in
which the Seller, the Company or any Company Subsidiary maintains an office, and
there are no disciplinary proceedings pending or threatened against the Seller,
the Company, any Company Subsidiary or any of the members of the Seller by any
Governmental Authority or self-regulatory organization regulating, licensing or
permitting the practice of public accountancy.
<PAGE>
4.26 Disclosure; No Misrepresentation. No representation or warranty of the
Seller contained in this Agreement or in any of the certification, schedules,
lists, documents, exhibits, or other instruments delivered or to be delivered to
Centerprise as contemplated by any provision hereof contains any untrue
statement regarding a material fact or omits to state a material fact necessary
in order to make the statements made herein or therein not misleading. To the
Knowledge of the Seller, there is no fact or circumstance that has not been
disclosed to Centerprise herein that has or is reasonably expected to have a
Company Material Adverse Effect.
ARTICLE V
[RESERVED]
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPRISE
Centerprise represents and warrants to the Company as of March 31, 1999
and, subject to Section 7.3, as of the date on which Centerprise and the lead
Underwriter execute and deliver the Underwriting Agreement related to the IPO
and as of the Closing Date as follows:
6.1 Organization And Qualification. Centerprise is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite power and authority to own, lease and operate
its assets and properties and to carry on its business as it is now being
conducted. True, accurate and complete copies of Centerprise's Certificate of
Incorporation and By-laws, as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to the Seller. Mergersub is
a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. True, accurate and complete copies
of Mergersub's Certificate of Formation and Operating Agreement, as in effect on
the date hereof, including all amendments thereto, have heretofore been
delivered to the Seller.
6.2 Capitalization.
6.2.1 The authorized capital stock of Centerprise consists of 20,000
shares of Centerprise Common Stock, of which 17,500 shares are outstanding
as of the date hereof. All of the issued and outstanding shares of
Centerprise Common Stock are validly issued and are fully paid,
nonassessable and free of preemptive rights. Immediately prior to the
Closing Date, the authorized capital stock of Centerprise will consist of
50,000,000 shares of Centerprise Common Stock, of which the number of
<PAGE>
shares set forth in the Form S-1 will be issued and outstanding, and
10,000,000 shares of Preferred Stock, par value $0.01 per share, none of
which will be issued and outstanding. Other than (i) shares of Centerprise
Common Stock issued pursuant to a split of the shares outstanding as of the
date of this Agreement, (ii) shares of Centerprise Common Stock issued in
accordance with the Merger and the Other Mergers, and (iii) shares of
Centerprise Common Stock that may be issued to new members of management in
lieu of shares previously issued to current members of management, but
which will not increase the number of shares of outstanding Centerprise
Common Stock, no shares of Centerprise Common Stock will be issued prior to
the consummation of the IPO. Mergersub's authorized equity ownership
consists solely of the membership interests owned by Centerprise, all of
which are issued and outstanding, are owned free and clear of any Liens by
Centerprise, and are fully paid, nonassessable and free of preemptive
rights.
6.2.2 Except as set forth on Schedule 6.2, as of the date hereof, there
are no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement obligating Centerprise to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the
capital stock of Centerprise or obligating Centerprise to grant, extend or
enter into any such agreement or commitment. There are no voting trusts,
proxies or other agreements or understandings to which Centerprise is a
party or is bound with respect to the voting of any shares of capital stock
of Centerprise. The shares of Centerprise Common Stock issued to the Seller
in the Merger will at the Closing Date be duly authorized, validly issued,
fully paid and nonassessable and free of preemptive rights and issued
pursuant to a registration statement as required by the 1933 Act or an
exemption therefrom.
6.3 No Subsidiaries. Except for Centerprise's ownership of 100% of the capital
stock of each of Professional Service Group, Inc., a Delaware corporation, and
Mergersub (and similar entities created for similar purposes with respect to the
Other Agreements), Centerprise has no subsidiaries and it does not own any
capital stock of any corporation or any equity or other interest of any nature
whatsoever in any Person.
<PAGE>
6.4 Authority; Non-Contravention; Approvals.
6.4.1 Each of Centerprise and Mergersub has all requisite right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been approved by the Boards of
Directors of Centerprise and Mergersub, and no other corporate proceedings
on the part of Centerprise or Mergersub are necessary to authorize the
execution and delivery of this Agreement or the consummation by Centerprise
and Mergersub of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Centerprise and Mergersub and, assuming
the due authorization, execution and delivery hereof by the Seller,
constitutes a valid and legally binding agreement of Centerprise and
Mergersub, enforceable against each of them in accordance with its terms,
except that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
6.4.2 The execution and delivery of this Agreement by Centerprise and
Mergersub does not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of
any Lien upon any of the properties or assets of Centerprise and Mergersub
under any of the terms, conditions or provisions of (i) the Certificate of
Incorporation or By-laws of Centerprise, (ii) the Certificate of Formation
or Operating Agreement of Mergersub, (iii) any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction, writ, permit or
license of any court or Governmental Authority applicable to Centerprise,
Mergersub or any of their respective properties or assets, or (iv) any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of
any kind to which Centerprise or Mergersub is now a party or by which
Centerprise, Mergersub or any of their respective properties or assets, may
be bound or affected, except those items described in clause (iii) relating
to regulating, licensing or permitting the practice of public accountancy.
The consummation by Centerprise and Mergersub of the transactions
contemplated hereby will not result in any violation, conflict, breach,
right of termination or acceleration or creation of Liens under any of the
terms, conditions or provisions of the items described in clauses (i)
through (iii) of the immediately preceding sentence, subject, in the case
of the terms, conditions or provisions of the items described in clause
(ii) above, to obtaining (prior to the Closing Date) Centerprise Required
Statutory Approvals and except for those items described in (iii) above
relating to regulating, licensing or permitting the practice of public
accountancy.
6.4.3 Except with respect to (i) the declaration of the effectiveness of
the Registration Statements by the SEC and filings, if required, with
various state securities or "blue sky " authorities, (ii) any filing which
may be required under the HSR Act, (iii) any filing
<PAGE>
which may be required by any Governmental Authority or self-regulatory
organization regulating, licensing or permitting the practice of public
accountancy (the filings and approvals referred to in clauses (i) through
(iii) are collectively referred to as the "Centerprise Required Statutory
Approvals") no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body
or authority is necessary for the execution and delivery of this Agreement
by Centerprise or Mergersub or the consummation by Centerprise or Mergersub
of the transactions contemplated hereby, other than such declarations,
filings, registrations, notices, authorizations, consents or approvals
which, if not made or obtained, as the case may be, are not reasonably
expected to, in the aggregate, have a material adverse effect on the
business operations, properties, assets, condition (financial or other),
results of operations or prospects of Centerprise and its subsidiaries,
taken as a whole (a "Centerprise Material Adverse Effect").
6.5 Absence of Undisclosed Liabilities. Except as set forth on Schedule 6.5,
neither Centerprise nor Mergersub has incurred any liabilities or obligations
(whether known or unknown, absolute, contingent, direct, indirect, perfected,
inchoate, unliquidated or otherwise) of any nature. Except as set forth on
Schedule 6.5, neither Centerprise nor Mergersub has engaged in any business
activities of any type or kind whatsoever, nor entered into any agreements nor
is it bound by any obligation or undertaking.
6.6 Litigation. There are no claims, suits, actions or proceedings pending or,
to the Knowledge of Centerprise, threatened against, relating to or affecting
Centerprise or Mergersub, before any court, Governmental Authority or any
arbitrator that seek to restrain or enjoin the consummation of the Merger or the
IPO or which could reasonably be expected, either alone or in the aggregate with
all such claims, actions or proceedings, to have a Centerprise Material Adverse
Effect. Centerprise is not subject to any unsatisfied or continuing judgement,
order or decree of any court or Governmental Authority. Centerprise is not a
party to any legal action to recover monies due it or for damages sustained by
it.
6.7 Compliance with Applicable Laws. Each of Centerprise and Mergersub has
complied in all material respects with all Laws applicable to it, and has not
received any notice of any alleged claim or threatened claim, violation of or
liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of Centerprise, no event has occurred or circumstances exist that
(with or without notice or lapse of time) may constitute or result in a
violation by Centerprise or Mergersub of any Law or may give rise to any
liability on the part of the Centerprise or Mergersub under any Law.
6.8 No Misrepresentation. None of the representations and warranties of
Centerprise or Mergersub set forth in this Agreement or in any of the
certificates, schedules, lists, documents, exhibits, or other instruments
delivered or to be delivered to the Company as contemplated by any provision
hereof contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. To
<PAGE>
the Knowledge of Centerprise, there is no fact or circumstance
that has not been disclosed to the Seller herein that has or is reasonably
expected to have a Company Material Adverse Effect.
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS
7.1 Conduct of Business by the Seller and the Company Prior to the Effective
Time.
7.1.1 Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Closing Date or earlier termination of this Agreement,
unless Centerprise shall otherwise agree in writing, the Seller shall, and shall
cause the Company and each Company Subsidiary to:
(a) in all material respects conduct the Business in the ordinary and usual
course and consistent with past customs and practices;
(b) not (i) amend its Organizational Documents, (ii) split, combine or
reclassify its outstanding equity ownership or (iii) declare, set aside or
pay any dividend or distribution payable in cash, stock, property or
otherwise except dividends or distributions which (A) are consistent with
past customs and practices, (B) do not result in a Company Material Adverse
Effect and (C) as set forth on Schedule 7.5;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell, pledge
or dispose of (i) any additional membership interests of, or any options,
warrants or rights of any kind to acquire any of its membership interests
or equity interests of any class, (ii) any debt with voting rights or (iii)
any debt or equity securities convertible into or exchangeable for, or any
rights, warrants, calls, subscriptions, or options to acquire, any such
membership interests, debt with voting rights or convertible securities;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary
course of business in a manner consistent with past customs and practices
or (B) borrowings to refinance existing indebtedness on commercially
reasonable terms, (ii) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or equity interests or any options,
warrants or rights to acquire any of its capital stock or equity interests
or any security convertible into or exchangeable for its capital stock or
equity interests, (iii) sell, pledge, dispose of or encumber any assets or
businesses other than dispositions in the ordinary course of business in a
manner consistent with past customs and
<PAGE>
practices (iv) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(e) use commercially reasonable efforts to (i) preserve intact its business
organizations and goodwill, (ii) keep available the services of its present
officers and key employees, and (iii) preserve the goodwill and business
relationships with clients and others having business relationships with it
and not engage in any action, directly or indirectly, with the intent to
adversely impact the transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or more representatives
of Centerprise to report operational matters of materiality and the general
status of ongoing operations;
(g) except as contemplated on Schedule 4.9, not (i) increase in any manner
the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of its employees, partners, members or
owners, except in the ordinary course of business in a manner consistent
with past customs and practices of the Company or any Company Subsidiary,
as applicable, (ii) pay or agree to pay any additional pension, retirement
allowance or other employee benefit under any Employee Plan to any such
Person, whether past or present, (iii) enter into any new employment,
severance, consulting, or other compensation agreement with any of its
existing employees, partners, members or owners, (iv) amend or enter into a
new Employee Plan (except as required by Law) or amend or enter into a new
collective bargaining agreement, or (v) engage in any new Affiliate
Transaction;
(h) comply in all material respects with all applicable Laws;
(i) not make any material investment in, directly or indirectly, acquire or
agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or substantial portion of the assets of, or
by any other manner, any businesses or any Person or division thereof or
otherwise acquire or agree to acquire any assets in each case which are
material to it other than in the ordinary course of business in a manner
consistent with past customs and practices;
(j) other than as set forth on Schedule 7.5, not sell, lease, license,
encumber or otherwise dispose of, or agree to sell, lease, license,
encumber or otherwise dispose of, any of its assets other than in the
ordinary course of business, consistent with past customs and practices;
(k) maintain with financially responsible insurance companies insurance on
its tangible assets and its businesses in such amounts and against such
risks and
<PAGE>
losses in a manner consistent with past customs and practices in all
material respects; and
(l) collect and bill receivables in the ordinary and usual course and
consistent with past custom and practices.
