<PAGE>
As filed with the Securities and Exchange Commission on May 24, 1999
Registration No. 333-75861
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
CENTERPOINT 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: [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
Title of Each Class of Maximum Maximum Amount of
Securities to be Amount to be Offering Aggregate Registration
Registered Registered Price Per Share Offering Price Fee
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 3,074,361 N/A $24,313,000(1) $6,760(1)(2)
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</TABLE>
(1) The registration fee has been calculated pursuant to Rule 457(f)(2) of
Regulation C under the Securities Act of 1933, as amended.
(2) Previously paid.
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
CENTERPOINT ADVISORS, INC.
PROSPECTUS
For 3,074,361 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 CenterPoint 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 & Company, P.C., a Missouri professional corporation.
(4) Mann Frankfort Stein & Lipp, P.C., a Texas professional corporation.
(5) Reznick Fedder & Silverman, Certified Public Accountants, A
Professional Corporation, a Maryland professional corporation.
(6) Robert F. Driver Co., Inc., a Delaware corporation.
(7) Simione, Scillia, Larrow & Dowling LLC, a Connecticut limited liability
company.
(8) Urbach Kahn & Werlin PC, a New York professional corporation.
The mergers of these entities with CenterPoint and the CenterPoint 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
3,074,361 shares of CenterPoint common stock to be issued in the mergers.
Each of Holthouse Carlin & Van Trigt LLP, a California limited liability
partnership, Self-Funded Benefits, Inc., d/b/a Insurance Design Administrators,
a New Jersey corporation, and Reppond (which includes three related entities,
The Reppond Company Inc., a Washington corporation, Reppond Administrators,
L.L.C., a Washington limited liability company, and VeraSource Excess Risk
Ltd., a Washington corporation) is also holding meetings regarding a proposed
merger with CenterPoint. For a summary of the structure and material 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 , 1999.
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Dear Stockholders:
We will hold a special meeting of stockholders of Berry, Dunn, McNeil &
Parker, Chartered, a Maine professional service corporation, at a.m., local
time, on , 1999 at , Portland, Maine 04104. At the meeting, we will ask
you to vote on:
1. A proposal to approve and adopt the agreement, dated as of March 31, 1999
among CenterPoint Advisors, Inc., Berry Dunn Mergersub Inc., Berry Dunn, BDM&P
Holdings, LLC and certain of its members, and the arrangement through which:
. More than 85% of Berry Dunn's shares will be transferred to BDM&P
Holdings, which will be owned by certain stockholders of Berry Dunn;
. Berry Dunn will be converted from a Maine professional service
corporation to a Maine business corporation;
. each outstanding share of Berry Dunn will be converted into the right to
receive cash and shares of CenterPoint common stock; and
. Berry Dunn will become a wholly-owned subsidiary of CenterPoint.
2. Such other business as may properly come before the meeting or any
postponement or adjournment of the meeting.
The closing of the merger will occur simultaneously with the closing of the
initial public offering of CenterPoint. Under the merger agreement, you,
directly or indirectly through BDM&P Holdings, LLC, will receive $ in cash
and shares of CenterPoint common stock for each Berry Dunn share you own.
Berry Dunn stockholders may dissent by filing a written objection to the
proposed merger with the corporation at or prior to the meeting and by voting
against the merger. A dissenting holder who complies with the requirements of
Sections 908 and 909 of the Maine Business Corporation Act will have the right
to demand payment for, and appraisal of, the value of his or her shares. In the
event that a holder exercises such dissenters' rights, the aggregate
consideration to be received by Berry Dunn stockholders will be reduced by the
number of shares of CenterPoint common stock and amount of cash that such
dissenting security holder would have received in the merger. The shareholders
of Berry Dunn have agreed to indemnify CenterPoint for any costs relating to
any payment with respect to dissenting shares. See "The Merger Agreements--
Dissenters' Rights Regarding the Mergers" in the accompanying joint information
statement/prospectus.