7.1.2 [Reserved]
7.1.3 Notwithstanding the fact that such action might otherwise be permitted
pursuant to this Article, neither the Seller nor the Company shall take, or
permit any Company Subsidiary to take, any action that would or is reasonably
likely to result in any of the representations or warranties of the Seller set
forth in this Agreement being untrue or in any of the conditions to the
consummation of the transactions contemplated hereunder set forth in Article X
not being satisfied.
7.1.4 Prior to the Closing, (i) the Seller shall terminate, without any
liability to the Company or the Company Subsidiaries, all agreements relating to
the voting of the Company's membership interests, and all agreements and
obligations of the Company and the Company Subsidiaries relating to borrowed
money and/or involving payments to or for the benefit of a present or former
member of the Company, or an Affiliate or family member of a present or former
member of the Company, including, without limitation, those set forth on
Schedule 7.1.4, but excluding (A) debt reflected on Schedule 2.1 as Debt Assumed
By Centerprise, (B) items reflected on Schedule 2.5, (C) agreements and
obligations to the extent such agreements and obligations result in Indirect
Costs under the Incentive Compensation Agreement, (D) that certain lease between
the Seller and S&S Realty dated on or about the Closing Date, and (E) items
approved by Centerprise in writing.
<PAGE>
7.2 No-Shop.
(a) After the date hereof and prior to the Closing Date or earlier
termination of this Agreement, the Company and the Seller shall (i) (not
and each of Seller and the Company shall use its diligent efforts to cause
the Company Subsidiaries and any officer, director or employee of, or any
attorney, accountant, investment banker, financial advisor or other agent
retained by the Company, the Seller or any Company Subsidiary not to),
initiate, solicit, negotiate, encourage, or provide non-public or
confidential information to facilitate, any proposal or offer to acquire
all or any substantial part of the business and properties of the Seller,
the Company or any Company Subsidiary, or any equity ownership interests of
the Seller, the Company or any Company Subsidiary, whether by merger,
purchase of assets or otherwise, whether for cash, securities or any other
consideration or combination thereof, or enter into any joint venture or
partnership or similar arrangement, and (ii) promptly advise Centerprise of
the terms of any communications the Seller or the Company may receive or
become aware of relating to any bid for part or all of the Seller, the
Company or any Company Subsidiary. Notwithstanding the foregoing, if the
underwriters' internal sales force presentation or "road show" for the IPO
has not started by October 15, 1999, then from and after such date, the
Seller may (through its authorized agents) conduct limited discussions with
potential acquirers of the Seller for the sole purpose of assessing the
potential terms and conditions of an acquisition proposal involving the
Seller. Notwithstanding the preceding sentence, the Seller shall not (i)
disclose any non-public or confidential information regarding the Seller to
any such third party or (ii) enter into any agreement (including, without
limitation, any letter of intent or term sheet) with such third party
unless this Agreement has been terminated pursuant to Article XI.
(b) The Seller and the Company (i) acknowledge that a breach of any of
their covenants contained in this Section 7.2 will result in irreparable
harm to Centerprise which will not be compensable in money damages, and
(ii) agree that such covenant shall be specifically enforceable and that
specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
7.3 Schedules. Each party hereto agrees that with respect to the
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement or amend and deliver to the other parties all the schedules to this
Agreement (the "Schedules") to correct any matter which would constitute a
breach of any such party's representations and warranties herein; provided,
however, that no amendment or supplement to a Schedule that constitutes or
reflects a Company Material Adverse Effect or affects Schedule 4.2, Schedule 4.4
or Schedule 8.8 may be made unless Centerprise and a majority of the Founding
Companies consent to such amendment or supplement. No amendment of or
supplement to a Schedule shall be made later than three (3) business days prior
to the anticipated effectiveness of the Form S-1. For all purposes of this
Agreement, including, without limitation, for purposes of determining whether
<PAGE>
the conditions set forth in Sections 10.2 and 10.3 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 7.3. In the event that (i) one of the other Founding
Companies seeks to amend or supplement a Schedule pursuant to Section 7.3 of one
of the Other Agreements, (ii) such amendment or supplement constitutes or
reflects a Company Material Adverse Effect (as defined in such Other Agreement)
or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8 of such Other Agreement,
and (iii) Centerprise and a majority of the Founding Companies consent to such
amendment or supplement, but the Seller does not, the Seller may terminate this
Agreement at any time prior to the Closing Date. In the event that (i) the
Seller seeks to amend or supplement a Schedule pursuant to this Section 7.3,
(ii) such amendment or supplement constitutes or reflects a Company Material
Adverse Effect or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8, and (iii)
Centerprise and a majority of the Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section 7.3,
unless this Agreement is so terminated in connection with an amendment of or
supplement to a Schedule relating to Seller's or the Company's breach of a
representation or warranty as of March 31, 1999, in which case the Seller or the
Company shall pay to Centerprise, as Centerprise's exclusive remedy
(notwithstanding anything to the contrary) and as liquidated damages, and not as
a penalty, an amount equal to $2,000,000 (the "Liquidated Damages Amount"). The
Seller agrees that in the case of such termination Centerprise and the Founding
Companies (excluding the Seller) will sustain immediate and irreparable economic
harm and loss of goodwill and that actual losses suffered by such parties will
be difficult, if not impossible, to ascertain, but the Liquidated Damages Amount
set forth herein is reasonable and has been arrived at after a good faith effort
to estimate such losses. Payment of the Liquidated Damages Amount shall be made
in cash to Centerprise within thirty (30) days of a termination pursuant to this
Section 7.3 in connection with an amendment of or supplement to a Schedule
relating to a breach of a representation or warranty as of the date of this
Agreement.
7.4 Company Member Meeting; Seller Member Meeting. The Seller shall take, and
shall cause the Company to take, all action in accordance with applicable Laws
and its respective Organizational Documents necessary to duly call, give notice
of, convene and hold a meeting of the Company's members and the Seller's members
to be held on the earliest practicable date determined in consultation with
Centerprise to consider and vote upon approval of the Merger, this Agreement and
the transactions contemplated hereby. The Seller shall solicit, and the Seller
shall cause the Company to solicit, the approval of the Merger, this Agreement
and the transactions contemplated hereby by the Company's members and the
Seller's members, respectively, and each of the Company's managers and the
Seller's managers shall recommend approval of the Merger, this Agreement and the
transactions contemplated hereby by the Company's members and the Seller's
members. If the Merger, this Agreement and the transactions contemplated hereby
are approved by the Company's members and the Seller's members, neither the
Company nor the Seller shall call, give notice of, convene or hold any
<PAGE>
other meeting of their respective members to rescind or modify such approval or
to consider any other transaction.
7.5 Asset Transfer. Prior to the Closing, in addition to those actions
specified in Section 7.1.2 to be taken, the Seller shall (i) cause Seller to
form Newco pursuant to Organizational Documents in form and substance acceptable
to Centerprise, and (ii) cause Seller to complete the Asset Transfer to Newco
(including, without limitation, obtaining any necessary third party consents to
such Asset Transfer) pursuant to conveyance documents in form and substance
acceptable to Centerprise, except that those liabilities and/or assets set forth
on Schedule 7.5 attached hereto (the "Retained Liabilities" and the "Retained
Assets", respectively) shall not be transferred to Newco. Notwithstanding
anything to the contrary contained herein or any related agreement, Newco will
not assume, agree to pay, perform or discharge or in any way be responsible for
any debts, liabilities or obligations of Seller or any member of Seller of any
kind or nature whatsoever set forth on Schedule 7.5 as a Retained Liability or
relating to the Retained Assets.
<PAGE>
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Access to Information.
8.1.1 The Seller shall and shall cause the Company and the Company
Subsidiaries to afford to Centerprise and its accountants, counsel,
financial advisors and other representatives, including without limitation
the underwriters engaged in connection with the IPO (each an "Underwriter"
and collectively, the "Underwriters") and their counsel (collectively, the
"Centerprise Representatives"), and to the other Founding Companies and
their accountants, counsel, financial advisors and other representatives,
and Centerprise shall afford to the Seller and the Company and their
accountants, counsel, financial advisors and other representatives (the
"Seller Representatives"), upon reasonable notice, full access during
normal business hours throughout the period prior to the Closing Date to
all of its respective properties, books, contracts, commitments and records
(including, but not limited to, financial statements and Tax Returns) and,
during such period, shall furnish promptly to one another all due diligence
information requested by the other party. Centerprise shall hold and shall
use its best efforts to cause the Centerprise Representatives to hold, and
the Seller shall hold and shall use their best efforts to cause the Seller
Representatives to hold, in strict confidence all non-public information
furnished to it in connection with the transactions contemplated by this
Agreement, except that each of Centerprise, Seller and the Company may
disclose any information that it is required by law or judicial or
administrative order to disclose. In addition, Centerprise will cause each
of the other Founding Companies and their members and stockholders, as
applicable, to enter into a provision similar to this Section 8.1 requiring
each such Founding Company to keep confidential any information obtained by
such Founding Company in connection with the transactions contemplated by
this Agreement.
8.1.2 In the event that this Agreement is terminated in accordance with
its terms, each party shall promptly return to the disclosing party all
non-public written material provided pursuant to this Section 8.1 or
pursuant to the Other Agreements and shall not retain any copies, extracts
or other reproductions of such written material. In the event of such
termination, all documents, memoranda, notes and other writings prepared by
Centerprise or the Company based on the information in such material shall
be destroyed (and Centerprise and the Seller shall use their respective
reasonable best efforts to cause their advisors and representatives to
similarly destroy such documents, memoranda and notes), and such
destruction (and reasonable best efforts) shall be certified in writing by
an authorized officer supervising such destruction.
<PAGE>
8.2 Registration Statements.
8.2.1 Centerprise has filed the Registration Statements with the SEC and
shall use all reasonable efforts to have the Registration Statements
declared effective by the SEC as promptly as practicable. Centerprise shall
also take any action required to be taken under applicable state "blue sky"
or securities laws in connection with the issuance of Centerprise Common
Stock. Centerprise and the Seller shall promptly furnish to each other all
information, and take such other actions, as may reasonably be requested in
connection with making such filings. All information provided and to be
provided by Centerprise and the Seller, respectively, for use in the
Registration Statements shall be true and correct in all material respects
without omission of any material fact which is required to make such
information not false or misleading as of the date thereof and in light of
the circumstances under which given or made. The Seller agrees promptly to
advise Centerprise if at any time during the period in which a prospectus
relating to the offering or the Merger is required to be delivered under
the Securities Act, any information contained in the prospectus concerning
the Company, the Seller, or the Company Subsidiaries becomes incorrect or
incomplete in any material respect, and to provide the information needed
to correct such inaccuracy or remedy such incompletion.