Approval of the merger and related transactions with CenterPoint requires
the affirmative vote of the holders of more than two-thirds of the shares of
Berry Dunn entitled to vote on this matter. Certain stockholders of Berry Dunn,
who collectively own the requisite number of shares to approve the merger, have
agreed with CenterPoint to vote all of the Berry Dunn shares owned by them in
favor of the merger. In addition, the closing of the Berry Dunn merger is
contingent on the closing of each of the other mergers described in the
accompanying joint information statement/prospectus.
After careful consideration, your board of directors has unanimously
approved the merger agreement and the transactions provided for therein and has
concluded that they are in the best interests of Berry Dunn and its
stockholders. Your board of directors recommends a vote in favor of the merger
agreement and the merger.
<PAGE>
Only stockholders of record at the close of business on , 1999 are
entitled to notice of, and will be entitled to vote at, the meeting or any
postponements or adjournment of the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
_____________________________________
Clerk
Berry, Dunn, McNeil & Parker,
Chartered
Portland, Maine
, 1999
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Dear Stockholders:
We will hold a special meeting of stockholders of Follmer, Rudzewicz &
Company, P.C., a Michigan professional corporation, at a.m., local time, on
, 1999 at 26200 American Dr., Southfield, Michigan 48086-5004. At the
meeting, we will ask you to vote on:
1. A proposal to approve and adopt the agreement, dated as of March 31, 1999
between Follmer and CenterPoint Advisors, Inc. and the arrangement through
which:
. each outstanding share of Follmer will be contributed to FRF Holding
LLC, a newly formed limited liability company owned by the Follmer
stockholders;
. Follmer will be converted from a Michigan professional corporation to
a Michigan business corporation;
. each outstanding share of Follmer will be converted into the right to
receive cash and shares of CenterPoint common stock; and
. Follmer will become a wholly-owned subsidiary of CenterPoint.
2. Such other business as may properly come before the meeting or any
postponement or adjournment of the meeting.
The closing of the merger will occur simultaneously with the closing of the
initial public offering of CenterPoint common stock. Under the merger
agreement, FRF Holding LLC will receive a total of $ in cash and shares
of CenterPoint common stock for the shares of Follmer it owns.
Approval of the merger with CenterPoint requires the affirmative vote of the
holders of a majority of the shares of Follmer entitled to vote on this matter.
Certain stockholders of Follmer, who collectively own the requisite number of
shares to approve the merger, have agreed with CenterPoint to vote all of the
Follmer shares owned by them in favor of the merger. In addition, the closing
of the Follmer merger is contingent on the closing of each of the other mergers
described in the accompanying joint information statement/prospectus.
After careful consideration, your board of directors has unanimously
approved the merger agreement and the transactions provided for therein and has
concluded that they are in the best interests of Follmer and its stockholders.
Your board of directors recommends a vote in favor of the merger agreement and
the merger.
Only stockholders of record at the close of business on , 1999 are
entitled to notice of, and will be entitled to vote at, the meeting or any
postponements or adjournment of the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
_________________________________
Secretary
Follmer, Rudzewicz & Company, P.C.
Southfield, Michigan
, 1999
<PAGE>
GRACE CAPITAL, LLP
----------------
NOTICE OF SPECIAL MEETING OF PARTNERS
Dear Partners:
We will hold a special meeting of partners of Grace Capital, LLP, a Missouri
limited liability partnership, at a.m., local time, on , 1999 at 3117
South Big Bend Boulevard, Suite 100, St. Louis, Missouri 63143. At the meeting,
we will ask you to vote on:
1. A proposal to cause Grace Capital to approve and adopt the agreement,
dated as of March 31, 1999 among CenterPoint Advisors, Inc., Grace Mergersub
Inc., Grace & Company, P.C., Grace Capital and its partners, and the
arrangement through which:
. Grace will be converted from a Missouri professional corporation to a
Missouri business corporation;
. each outstanding share of Grace will be converted into the right to
receive cash and shares of CenterPoint common stock; and
. Grace will become a wholly-owned subsidiary of CenterPoint.
2. Such other business as may properly come before the meeting or any
postponement or adjournment of the meeting.