8.2.2 Centerprise agrees that it will provide to the Seller and its
counsel copies of drafts of the Registration Statements (and any amendments
thereto) containing material changes to the information therein as they are
prepared and will not (i) file with the SEC, (ii) request the acceleration
of the effectiveness of or (iii) circulate any prospectus forming a part
of, the Registration Statements (or any amendment thereto) unless the
Seller and its counsel (x) have had at least two days to review the revised
information contained therein (which changes shall be highlighted by
computer generated marks indicating the additions and deletions made from
the prior draft reviewed by the Seller's counsel) and (y) have not objected
to the substance of the information contained therein. Any objections posed
by the Seller or its counsel shall be in writing and state with specificity
the material in question, the reason for the objection, and the Seller's
proposed alternative. If the objection is founded upon a rule promulgated
under the Securities Act, the objection shall cite the rule.
Notwithstanding the foregoing, during the five (5) business days
immediately preceding the date scheduled for the filing of the Registration
Statements and any amendment thereto, the Seller and its counsel shall be
obligated to respond to proposed changes electronically transmitted to them
within two (2) hours from the time the proposed changes (in the case of the
initial filing of the Registration Statements, from the last circulated
draft of the Registration Statements; and, in the case of any subsequent
filing of the Registration Statements or any amendment thereof, from the
most recently filed Registration Statements or amendment thereof) are
transmitted to the Seller's counsel; provided, that, Centerprise has
provided to the Seller or its counsel reasonable advance notice of such
proposed changes; provided, further, that such changes are highlighted by
computer generated marks
<PAGE>
indicating the additions and deletions made from the prior draft reviewed
by the Seller's counsel.
8.2.3 Centerprise will advise the Member Representative of the
effectiveness of the Registration Statements, advise the Member
Representative of the entry of any stop order suspending the effectiveness
of the Registration Statements or the initiation of any proceeding for that
purpose, and, if such stop order shall be entered, use its best efforts
promptly to obtain the lifting or removal thereof. Upon the written request
of the Seller, Centerprise will furnish to the Seller a reasonable number
of copies of the final prospectus associated with the IPO.
8.3 Expenses and Fees. Centerprise shall pay the fees and expenses of the
independent public accountants and legal counsel to Centerprise and all filing,
printing and other reasonable, documented fees and expenses associated with the
IPO and Form S-4. Neither Seller, nor the Company, nor its respective members,
will be liable for any portion of the above expenses in the event the IPO is not
completed. Centerprise shall also pay the underwriting discounts and commissions
payable in connection with the sale of Centerprise Common Stock in the IPO. All
other costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
8.4 Agreement to Cooperate. Subject to the terms and conditions herein
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
8.5 Public Statements. Except as may be required by law, no party hereto nor
any Affiliate of any party hereto shall issue any press release or any written
public statement with respect to this Agreement or the transactions contemplated
by this Agreement or the Other Agreements without the prior written consent of
Centerprise and the Seller.
8.6 [Reserved]
8.7 Centerprise Covenants. After the date hereof and prior to the Closing Date
or earlier termination of this Agreement in accordance with its terms,
Centerprise shall comply in all material respects with all applicable Laws.
Centerprise shall not take any action that would or is reasonably likely to
result in any of the representations or warranties of Centerprise set forth in
this Agreement being untrue or in any of the conditions to the consummation of
the transactions contemplated hereunder set forth in Article X not being
satisfied.
8.8 Release of Guarantees. Centerprise shall use all commercially reasonable
efforts and good faith to have the Seller's members released from any and all
guarantees on any indebtedness and leases that they personally guaranteed for
the benefit of the Company as set
<PAGE>
forth on Schedule 8.8, with all such guarantees on indebtedness and leases being
assumed by Centerprise, if necessary to achieve such releases. If any guaranteed
indebtedness is repaid in full with proceeds from the IPO and the Seller's
members guarantees thereafter shall have no further force or effect, then
Centerprise shall not be obligated to use any efforts to obtain a release of
such guarantee. In the event that Centerprise cannot obtain such releases from
the lenders of any such guaranteed indebtedness or lessors of any guaranteed
leases, Centerprise agrees to indemnify, defend and hold harmless the Seller's
members against any and all claims made by lenders or landlords under such
guarantees.
8.9 [Reserved]
8.10 Preparation and Filing of Tax Returns.
8.10.1 The Company shall be responsible for causing the timely filing of
the final pre-Closing Returns for the Company and the Company Subsidiaries;
provided, however, that Centerprise and its advisors shall have the right
to review and approve such returns prior to filing, which approval shall
not be unreasonably withheld. Centerprise shall, and shall cause its
Affiliates to, provide to the Company such cooperation and information
reasonably requested in filing any return, amended return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or
in conducting any audit or other proceeding in respect of Taxes. The
Company shall bear all costs of filing such returns.
8.10.2 Each of Seller and Centerprise shall (and the Seller and
Centerprise, as applicable, shall cause the Company to) comply with the tax
reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and shall treat the transaction as subject to
the provisions of Section 351 of the Code.
8.11 Maintenance of Insurance. The Seller covenants and agrees that all
insurance policies listed, or required to be listed, on Schedule 4.20 will be
maintained in full force and effect through the Closing Date.
8.12 Administration. After the Closing, at the request of the Member
Representative, Centerprise shall, directly or through one or more of its
subsidiaries, administer and manage the collection of amounts referred to on
Schedule 7.5 using reasonable care and in accordance with the Company's policies
in effect at Closing.
8.13 Member Representative. The Seller appoints, and shall cause the Company
to appoint, Anthony P. Scillia (the "Member Representative"), as its agent and
representative with full power and authority to agree, contest or settle any
claim or dispute affecting the Seller or Company made under Article II and to
otherwise act on behalf of the Seller and the Company and their respective
members in accordance with the terms of this Agreement.
<PAGE>
ARTICLE IX
[RESERVED]
ARTICLE X
CLOSING CONDITIONS
10.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have been executed
and the closing of the sale of Centerprise Common Stock to the Underwriters
pursuant thereto shall have occurred simultaneously with the Closing
hereunder;
(b) the closings of the transactions contemplated under each of the Other
Agreements shall have occurred simultaneously with the Closing hereunder,
unless terminated in accordance with Section 7.3 of the applicable Other
Agreement;
(c) the Registration Statements shall have become effective in accordance
with the provisions of the Securities Act, and no stop order suspending
such effectiveness shall have been issued and remain in effect and no
proceeding for that purpose shall have been instituted by the SEC or any
state regulatory authorities;
(d) no preliminary or permanent injunction or other order or decree shall
be pending before or issued by any federal or state court which seeks to
prevent or prevents the consummation of the IPO, the Merger or any of the
Other Mergers shall have been issued and remain in effect;
(e) the minimum price condition set forth on Schedule 2.1 shall have been
satisfied;
(f) no action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state or federal government or governmental
agency in the United States which would prevent the consummation of the
Merger or any of the Other Mergers or make the consummation of the Merger
or any of the Other Mergers illegal;
(g) all material governmental and third party waivers, consents and
approvals required for the consummation of the Merger or any of the Other
Mergers and the transactions contemplated hereby and by the Other
Agreements (including, without limitation, any consents listed on Schedules
4.3.2 or 4.12) shall have been obtained and be in effect;
<PAGE>
(h) no action, suit or proceeding with respect to the Merger has been filed
or threatened by a third party and remains threatened or remains pending
before any court, Governmental Authority or regulatory Person;
(i) this Agreement, the Merger and the transactions contemplated hereby
shall have been approved and adopted by the Company's member and Seller's
members in the manner required by any applicable Law and the respective
Organizational Documents and such approval shall remain in full force and
effect; and
(j) Centerprise shall have entered into one or more credit facilities
providing for aggregate commitments of not less than $75 million;
10.2 Conditions to Obligation of the Seller and the Company to Effect the
Merger. Unless waived by the Company, the obligation of the Seller and the
Company to effect the Merger shall be subject to the fulfillment at or prior to
the Closing of the following additional conditions:
(a) Centerprise, Mergersub and each of the other Founding Companies shall
have performed in all material respects their respective agreements
contained in this Agreement and each Other Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of Centerprise contained in this Agreement and each Other
Agreement shall be true and correct in all material respects on and as of
the date made and on and as of the Closing Date as if made at and as of
such date, and Seller shall have received a certificate of the Chief
Executive Officer or President of Centerprise to that effect;
(b) no Governmental Authority or self-regulatory organization regulating,
licensing or permitting the practice of public accountancy shall have
promulgated or formally proposed any statute, rule or regulation which,
when taken together with all such promulgations, would materially impair
the value to the Seller of the Merger;
(c) the Seller shall have received an opinion from Katten Muchin & Zavis,
dated as of the Closing Date, containing the substantive opinions set forth
in Exhibit 10.2(c), the final form of such opinion to be in form and
substance reasonably acceptable to Seller;
(d) each of the members of Seller shall have been afforded the opportunity
to enter into an incentive compensation agreement (the "Incentive
Compensation Agreement ") with Centerprise substantially in the form
attached hereto as Exhibit 10.2(d);
(e) Centerprise shall have delivered to the Seller a certificate, dated as
of a date no later than ten days prior to the Closing Date, duly issued by
the Delaware Secretary of State, showing that Centerprise is in good
standing;
<PAGE>
(f) each of the members of Seller, the partners, members and stockholders of
the other Founding Companies who are to receive shares of Centerprise Common
Stock pursuant to the Other Agreements, and the other stockholders of
Centerprise other than those acquiring stock in the IPO shall have entered into
an agreement (the "Stockholders Agreement") substantially in the form attached
hereto as Exhibit 10.2(f);
(g) all conditions to the Other Mergers, on substantially the same terms as
provided herein, shall have been satisfied or waived by the applicable party and
the Company;
(h) the Seller shall have been afforded the opportunity to review the
executed employment agreement by and between Centerprise and Robert C. Basten;
and
(i) the Seller shall have received an opinion from Katten Muchin & Zavis,
dated as of the Closing Date and based on certain factual representations and
assumptions, that for federal income tax purposes there will be no gain or loss
recognized with respect to the Centerprise Common Stock received in exchange for
the Company Interest in the Merger pursuant to Section 351 of the Code, the
final form of such opinion to be in form and substance reasonably acceptable to
the Seller.
10.3 Conditions to Obligation of Centerprise to Effect the Merger. Unless waived
by Centerprise, the obligation of Centerprise and Mergersub to effect the Merger
shall be subject to the fulfillment at or prior to the Closing of the additional
following conditions:
(a) each of the Company and the Seller shall have performed in all
material respects each of their agreements contained in this Agreement
required to be performed on or prior to the Closing Date and the
representations and warranties of the Company contained in this Agreement
shall be true and correct in all material respects on and as of the date
made and on and as of the Closing Date as if made at and as of such date,
and Centerprise and the Underwriters shall have received a Certificate of
the Managing Principal of the Seller to that effect;
(b) [Reserved];
(c) Centerprise and the Underwriters shall have received an opinion from
Brenner, Salzman & Wallman, counsel to the Company and the Seller dated the
Closing Date, in the form attached hereto Exhibit 10.3(c), the final form
of such opinion to be in form and substance reasonably acceptable to the
Underwriters and Centerprise;
(d) the Company and the other parties thereto, as applicable, shall have
executed and delivered the Separate Practice Agreement substantially in the
form attached hereto as Exhibit 10.3(d)(A) and the Services Agreement
substantially in the form attached hereto as Exhibit 10.3(d)(B);
<PAGE>
(e) each member of Seller shall have executed and delivered the Incentive
Compensation Agreement substantially in the form attached hereto as Exhibit
10.2(d);
(f) Centerprise and the Underwriters shall have received "Comfort" letters in
customary form from the Company's independent public accountants, dated the
effective date of the Form S-1 and the Closing Date (or such other date
reasonably acceptable to Centerprise), with respect to certain financial
statements and other financial information included in the Form S-1 and any
subsequent changes in specified balance sheet and income statement items,
including total assets, working capital, total member's equity, total revenues
and the total and per share amounts of net income;
(g) each of the Seller and the Company shall have delivered to Centerprise and
the Underwriters a certificate, dated as of a date no later than ten days prior
to the Closing Date, duly issued by the appropriate Governmental Authority in
the state of organization of the Company and each Company Subsidiary and, unless
waived by Centerprise, in each state in which the Seller, the Company or any
Company Subsidiary is authorized to do business, showing the Seller, the Company
and Company Subsidiary (as applicable) is in good standing;
(h) no Governmental Authority or self-regulatory organization regulating,
licensing or permitting the practice of public accountancy shall have
promulgated or formally proposed any statute, rule or regulation which, when
taken together with all such promulgations, would materially impair the value to
Centerprise of the Merger;
(i) the members of Seller shall have executed the Stockholders Agreement;
(j) Seller and its members shall have delivered to Centerprise an instrument in
the form attached hereto as Exhibit 10.3(j), dated the Closing Date, releasing
the Company and the Company Subsidiaries from any and all claims of such Persons
against the Company and the Company Subsidiaries and obligations of the Company
and the Company Subsidiaries to such Persons;
(k) the members and other principals of the Seller shall have delivered a
release to Centerprise regarding any unallocated guaranteed allocations in form
and substance satisfactory to Centerprise including, without limitation, that as
of the Closing the amount of debt of the Company and the Company Subsidiaries
shall not exceed the amount reflected on Schedule 2.1 as Debt Assumed by
Centerprise;
(l) Seller, the Company and the members of Seller, as applicable, shall have
terminated or have caused the termination of any voting trusts, proxies or other
agreements or understandings to which Seller, the Company or any member of
Seller is a party or is bound with respect to any shares of capital stock or
other equity interests
<PAGE>
of the Company and the Company Subsidiaries and shall have provided Centerprise
evidence of such termination that is acceptable to Centerprise's counsel;
(m) the Company shall have adopted Amended and Restated Articles of
Organization and Operating Agreement in form and substance acceptable to
Centerprise;
(n) the Seller shall have caused to be completed the formation of Newco and
consummation of the Asset Transfer (including receipt of any required third-
party consents) and other actions specified in Section 7.5 and shall have
presented evidence of completion of such actions in accordance with Section 7.5;
(o) the Company shall have delivered to Centerprise a payoff letter including a
statement of per diem interest amounts and other applicable release documents
from all such institutional lenders or creditors of the Company and the Company
Subsidiaries regarding the payment in full of such indebtedness at Closing, in
each case in form and substance satisfactory to Centerprise (including, without
limitation, applicable UCC-3 termination statements);
(p) the Seller and/or the Company shall have paid in full any indebtedness owed
by Seller and/or the Company to the members of Seller or non member principals
of the Seller, and shall have provided evidence of same reasonably satisfactory
to Centerprise;
(q) the Seller shall have caused all automobile leases to which the Seller is a
party (together with all vehicle insurance policies and maintenance agreements,
if any) to be assigned in full to the individual beneficiary of such lease or
terminated, and shall have provided evidence of same reasonably satisfactory to
Centerprise;
(r) the Seller shall have entered into or shall have caused the Company to
enter into a written lease regarding the Hamden, Connecticut office in form and
substance reasonably acceptable to Centerprise;
(s) the Managing Principal of the Seller and the Company shall have delivered
certified copies of the resolutions of the managers and members of the Seller
and the Company approving execution and delivery of this Agreement, the Merger
and the other actions, agreements and documents necessary or desirable to
complete the transactions contemplated herein; and
(t) the Seller's members (including managers) shall have executed and to
Centerprise a member agreement (the "Company Member Agreement") in the form of
Exhibit 10.3(t) attached hereto.
<PAGE>
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date:
(a) pursuant to Section 7.3;
(b) by the Seller,
(i) if the Merger is not completed by November 15, 1999 other than on
account of delay or default on the part of Seller, the Company or any of
their affiliates or associates;
(ii) if the Merger is enjoined by a final, unappealable court order not
entered at the request or with the support of Seller, the Company or any of
their affiliates or associates;
(iii) if Centerprise (A) fails to perform in any material respect any of its
material covenants in this Agreement and (B) does not cure such default in
all material respects within thirty (30) days after written notice of such
default is given to Centerprise; or
(c) by Centerprise,
(i) if the Merger is not completed by November 15, 1999 other than on
account of delay or default on the part of Centerprise or any of its
stockholders or any of their affiliates or associates;
(ii) if the Merger is enjoined by a final, unappealable court order not
entered at the request or with the support of Centerprise or any of its
stockholders or any of their affiliates or associates;
(iii) if the Seller (A) fails to perform in any material respect any of its
material covenants in this Agreement and (B) does not cure such default in
all material respects within thirty (30) days after written notice of such
default is given to the Seller or the Company by Centerprise; or
(d) by mutual consent of the managers of the Seller and the Board of
Directors of Centerprise.
11.2 Effect of Termination. In the event of termination of this Agreement by
either Centerprise or the Seller, as provided in Section 11.1, this Agreement
shall forthwith become
<PAGE>
void and there shall be no further obligation on the part of the Seller,
Centerprise, Mergersub or their respective officers or directors (except the
obligations set forth in this Section 11.2 and in Sections 8.1, 8.3, and 8.5,
all of which shall survive the termination). Nothing in this Section 11.2 shall
relieve any party from liability for any breach of this Agreement.
11.3 Amendment. This Agreement may not be amended except by action taken
by the Boards of Directors or managers of the Seller and Centerprise, as
applicable, or duly authorized committees thereof and then only by an instrument
in writing signed on behalf of each of the parties hereto and in compliance with
applicable law. Centerprise covenants and agrees that it shall not amend,
modify or supplement the material terms of any Other Agreement following the
Closing without the prior written consent of at least two thirds (2/3rds) of the
members of Centerprise's Board of Directors; provided, that, no waiver of any
restriction set forth in Article XII shall be of any effect unless consented to
by a majority of the members of Centerprise's Board of Directors who do not at
the time of such proposed waiver hold Restricted Shares within the meaning of
this Agreement, any Other Agreement or the Stockholders Agreement.
11.4 Waiver. At any time prior to the Closing Date, the parties hereto may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant thereto and
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE XII
[RESERVED]
ARTICLE XIII
[RESERVED]
4
<PAGE>
ARTICLE XIV
[RESERVED]
ARTICLE XV
GENERAL PROVISIONS
15.1 Brokers. The Seller represents and warrants that no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee (except
for any fee described in Schedule 15.1) or commission in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. Centerprise represents and
warrants that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Centerprise or its stockholders (other than underwriting
discounts and commission to be paid in connection with the IPO).
15.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
given in accordance with this Section):
If to Centerprise or Mergersub, to:
Centerprise Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert Basten
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
<PAGE>
If to the Seller, to:
Simione, Scillia, Larrow & Dowling LLC
555 Long Wharf Drive
New Haven, Connecticut 06511
Attn: Anthony P. Scillia
Facsimile No.: (203) 776-1065
with a copy to:
Brenner, Salzman & Wallman
271 Whitney Avenue
New Haven, Connecticut 06511
Attn: Wayne Martino, Esq.
Facsimile No.: (203) 562-2098
If to the Member Representative, to:
Simione, Scillia, Larrow & Dowling LLC
555 Long Wharf Drive
New Haven, Connecticut 06511
Attn: Anthony P. Scillia
Facsimile No.: (203) 776-1065
15.3 Interpretation. The table of contents and headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
15.4 Certain Definitions. As used in this Agreement, (i) the term "Person"
shall mean any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated association, corporation, entity, firm, association,
organization or other business in any form whatsoever or government (whether
Federal, state, county, city or otherwise, including, without limitation, any
instrumentality, division, agency or department thereof), (ii) the term
"Affiliate" shall have the meaning given for that term in Rule 405 under the
Securities Act, and shall include each past and present Affiliate of a Person
and the members of such Affiliate's immediate family or their spouses or
children and any trust the beneficiaries of which are such individuals or
relatives, and (iii) an individual will be deemed to have "Knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or matter, or (b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the existence of
such fact or other
<PAGE>
matter and a prudent individual would conduct such investigation; a Person,
other than an individual, will be deemed to have "Knowledge" of a particular
fact or other matter if any Person who is a partner, member or shareholder of
such Person or who is otherwise serving, or who has served, as a director,
officer, partner, member or trustee (or any capacity) of such Person has, or at
any time had, knowledge of such fact or other matter.
15.5 Entire Agreement; Assignment. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof and
(b) shall not be assigned by operation of law or otherwise, except that
Centerprise may assign this Agreement to any wholly-owned subsidiary of
Centerprise.
15.6 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Illinois applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
15.7 Counterparts. This Agreement may be executed via facsimile or otherwise
in two or more counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same agreement.
15.8 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and their respective successors,
permitted assigns, heirs, legal representatives and executors and except as
expressly set forth in herein, nothing in this Agreement, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
* * *
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
CENTERPRISE ADVISORS, INC.
By: /s/ Robert C. Basten
--------------------------------------
Name: Robert C. Basten
------------------------------------
Its: President and Chief Executive Officer
-------------------------------------
<PAGE>
SSLD MERGERSUB LLC
By: Centerprise Advisors, Inc., its sole member
-------------------------------------------
By: /s/ Robert C. Basten
-------------------------------------------
Name: Robert C. Basten
-----------------------------------------
Its: President
------------------------------------------
SIMIONE, SCILLIA, LARROW & DOWLING LLC
By: /s/ Anthony P. Scillia
-------------------------------------------
Name:
-----------------------------------------
Its:
------------------------------------------
<PAGE>
Exhibit 2.45
------------
FORM OF COMPANY STOCKHOLDER AGREEMENT
This Company Stockholder Agreement ("Agreement") is made as of
______________, 1999 by and among Centerprise Advisors, Inc., a Delaware
corporation ("Centerprise"), and the members of [Holding Company], a ________
limited liability company ("Holdings"), identified on Exhibit A to this
Agreement (each a "Member" and, collectively, the "Members").
WHEREAS, pursuant to an Amended and Restated Merger Agreement dated as of
September 24, 1999 (the "Merger Agreement") by and among Centerprise, [Company]
Mergersub Inc., a Delaware corporation ("Mergersub"), and [Founding Company]
(the "Company"), Mergersub will merge with the Company, with the Company being
the surviving corporation in the merger and the stockholders of the Company will
be entitled to receive the Basic Purchase Consideration (as defined in the
Merger Agreement);
WHEREAS, Holdings is the sole owner and holder of record of all of the
outstanding shares of capital stock of the Company;
WHEREAS, as a condition to completion of the transactions contemplated by
the Merger Agreement, the Members must execute and deliver this Agreement.
NOW, THEREFORE, in consideration, of the payment of the Basic Purchase
Consideration under the Merger Agreement, the premises and mutual covenants and
agreements contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
OF THE MEMBERS
1.1 Several Representations and Warranties. Each Member, severally and not
jointly, hereby represents and warrants to Centerprise as of the date
hereof as follows:
1.1.1 Capitalization. Except as set forth on Schedule 4.4 to the Merger
Agreement, immediately prior to the contribution thereof by such
Member to the capital of Holdings, such Member owned beneficially
and of record, and had good and marketable title to, all of the
issued and outstanding shares of the Company Stock as set forth
opposite the name of such Member in Schedule 4.4 to the Merger
Agreement, free and clear of all Liens. Upon contribution of such
Company Stock
<PAGE>
to the capital of Holdings, Holdings acquired, and at the
Closing as provided in the Merger Agreement, Centerprise will
acquire, good and valid title to such Company Stock, free and
clear of any Lien other than any Lien created by Centerprise.
1.1.2 Authority. Such Member has full right, capacity, power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly
executed and delivered by such Member, and, assuming the due
authorization, execution and delivery hereof by Centerprise,
constitutes a valid and legally binding agreement of such
Member, enforceable against such Member in accordance with its
terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors'
rights generally and (ii) general equitable principles.
1.1.3 Non-Contravention. The execution and delivery of this Agreement
by such Member does not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate
the performance required by, or result in a right of termination
or acceleration under, or result in the creation of any Lien
upon any of the properties or assets of Holdings, the Company or
any Company Subsidiary under, any of the terms, conditions or
provisions of (i) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of
any Governmental Authority applicable to such Member, except for
those items relating to regulating, licensing or permitting the
practice of public accountancy or (ii) other than those
licenses, franchises, permits, concessions or instruments of any
Governmental Authority, any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind
to which such Member is a party or by which such Member may be
bound or affected. The consummation by such Member of the
transactions contemplated hereby or by the Merger Agreement will
not result in a violation, conflict, breach, right of
termination, creation or acceleration of Liens under the of the
terms, conditions or provisions of the items described in
clauses (i) and (ii) of the immediately preceding sentence,
except for those items described above relating to regulating,
licensing or permitting the practice of public accountancy and
any filing which may be required under the HSR Act.
1.1.4 Approvals. To the Knowledge of such Member, and except with
respect to any filing which may be required by any Governmental
Authority or self-regulatory organization regulating, licensing
or permitting the practice of public accountancy, no
declaration, filing, or registration with, or notice to, or
authorization, consent or approval of, any Governmental
Authority is necessary for the execution and
2
<PAGE>
delivery of this Agreement by such Member or the consummation by
such Member of the transactions contemplated hereby or by the Merger
Agreement.
1.1.5 Litigation. There is no action, claim, suit, proceeding
(disciplinary or otherwise), arbitration or investigation pending,
or to the Knowledge of such Member, threatened against such Member
relating to (i) the transactions contemplated by this Agreement or
by the Merger Agreement, (ii) any action taken by such Member or
contemplated by such Member in connection with the consummation by
such Member of the transactions contemplated hereby or (iii) the
practice of public accountancy by such Member.
1.1.6 No Transfer. There are no outstanding subscriptions, options, calls,
contracts, commitments, undertakings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement to
deliver or sell, or cause to be delivered or sold, shares of Company
Stock previously owned by such Member or obligating such Member to
grant, extend or enter into any such agreement or commitment or
obligating such Member to convey or transfer any Company Stock.
There are no voting trusts, proxies or other agreements or
understandings to which such Member is a party or is bound with
respect to the voting of any shares of capital stock or other equity
interests of the Company.
1.1.7 No Broker. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with
the Acquisition or the transactions contemplated by the Merger
Agreement based upon arrangements made by or on behalf of the
Company.
1.1.8 Disclosure. No representation or warranty by or on behalf of such
Member contained in this Agreement or any of the written statements
or certificates furnished at or prior to the Closing by or on behalf
of such Member to Centerprise or its representatives in connection
herewith or pursuant hereto, contains any untrue statement of a
material fact, or omits or will omit to state any material fact
required to make the statements contained herein or therein not
misleading.
1.1.9 Representations and Warranties of the Company. To such Member's
actual knowledge, the representations and warranties of the Company
set forth in Article IV of the Merger Agreement are true and
correct.
1.2 Joint and Several Representations and Warranties. The Members jointly and
severally represent and warrant to Centerprise that the authorized capital
stock of the Company consists of ______ shares of Company Stock, of which
_____ shares are issued and outstanding, all of which are validly issued
and are fully paid, nonassessable and free of preemptive rights.
3
<PAGE>
ARTICLE II
REGISTRATION RIGHTS
2.1 At any time after the second anniversary but prior to the fourth
anniversary of the Closing Date, whenever Centerprise proposes to register
any Centerprise Common Stock for its own account or the account of others
under the Securities Act for a public offering for cash other than a
registration relating to employee benefit plans or acquisitions,
Centerprise will give Holdings and the Member Representative prompt written
notice of its intent to do so. Promptly after receipt of such notice,
Holdings and the Member Representative shall provide written notice to
Centerprise of all of its members (and their respective current mailing
address) that beneficially own shares of Centerprise Common Stock.
Thereafter, upon the written request of Holdings or any of the Members
given within thirty (30) days after receipt of such notice, Centerprise
will use its best efforts to cause to be included in such registration all
of the Centerprise Common Stock which Holdings or any such Member requests,
provided that Centerprise shall have the right to reduce the number of
shares included in such registration, if Centerprise is advised in writing
in good faith by any managing underwriter of the securities being offered
pursuant to any registration statement under this Section 2.1 that the
number of shares to be sold by Persons other than Centerprise is greater
than the number of such shares which can be offered without adversely
affecting the offering; in such case, Centerprise may reduce the number of
shares offered for the accounts of such Persons to a number deemed
satisfactory by such managing underwriter. Any such reduction shall occur
first by eliminating from such registration any shares held by Persons
other than Persons holding Centerprise Common Stock directly or indirectly
immediately following the Closing and then reducing pro rata (based upon
the number of shares requested to be registered) the number of shares
offered for the account of such Person. Centerprise shall not be obligated
to register any shares of Centerprise Common Stock held by Holdings or any
such member at any time when such shares are not then transferable in
accordance with Section 3.2 hereof. Registration rights under this Section
2.1 may be transferred in whole or in part in connection with the transfer
of any shares of Centerprise Common Stock received pursuant to this
Agreement other than the transferee of the kind described in clause (x) of
Section 3.2 hereof.
2.2 Except for underwriting commissions and discounts, all expenses incurred in
connection with the registrations under this Article II (including all
registration, filing, qualification, legal, printer and accounting fees)
shall be paid by Centerprise. In connection with registrations under this
Article II, Centerprise shall
(a) use its best efforts to prepare and file with the SEC as soon as
reasonably practicable, a registration statement with respect to
the Centerprise Common Stock (and such amendments and supplements
to such registration statement and the prospectus used in
connection therewith as may be required by applicable law) and
use its best efforts to cause such registration
4
<PAGE>
to promptly become and remain effective for a period of at least
one hundred twenty (120) days (or such shorter period during
which holders shall have sold all Centerprise Common Stock which
they requested to be registered);
(b) upon the written request of a member of Holdings whose
Centerprise Common Stock is to be covered by any such
registrations, furnish to such Member a reasonable number of
copies of the prospectus covering the offering and sale by the
Member of the shares to be covered thereby;
(c) use its best efforts to register and qualify the Centerprise
Common Stock covered by such registration statement under
applicable state securities laws as the holders shall reasonably
request for the distribution for the Centerprise Common Stock;
(d) take such other actions as are reasonable and necessary to comply
with the requirements of the 1933 Act and the regulations
thereunder;
(e) advise Holdings and each of its members whose Centerprise Common
Stock is to be covered by such registration of the effectiveness
of such registration statement, advise Holdings and each such
member of the entry of any stop order suspending the
effectiveness of such registration statement or of the initiation
of any proceeding for that purpose, and, if such stop order shall
be entered, use its best efforts promptly to obtain the lifting
or removal thereof; and
(f) at any time when a prospectus relating to any Centerprise Common
Stock is required to be delivered under the 1933 Act, notify
Holdings and each Member whose Centerprise Common Stock is to be
covered by such registration, of the happening of any event as a
result of which the registration statement, the prospectus or any
document incorporated therein by reference includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
made therein not misleading and, at the request of Holdings or
such member, prepare and furnish to Holdings or such Member a
post-effective amendment or supplement to the registration
statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of such shares, such
prospectus shall not include any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein not
misleading.
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2.3 In connection with each registration pursuant to this Article II covering
an underwritten registration public offering, Centerprise and each
participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of Centerprise's size and investment
stature, including indemnification.
2.4 In consideration of the granting to Holdings and the Members of the
registration rights under this Article II, Holdings and the Members agree,
and agree to enter into an agreement with the underwriters in connection
with an underwritten registration to the effect, that it/they will not
sell, transfer or otherwise dispose of, including, without limitation,
through put or short sale arrangements, shares of Centerprise Common Stock
in the ten (10) days prior to the effectiveness of any registration of
Centerprise Common Stock for sale to the public and for up to ninety (90)
days following the effectiveness of such registration, provided that all
directors, executive officers and holders of more than five percent (5%) of
the outstanding Centerprise Common Stock agree to the same restrictions;
and further provided that, with respect to the first public offering of
shares of the Centerprise Common Stock within three (3) years following the
IPO, Holdings and the Members shall have been afforded a meaningful
opportunity to include shares in such registration after any reduction by
reason of underwriters' written advice.
ARTICLE III
TRANSFER RESTRICTIONS
3.1 Transfer Restrictions. Except as provided in Section 3.2, for a period of
forty two (42) months from the Closing, none of Holdings nor any of the
Members shall (a) sell, assign, exchange, transfer, distribute or otherwise
dispose of, in whole or in part, (i) any shares of Centerprise Common Stock
received by Holdings in the Acquisition and/or subsequently distributed by
Holdings to the Members (the "Restricted Shares"), or (ii) any interest
(including, without limitation, an option to buy or sell) in any Restricted
Shares; or (b) engage in any transaction, whether or not with respect to
any Restricted Shares or any interest therein, the intent or effect of
which is to reduce the risk of owning the Restricted Shares (including,
without limitation, engaging in put, call, short-sale, derivative, straddle
or similar market transactions); provided, however, for a period of one (1)
year from the Closing, Holdings shall not distribute any Restricted Shares
to any Member.
3.2 Release of Restrictions. Effective eighteen (18) months following the
Closing, and every six (6) months thereafter, until all Restricted Shares
shall have been released from such restrictions, twenty percent (20%) of
the original number of Restricted Shares of Holdings and/or each Member
shall no longer be subject to the restrictions set forth in Section 3.1 and
shall no longer be deemed Restricted Shares for any purposes of this
Agreement;
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provided, that, if a Member's employment with Centerprise or its subsidiary
is terminated within 30 months of the Closing other than through death,
disability, retirement or circumstances approved by the Company's
management and reasonably approved by Centerprise's chief executive
officer, the Restricted Shares then held by such Member or held by Holdings
for such Member shall remain subject to the restrictions set forth in the
Section 3.1 until the fifth anniversary of the Closing Date.
Notwithstanding the foregoing and Section 3.1, Holdings or a Member may (x)
at any time pledge or encumber all or part of Holdings's or such Member's
Restricted Shares, as applicable, provided that the pledgee or secured
party agrees in writing to be bound by the provisions contained in Article
III, (y) at any time after the first anniversary of the Closing transfer
all or part of such Member's Restricted Shares to another Member or to an
immediate family member (or trust or other estate planning Person),
provided, that any such Member, family member or other Person agrees in
writing to be bound by the provisions contained in Article III, and (z)
transfer or cause to be transferred such Member's Restricted Shares upon
such Member's disability or death. As used in this Section 3.2, the terms
"disability" and "retirement" shall have the meaning ascribed to them in
Centerprise's Employee Incentive Compensation Plan. No attempted transfer
of any nature whatsoever that is in violation of this Section shall be
treated as effective for any purpose.
3.3 Legend. The certificates evidencing the Centerprise Common Stock delivered
to Holdings pursuant to the Merger Agreement and/or subsequently
distributed by Holdings to the Members shall bear a legend substantially in
the form set forth below and containing such other information as
Centerprise may deem necessary or appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE DISPOSITION
THEREOF ARE SUBJECT TO THE TERMS OF A COMPANY STOCKHOLDER AGREEMENT
DATED AS OF __________, 1999. A COPY OF SUCH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICE OF THE CORPORATION AND MAY BE INSPECTED BY THE
REGISTERED OWNER OF THIS CERTIFICATE OR A DULY AUTHORIZED
REPRESENTATIVE OF SUCH OWNER UPON REQUEST DURING NORMAL BUSINESS
HOURS.
Upon request from Holdings or any Member (or a permitted transferee)
following the expiration of either all or a part of the restrictions on the
transfer of Centerprise Common Stock set forth in this Article III, Centerprise
shall immediately notify its transfer agent that the applicable shares of
Centerprise Common Stock are no longer restricted shares and shall direct the
transfer agent to reissue certificates of Centerprise Common Stock which do not
contain a restrictive legend in place of the applicable restricted shares. In
the event Holdings's or a Member's request to remove the restrictive legend
coincides with Holdings's or such Member's request to sell the Centerprise
Common Stock, Centerprise shall take such actions as are required
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by its transfer agent to allow the transfer agent to transfer the unrestricted
Centerprise Common Stock free of any restrictive legend.
ARTICLE IV
NONCOMPETITION
4.1 Prohibited Activities. Each Member agrees severally, and not jointly, that
such Member will not, for a period of three (3) years following the Closing
Date, for any reason whatsoever, directly or indirectly, for themselves or
on behalf of or in conjunction with any other Person:
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a
sales representative, in any business selling or providing
accounting, tax, consulting or other related services of a type
or nature similar to those sold or provided by the Company at or
within one year prior to the date that such Holdings or Member
commences competition within a fifty (50) mile radius of any
office location of the Company or any Company Subsidiary (the
"Territory");
(b) sell or provide any accounting, tax, consulting or other related
services of a type or nature similar to those sold or provided by
the Company to, or solicit for the purpose of selling or
providing any such services to, any Person that was a customer of
the Company or any Company Subsidiary at any time during the
preceding one-year period or that was known by the Member to have
been actively being solicited by the Company or any Company
Subsidiary to become a customer at any time during such period;
(c) call upon any Person who is, at that time, within the Territory,
an employee of Centerprise (including the subsidiaries and
affiliates thereof) for the purpose or with the intent of
enticing such employee away from or out of the employ of
Centerprise (including the subsidiaries and affiliates thereof),
or hire such Person; or
(d) enter into, or call upon or request non-public information for
the purpose of entering into, an Acquisition Transaction (as
hereinafter defined) with any Person with respect to which
Centerprise or any subsidiary or affiliate thereof has made an
offer or proposal for, or entered into discussions or
negotiations for, or evaluated with the intent of making a
proposal for, an Acquisition Transaction, within the preceding
one-year period.
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Notwithstanding the foregoing, a Member may be employed by a customer of
the Company or any other Person for the purpose of providing accounting,
tax, consulting or other related services of a type or nature similar to
those sold or provided by the Company to such customer or other Person, so
long as in connection therewith the Member does not, directly or
indirectly, provide such services to another third party for hire.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares,
proxy solicitation or other business combination. Notwithstanding the
above, the foregoing covenant shall not be deemed to prohibit any Member
from (a) acquiring as an investment not more than one percent (1%) of the
capital stock of a competing business whose stock is traded on a national
securities exchange or over-the-counter so long as the Member does not
consult with or is not employed by such competitor and (b) owning equity
interests in Holdings.
4.2 Damages. Because of the difficulty of measuring economic losses to
Centerprise as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to Centerprise
for which it would have no other adequate remedy, each Member agrees that
the foregoing covenant may be enforced by Centerprise in the event of
breach by such Member, by injunctions and restraining orders.
4.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Article IV impose a reasonable restraint on the
Members in light of the activities and business of Centerprise (including
the subsidiaries thereof) on the date of the execution of this Agreement
and the current plans of Centerprise; but it is also the intent of
Centerprise and the Members that such covenants be construed and enforced
in accordance with the changing activities and business of Centerprise
(including the subsidiaries thereof) throughout the term of this covenant.
It is further agreed by the parties hereto that, in the event that any
Member who has entered into an employment agreement, incentive compensation
agreement or other similar agreement with Centerprise and/or any subsidiary
thereof as set forth herein shall thereafter cease to be employed
thereunder, and such Member shall enter into a business or pursue other
activities not in competition with Centerprise and/or any subsidiary
thereof, or similar activities or business in locations the operations of
which, under such circumstances, does not violate this Article IV and in
any event such new business, activities or location are not in violation of
this Article IV or of such Member's obligations under this Article IV, such
Member shall not be chargeable with a violation of this Article IV if
Centerprise and/or any subsidiary thereof shall thereafter enter the same,
similar or a competitive (i) business, (ii) course of activities or (iii)
location, as applicable.
4.4 Severability; Reformation. The covenants in this Article IV are severable
and separate, and the unenforceability of any specific covenant shall not
affect the provisions of any
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other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth
are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems
reasonable, and the Agreement shall thereby be reformed.
4.5 Independent Covenant. All of the covenants in this Article IV shall be
construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Member
against Centerprise (including the subsidiaries thereof), whether
predicated on this Agreement or otherwise, shall not constitute a defense
to the enforcement by Centerprise of such covenants. It is specifically
agreed that the period of three (3) years stated at the beginning of this
Article IV, during which the agreements and covenants of each Member made
in this Article IV shall be effective, shall be computed by excluding from
such computation any time during which such Member is in violation of any
provision of this Article IV; provided, however, in all events Centerprise
shall initiate proceedings to enforce this Article IV within four (4) years
of the Closing Date. The covenants contained in this Article IV shall not
be affected by any breach of any other provision hereof by any party hereto
and shall have no effect if the transactions contemplated by this Agreement
are not consummated.
4.6 Materiality. Each of the Members hereby agree that this covenant is a
material and substantial part of this transaction.
ARTICLE V
INDEMNIFICATION
5.1 Indemnification by the Members and Holdings. Subject to Sections 5.7 and
5.8, with respect to Sections 5.1(a) through (c), the Members, and with
respect to Section 5.1(d), Holdings and any Member individually named as a
defendant in the litigation matters referred to in Section 5.1(d), in each
case jointly and severally, agree to indemnify, defend and save the
Centerprise Indemnified Parties (hereinafter defined), forever harmless
from and against, and to promptly pay to a Centerprise Indemnified Party or
reimburse a Centerprise Indemnified Party for, any and all Losses
(hereinafter defined) sustained or incurred by any Centerprise Indemnified
Party, resulting from, arising out of, in connection with or otherwise by
virtue of:
(a) any misrepresentation or breach of a representation or warranty
made in Article I herein or in any certificate, schedule,
document, exhibit or other instrument delivered hereunder by any
Member or any action, demand or claim by any third party against
or affecting any Centerprise Indemnified Party which, if
successful, would give rise to a breach of any such
representation or warranty, except that the obligation of the
Members to
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indemnify, defend and save harmless for any misrepresentation or
breach of representation or warranty made in Section 1.1 hereof
or in any certificate, schedule, document, exhibit or other
instrument delivered in respect thereof shall not be joint and
several, but such obligation shall be several only and limited to
the several Member(s) making such misrepresentation or breach;
(b) any liability under the 1933 Act, the Securities Exchange Act of
1934, as amended (the "1934 Act"), or other federal or state law
or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a
material fact relating to the Company, contained in any
preliminary prospectus relating to the IPO, the Registration
Statements or any proxy statement or prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or
arising out of or based upon any omission to state therein a
material fact relating to the Company required to be stated
therein or necessary to make the statements therein not
misleading, and not provided to Centerprise or its counsel by the
Company; provided, however, that such indemnity shall not inure
to the benefit of any Centerprise Indemnified Party to the extent
that such untrue statement (or alleged untrue statement) was made
in, or omission (or alleged omission) occurred in, any
preliminary prospectus and (i) the Company provided, in writing,
corrected information to Centerprise or its counsel for inclusion
in the final prospectus prior to distributing such prospectus,
and such information was not so included, or (ii) Centerprise did
not provide the Company and its counsel with the information
required to be provided pursuant to Section 8.2.2 of the Merger
Agreement, and such information is the basis for the untrue
statement or omission (or alleged untrue statement or omission)
giving rise to the liability under this Section 5.1(b);
(c) notwithstanding anything contained in this Agreement to the
contrary, (i) any arrangements made by or on behalf of the
Members, Holdings or the Company in connection with the
Acquisition or the transactions contemplated by this Agreement
with respect to brokerage, finders and other fees or commissions,
(ii) disallowance of any tax deduction to Centerprise or the
Company with respect to any item listed on Schedule 2.6 of the
Merger Agreement and considered in determining Net Working
Capital, (iii) any matter which is listed on Schedule 7.1.4 of
the Merger Agreement or which should be listed on Schedule 4.10
of the Merger Agreement, (iv) the Excluded Assets, the Excluded
Liabilities, and the transactions contemplated under Section
7.1.4 of the Merger Agreement, and (v) any payment with respect
to Dissenting Shares; or
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(d) notwithstanding anything in this Agreement to the contrary, any
matterwhich is listed on Schedule 4.10 of the Merger Agreement.
As used herein, the "Centerprise Indemnified Parties" shall mean
Centerprise, its Subsidiaries and Affiliates, the Founding Companies other than
the Company (the "Other Founding Companies"), and their respective officers,
directors, employees, agents, employee plans and plan fiduciaries, plan
administrators or other Person dealing with any such plans; provided, however,
that the Other Founding Companies, and each of their respective officers,
directors, employees, agents, employee plans and plan fiduciaries, plan
administrators or other Persons dealing with any such plans, shall cease to be a
"Centerprise Indemnified Party" for all purposes hereunder as of the Closing,
and thereafter such Persons shall have no further rights and remedies under this
Article V (except to the extent a Person is an officer, director, employee or
agent of Centerprise as a result of the consummation of the transactions
contemplated under the Other Agreements); provided, further that the
Subsidiaries of Centerprise shall include the Company, the Company Subsidiaries
and the other Founding Companies from and after the Closing. Accordingly, for
purposes of this Article V and subject to the limitations set forth in this
Article V, the Other Founding Companies, and each of their respective officers,
directors, employees, agents, employee plans and plan fiduciaries, plan
administrators or other Persons dealing with any such plans, shall be deemed to
be third party beneficiaries of this Agreement.
As used in this Agreement, "Losses" shall mean any and all liabilities
(whether contingent, fixed or unfixed, liquidated or unliquidated, or
otherwise), obligations, deficiencies, demands, claims, suits, actions, or
causes of action, assessments, losses, costs, expenses, interests, fines,
penalties, actual or punitive damages or costs or expenses of any and all
investigations, proceedings, judgments, orders, environmental analyses,
remediations, settlements and compromises (including reasonable fees and
expenses of the attorneys, accountants and other experts).
5.2 Indemnification by Centerprise. Centerprise agrees to indemnify, defend and
save each of the Members and their respective Affiliates, and their
Affiliates' respective officers, directors, employees and agents (each, a
"Member Indemnified Party") forever harmless from and against, and to
promptly pay to a Member Indemnified Party or reimburse a Member
Indemnified Party for, any and all Losses sustained or incurred by any
Member Indemnified Party relating to, resulting from, arising out of or
otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made in the Merger Agreement or in any document or other
instrument delivered hereunder or under the Merger Agreement by
Centerprise or any action, demand or claim by any third party
against or affecting any Member Indemnified Party which, if
successful, would give rise to a breach of any such
representation or warranty;
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(b) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to Centerprise or any of
the Other Founding Companies contained in any preliminary
prospectus relating to the IPO, the Registration Statements or
any proxy statement or prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a
material fact relating to Centerprise or any of the Other
Founding Companies required to be stated therein or necessary to
make the statements therein not misleading; and
(c) any liability under the 1933 Act, the 1934 Act, or other federal
or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to Holdings, the Company or
the Members, contained in any preliminary prospectus relating to
the IPO, the Registration Statements or any proxy statement or
prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission
to state therein a material fact relating to Holdings, the
Company or the Members required to be stated therein or necessary
to make the statements therein not misleading, to the extent such
untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary
prospectus and (i) Holdings, the Company or Members provided, in
writing, corrected information to Centerprise or its counsel for
inclusion in the final prospectus prior to distributing such
prospectus, and such information was not so included, or (ii)
Centerprise did not provide Holdings, the Member Representative
and their counsel with the information required to be provided
pursuant to Section 8.2.2 of the Merger Agreement, and such
information is the basis for the untrue statement or omission (or
alleged untrue statement or omission) giving rise to the
liability under this Section 5.2(c).
5.3 Indemnification Procedure for Third Party Claims.
5.3.1 In the event that subsequent to the Closing any Person entitled to
indemnification under this Agreement (an "Indemnified Party")
receives notice of the assertion of any claim, issuance of any order
or the commencement of any action or proceeding by any Person who is
not a party to this Agreement or an Affiliate of a party, including,
without limitation, any domestic or foreign court or Governmental
Authority (a "Third Party Claim"), against such Indemnified Party,
against which a party to this Agreement is required to provide
indemnification under this Agreement (an "Indemnifying Party"), the
Indemnified Party shall give written notice thereof together with a
statement of any available information regarding such
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claim to the Indemnifying Party within thirty (30) days after
learning of such claim (or within such shorter time as may be
necessary, in the Indemnified Party's reasonable judgment, to
give the Indemnifying Party a reasonable opportunity to respond
to and defend such claim). The Indemnifying Party shall have
the right, upon written notice to the Indemnified Party (the
"Defense Notice") within ten days (10) after receipt from the
Indemnified Party of notice of such claim, to conduct at its
expense the defense against such claim in its own name, or if
necessary in the name of the Indemnified Party; provided,
however, that the Indemnified Party shall have the right to
approve the defense counsel selected by the Indemnifying Party,
which approval shall not be unreasonably withheld, and in the
event the Indemnifying Party and the Indemnified Party cannot
agree upon such counsel within ten (10) days after the Defense
Notice is provided, then the Indemnifying Party shall propose
an alternate defense counsel, who shall be subject again to the
Indemnified Party's approval.
5.3.2 In the event that the Indemnifying Party shall fail to timely
give the Defense Notice, it shall be deemed to have elected not
to conduct the defense of the subject claim, and in such event
the Indemnified Party shall have the right to conduct such
defense in good faith at the cost and expense of the
Indemnifying Party and the Indemnifying Party shall reimburse
the Indemnified Party for all costs, expenses and settlement
amounts actually paid in connection therewith; provided,
however, that under no circumstances shall the Indemnified
Party compromise or settle any Third Party Claim without the
prior written consent of the Indemnifying Party (which, in the
case of the Members, may be granted by the Member
Representative (as defined in Section 5.13)), which consent
shall not be unreasonably withheld or delayed.
5.3.3 In the event that the Indemnifying Party does elect to conduct
the defense of the subject claim, the Indemnified Party will
cooperate with and make available to the Indemnifying Party
such assistance and materials as may be reasonably requested by
it, all at the expense of the Indemnifying Party, and the
Indemnified Party shall have the right at its expense to
participate in the defense assisted by counsel of its own
choosing, provided that the Indemnified Party shall have the
right to compromise and settle the claim only with the prior
written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld or delayed. Without the prior
written consent of the Indemnified Party, the Indemnifying
Party will not enter into any settlement of any Third Party
Claim or cease to defend against such claim, if pursuant to or
as a result of such settlement or cessation, (i) injunctive or
other equitable relief would be imposed against the Indemnified
Party, or (ii) such settlement or cessation would lead to
liability or create any financial or other obligation on the
part of the Indemnified Party for which the Indemnified Party
is not entitled to indemnification hereunder, or (iii) such
settlement includes a written admission of guilt. The
Indemnifying Party shall not be entitled to
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control, and the Indemnified Party shall be entitled to have sole
control over, the defense or settlement of any claim (A) to the
extent that claim seeks an order, injunction or other equitable
relief against the Indemnified Party which, if successful, could
materially interfere with the business, operations, assets,
condition (financial or otherwise) or prospects of the Indemnified
Party or (B) in a proceeding to which the Indemnifying Party is also
a party and the Indemnified Party determines in good faith that
joint representation would be inappropriate (and in each case the
cost of such defense shall constitute an amount for which the
Indemnified Party is entitled to indemnification hereunder). If an
offer is made to settle a Third Party Claim which all parties to
such Third Party Claim (including the Indemnifying Party) are
prepared to settle and which offer the Indemnifying Party is
permitted to settle under this Section 5.3.3 only upon the prior
written consent of the Indemnified Party, the Indemnifying Party
will give prompt written notice to the Indemnified Party to that
effect. If the Indemnified Party fails to consent to such firm offer
within (30) calendar days after its receipt of such notice, the
Indemnified Party may continue to contest or defend such Third Party
Claim and, in such event, the maximum liability of the Indemnifying
Party as to such Third Party Claim will not exceed the amount of
such settlement offer, plus costs and expenses paid or incurred by
the Indemnified Party through the end of such (30) day period.
5.3.4 Any judgment entered, order issued or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party,
and shall conclusively be deemed to be an obligation with respect to
which the Indemnified Party is entitled to prompt indemnification
hereunder.
5.4 Direct Claims. It is the intent of the parties hereto that all direct
claims by an Indemnified Party against a party hereto not arising out of
Third Party Claims shall be subject to and benefit from the terms of this
Article V. Any claim under this Article V by an Indemnified Party for
indemnification other than indemnification against a Third Party Claim, (a
"Direct Claim") will be asserted by giving the Indemnifying Party
reasonably prompt written notice thereof, together with a statement of any
available information regarding such claim, and the Indemnifying Party will
have a period of thirty (30) calendar days within which to satisfy such
Direct Claim. If the Indemnifying Party does not so respond within such
thirty (30) calendar day period, the Indemnifying Party will be deemed to
have rejected such claim, in which event the Indemnified Party will be free
to pursue such remedies as may be available to the Indemnified Party under
this Article V.
5.5 Failure to Give Timely Notice. A failure by an Indemnified Party to give
timely, complete or accurate notice as provided in Section 5.3 or 5.4 will
not affect the rights or obligations of any party hereunder except and only
to the extent that, as a result of such failure, any party entitled to
receive such notice was deprived of its right to recover any payment under
any applicable insurance coverage, or deprived of its right to assert any
claim because of
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expiration of the applicable statute of limitations, or was otherwise
directly and materially damaged as a result of such failure to give timely
notice.
5.6 Reduction of Loss. To the extent any Loss of an Indemnified Party is
reduced by receipt of payment (i) under insurance policies (net of any
retroactive adjustment or other reimbursement to the insurer in respect of
such payment), (ii) from third parties not affiliated with the Indemnified
Party, or (iii) the amount of any tax benefit to the Centerprise
Indemnified Parties, such payments and/or tax benefits (net of the expenses
of the recovery thereof) shall be credited against such Loss. The pendency
of such payments shall not delay or reduce the obligation of the
Indemnifying Party to make payment to the Indemnified Party in respect of
such Loss, and the Indemnified Party shall not have any obligation,
hereunder or otherwise, to pursue payment under or from any insurer or
third party in respect of such Loss. The Indemnified Party shall cooperate,
at no expense to the Indemnified Party, in any reasonable efforts of the
Indemnifying Party in pursuing such payments, including expressly
acknowledging the Indemnifying Party's right and standing to pursue such
payments, and the Indemnified Party will use its customary efforts short of
litigating with an insurer or third party to collect amounts due from such
insurer or third party. If any insurance or third party reimbursement is
obtained subsequent to payment by an Indemnifying Party in respect of a
Loss, such reimbursement (to the extent of amounts theretofore paid by the
Indemnifying Party on account of such Loss) shall be promptly paid over to
the Indemnifying Party.
5.7 Limitation on Indemnities.
5.7.1 Threshold for the Members. With respect to representations and
warranties, the Members shall not have any liability pursuant to
Section 5.1(a) hereof unless and until and only to the extent that
the aggregate amount of Losses accrued pursuant to Section 5.1(a)
exceeds 1% of aggregate Basic Purchase Consideration; provided,
however, that this threshold shall not apply to Losses arising out
of breaches of representations or warranties contained in Sections
1.1.1, 1.1.2, 1.2 and 1.1.9 as it relates to the representation and
warranty of the Company set forth in Section 4.16 of the Merger
Agreement, and the Members shall indemnify the Centerprise
Indemnified Parties for any Losses accruing thereunder in accordance
with this Article V without regard to such threshold.
5.7.2 Threshold for Centerprise. With respect to representations and
warranties, Centerprise shall not have any liability pursuant to
Section 5.2(a) hereof unless and until and only to the extent that
the aggregate amount of the Losses accrued pursuant to Section
5.2(a) exceeds 1% of aggregate Basic Purchase Consideration;
provided, however, that this threshold shall not apply to Losses
arising out of the breach of representations or warranties contained
in Section 6.2 of the Merger Agreement and Centerprise shall
indemnify the Member Indemnified Parties from
16
<PAGE>
any Losses occurring thereunder in accordance with this Article V
without regard to such threshold.
5.7.3 Limitations on Claims Against the Members. The liability of all
Members for misrepresentations and breaches of representations and
warranties under Section 1.1(a) shall be limited to 100% of
aggregate Basic Purchase Consideration in the aggregate; provided,
however, that such liability for a Member shall be limited to three
times the aggregate Basic Purchase Consideration received, directly
or indirectly, by such Member or by Holdings on behalf of such
Member; provided further, however, that such limitations shall not
apply to Losses arising out of breaches of representations or
warranties contained in Sections 1.1.1, 1.1.2, 1.2, and 1.1.9 as it
relates to the representation and warranty and the Company set forth
in Section 4.16 of the Merger Agreement, and any Losses accruing
thereunder shall not count towards such limitations.
5.7.4 Limitation on Claims Against Centerprise. The liability of
Centerprise under Section 5.2(a) shall be limited to 100% of
aggregate Basic Purchase Consideration in the aggregate; provided,
however, that this limitation shall not apply to Losses arising out
of breaches of representations or warranties in Section 6.2 of the
Merger Agreement and any Losses accruing thereunder shall not count
towards such limitation.
5.8 Survival of Representations, Warranties and Covenants of the Members and
Holdings; Time Limits on Indemnification Obligations. Notwithstanding any
right of Centerprise to fully investigate the affairs of Holdings, the
Company, the Company Subsidiaries and the Business, and notwithstanding any
Knowledge of facts determined or determinable by Centerprise pursuant to
such investigation or right of investigation, Centerprise has the right to
rely fully upon the representations, warranties, covenants and agreements
of the Members and Holdings contained in this Agreement or in any
certificate delivered pursuant to any of the foregoing. All such
representations, warranties, covenants and agreements of the Members and
Holdings shall survive the execution and delivery of this Agreement and the
Closing; provided, however, (i) that the Members' obligations pursuant to
Section 5.1, other than those relating to covenants and agreements to be
performed by the Members after the Closing, shall expire one (1) year after
the Closing, except with respect to obligations arising under or relating
to Section 4.16 of the Merger Agreement as it relates to federal, state,
local and foreign income taxation, which shall survive until the earlier of
(A) the expiration of the applicable periods (including any extensions) of
the respective statutes of limitation applicable to the payment of the
Taxes or (B) the completion of the final audit and determinations by the
applicable taxing authority and final disposition of any deficiency
resulting therefrom; and (ii) solely to the extent that Centerprise
actually incurs liability under the 1933 Act or the 1934 Act, the
obligations under Sections 5.1(c) or (d) above shall survive until the
expiration of any applicable statute of limitations with respect to such
claims.
17
<PAGE>
5.9 Survival of Representations, Warranties and Covenants of Centerprise; Time
Limits on Indemnification Obligations. All representations, warranties,
covenants and agreements of Centerprise shall survive the execution and
delivery of the Merger Agreement and this Agreement and the Closing;
provided, however, that Centerprise's obligations under Section 5.2, other
than those relating to covenants and agreements to be performed by
Centerprise after the Closing, shall expire one year after Closing, except
that, solely to the extent that the Members actually incur liability under
the 1933 Act or the 1934 Act, the obligations under Sections 5.2(c) or (d)
above shall survive until the expiration of any applicable statute of
limitations with respect to such claims.
5.10 Defense of Claims; Control of Proceedings. Notwithstanding anything in
this Agreement to the contrary, to the extent any Loss subject to
indemnification hereunder would exceed the Indemnifying Party's indemnity
obligations under this Agreement, the Indemnified Party shall be entitled
to control the defense of such claim or management of such proceeding with
respect to such excess Loss.
5.11 Fraud; Exclusive Remedy. The limitations set forth in this Article V shall
not apply to fraud by any party. In the absence of fraud and
notwithstanding any Law to the contrary and any rights that would
otherwise be available thereunder, the indemnification provisions of this
Article V set forth the sole and exclusive remedy of the Centerprise
Indemnified Parties following the Closing against the Members and of the
Member Indemnified Parties following the Closing against Centerprise and
its affiliates with respect to any claim for relief resulting from,
arising out of or otherwise by virtue of this Agreement and the
transactions contemplated hereby.
5.12 Manner of Satisfying Indemnification Obligations. Subsequent to the
Closing, the Members may satisfy their respective obligations, if any,
under this Article V (i) by tendering to the Centerprise Indemnified
Parties cash or shares of Centerprise Common Stock that are then
transferable in accordance with Section 3.2, such shares to be valued at
the Market Price. "Market Price" shall mean the average closing (last)
price for a share of Centerprise Common Stock (as reported on the exchange
or market on which such shares are then listed or traded) for the most
recent twenty (20) days that such shares have traded ending on the date
two (2) days prior to the date tendered pursuant to clause (i) of the
preceding sentence, or, if such shares are not then listed or traded on an
exchange or other market, the fair market value of such shares as
determined by an appraiser reasonably agreed to by the parties.
5.13 Member Representative. Holdings and each Member appoints _________________
(the "Member Representative") as its agent and representative with full
power and authority to agree, contest or settle any claim or dispute
affecting any Member made under Article II of the Merger Agreement or
Article V hereunder to otherwise act on behalf of the Members in
accordance with the terms of this Agreement, including, without
limitation, to direct the amount and manner of the payment of the
aggregate Basic Purchase
18
<PAGE>
Consideration; provided, that the Member Representative may be removed and
a successor to the Person originally serving as the Member Representative
may be designated in a writing signed by a majority-in-interest of the
Members and delivered to Centerprise in accordance with Section 6.2.
ARTICLE VI
PURCHASED AR; CASH RETENTION
6.1 Purchase of AR. On or after the second business day after the Closing, but
no later than within five (5) business days the Closing, Holdings shall
purchase from the Company all AR (the "Purchased AR") for $__________, less
any collections from date of Closing to the date of such purchase, and
Centerprise shall cause the Company to sell and assign the Purchased AR to
Holdings pursuant to sale and assignment documents acceptable to
Centerprise.
6.2 Payment of Deferred Compensation. Upon receipt by the Company of cash in
accordance with Section 6.1 above plus collection of AR from the Closing
Date to the date of purchase under Section 6.1 Centerprise shall cause the
Company to pay to the Members and certain non-shareholder officers and
associate principals of the Company accrued salary and accrued bonus
accounts equal to the amounts set forth on Schedule 6.2 next to each such
payee's name; provided, however, aggregate amount otherwise payable
pursuant to this Section 6.2 exceeds the amount received by the Company
pursuant to Section 6.1 above plus any collection of AR from the Closing
Date to the date of purchase under Section 6.1 such payment shall be
reduced to such lower amount, and the amount payable to each payee as set
forth on Schedule 6.2 shall be reduced accordingly, pro rata based on the
amounts set forth on Schedule 6.2.
6.3 Retention of Cash. Seller shall retain, for a period of at least twelve
(12) months after the Closing cash, cash equivalents or accounts receivable
in an amount equal to at least $_______.
ARTICLE VII
GENERAL PROVISIONS
7.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent by
nationally recognized overnight delivery service, mailed by registered or
certified mail (return receipt requested) or sent via facsimile to the
parties at the following addresses (or at such other address for a party as
shall be specified by notice given in accordance with this Section):
19
<PAGE>
7.1.1 If to Centerprise to:
Centerprise Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert Basten
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
7.1.2 If to the Member Representative or the Members, as applicable,
addressed to the addresses set forth on Schedule 6.1.2, with copies
to such counsel as set forth with respect to each Member on such
Schedule 6.1.2, as applicable:
7.2 Interpretation. The headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning
or interpretation of this Agreement. In this Agreement, unless a contrary
intention appears, (i) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to
any particular Article, Section or other subdivision and (ii) reference to
any Article or Section means such Article or Section hereof. No provision
of this Agreement shall be interpreted or construed against any party
hereto solely because such party or its legal representative drafted such
provision.
7.3 Certain Definitions. Capitalized terms used in this Agreement without
definition shall have the meaning ascribed to such terms in the Merger
Agreement.
7.4 Entire Agreement; Assignment. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof and (b) shall not be assigned by operation of law or otherwise.
7.5 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Illinois applicable to contracts executed and to be performed wholly within
such state, without giving effect to its choice of law rules.
20
<PAGE>
7.6 Counterparts. This Agreement may be executed via facsimile or otherwise in
two or more counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same agreement.
7.7 Parties in Interest. This Agreement shall be binding upon and inure solely
to the benefit of each party hereto, and their respective successors,
permitted assigns, heirs, legal representatives and executors and except as
expressly set forth in herein, nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies
of any nature whatsoever under or by reason of this Agreement.
7.8 Merger Agreement. The Members agree that they will be entitled to the
benefits of, and subject to the obligations and liabilities of, Section 2.3
of the Merger Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
CENTERPRISE ADVISORS, INC.
By:
---------------------------------------
Name:
-------------------------------------
Its:
--------------------------------------
[Holding Company]
By:
---------------------------------------
Name:
-------------------------------------
Its:
--------------------------------------
MEMBERS
21
<PAGE>
[KATTEN MUCHIN & ZAVIS LETTERHEAD]
Exhibit 5
September 24, 1999
Centerprise Advisors, Inc.
225 West Washington Street, 16th/ Floor
Chicago, IL 60606
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Centerprise Advisors, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of a
Registration Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
The Registration Statement relates to 12,488,981 shares of the Company's Common
Stock, $0.01 par value per share (the "Common Stock") issuable by the Company
upon the consummation of the transactions contemplated in ten Merger Agreements,
each dated as of March 31, 1999 and amended and restated as of September 24,
1999 (the "Merger Agreements"), by and among the Company, wholly-owned
subsidiaries of the Company, and ten separate companies that collectively
provide professional, business and financial services and products (the
"Centerprise Companies") and their respective related entities.
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and upon
affidavits, certificates and written statements of directors, officers and
employees of, and the accountants for, the Company. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such instruments, documents and records as we have deemed relevant and necessary
to examine for the purpose of this opinion, including (a) the Registration
Statement, (b) the Certificate of Incorporation of the Company, (c) the Bylaws
of the Company, (d) the Merger Agreements and (e) resolutions adopted by the
Board of Directors of the Company.
<PAGE>
CenterPoint Advisors, Inc.
September 24, 1999
Page 2
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the genuineness
of all signatures, the due authority of the parties signing such documents, the
authenticity of the documents submitted to us as originals and the conformity to
authentic original documents of all documents submitted to us as certified,
conformed or reproduced copies.
Based upon and subject to the foregoing, it is our opinion that the
12,488,981 shares of Common Stock covered by the Registration Statement, when
issued and exchanged for the equity interests of the Centerprise Companies by
the Company in accordance with the provisions of the Merger Agreements, will be
legally issued, fully paid and non-assessable shares of Common Stock.
Our opinion expressed above is limited to the General Corporation Law and
case law of the State of Delaware, and we do not express any opinion concerning
any other laws. This opinion is given as of the date hereof and we assume no
obligation to advise you of changes that may hereafter be brought to our
attention.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement.
Very truly yours,
/s/ Katten Muchin & Zavis
-------------------------
KATTEN MUCHIN & ZAVIS
<PAGE>
Exhibit 23.1 Consent of Independent Accountants
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
registration statement on Form S-4 of our reports dated as shown below,
relating to the respective financial statements which appear in such
prospectus.
<TABLE>
<CAPTION>
Company Opinion Date
- ------- ------------------
<S> <C>
Centerprise Advisors, Inc................................... September 24, 1999
Reznick Fedder & Silverman, P.C............................. January 29, 1999
Robert F. Driver Co., Inc................................... September 17, 1999
Mann Frankfort Stein & Lipp, P.C............................ June 17, 1999
Follmer, Rudzewicz & Company, P.C........................... July 20, 1999
Berry, Dunn, McNeil & Parker, Chartered..................... August 26, 1999
Urbach Kahn & Werlin PC..................................... September 24, 1999
Self Funded Benefits, Inc. d/b/a Insurance Design
Administrators............................................. February 5, 1999
Grace & Company, P.C........................................ February 12, 1999
The Reppond Companies....................................... January 29, 1999
Simione, Scillia, Larrow & Dowling LLC...................... January 29, 1999
</TABLE>
We also consent to the references to us under the heading "Experts" in such
Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
September 24, 1999
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
The Board of Directors
Robert F. Driver Co., Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG LLP
San Diego, California
September 24, 1999