The closing of the merger will occur simultaneously with the closing of the
initial public offering of CenterPoint common stock. Under the merger
agreement, Grace Capital will receive a total of $ in cash and shares of
CenterPoint common stock for the Grace shares it owns.
Approval of the merger and related transactions with CenterPoint requires
the affirmative vote of Grace Capital which, in turn, requires the affirmative
vote of the holders of a majority of the partnership interests of Grace
Capital. Certain partners of Grace Capital who collectively own the requisite
percentage of its partnership interests to approve the merger have agreed with
CenterPoint to vote all of their partnership interests in favor of causing
Grace Capital to approve the merger. In addition, the closing of the merger is
contingent on the closing of each of the other mergers described in the
accompanying joint information statement/prospectus.
After careful consideration, your management committee has concluded that
the merger agreement and the transactions provided for therein are in the best
interests of Grace Capital and its partners, and recommends a vote in favor of
the merger agreement and the merger.
Only partners of record at the close of business on , 1999 are entitled
to notice of, and will be entitled to vote at, the meeting or any postponements
or adjournment of the meeting.
BY THE ORDER OF THE OPERATING
COMMITTEE
_____________________________________
Larry Porschen
Managing Partner
Grace Capital, LLP
St. Louis, Missouri
, 1999
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Dear Stockholders:
We will hold a special meeting of stockholders of Mann Frankfort Stein &
Lipp, P.C., a Texas professional corporation, at 10:00 a.m., local time, on
, 1999 at 12 Greenway Plaza, 8th Floor, Houston, Texas 77046. At the
meeting, we will ask you to vote on:
1. A proposal to approve and adopt the agreement, dated as of March 31, 1999
between Mann Frankfort and CenterPoint Advisors, Inc. and the arrangement
through which:
. Mann Frankfort will be converted from a Texas professional corporation
to a Texas business corporation;
. each outstanding share of Mann Frankfort will be converted into the
right to receive cash and shares of CenterPoint common stock; and
. Mann Frankfort will become a wholly-owned subsidiary of CenterPoint.
2. Such other business as may properly come before the meeting or any
postponement or adjournment of the meeting.
The closing of the merger will occur simultaneously with the closing of the
initial public offering of CenterPoint common stock. Under the merger
agreement, the stockholders of Mann Frankfort will receive an aggregate of $
in cash and shares of CenterPoint common stock for all the outstanding
shares of Mann Frankfort.
Under the Texas Business Corporation Act and the agreement of shareholders
of Mann Frankfort, approval of the merger and related transactions with
CenterPoint requires the approval in writing of the holders owning not less
than 80% of the outstanding shares of Mann Frankfort, plus the written approval
of more than 50% of the number of stockholders entitled to vote on this matter.
Certain stockholders of Mann Frankfort, who collectively own the requisite
number of shares to approve the merger and constitute more than 50% of the
total number of stockholders, have agreed with CenterPoint to vote all of the
Mann Frankfort shares owned by them in favor of the merger. In addition, the
closing of the Mann Frankfort merger is contingent on the closing of each of
the other mergers described in the accompanying joint information
statement/prospectus.
Mann Frankfort stockholders may dissent by voting against the merger. A
dissenting holder who complies with the requirements of Articles 5.11 and 5.12
of the Texas Business Corporation Act will have the right to demand payment
for, and appraisal of, the value of his or her shares. In the event that a
holder exercises such dissenters' rights, the aggregate consideration to be
received by the Mann Frankfort stockholders will be reduced by the number of
shares of CenterPoint common stock and amount of cash that such dissenting
security holder would have received in the merger. Notwithstanding the
foregoing, the exercise of dissenters' rights by one or more holders will have
no effect on the number of shares of CenterPoint common stock and cash
consideration to be received for each share held by non-dissenting security
holders. Under applicable law, no dissenting security holder 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 or other
interests required to approve the merger have been legally voted in favor of
the merger. The shareholders of Mann Frankfort have agreed to indemnify
CenterPoint for any costs relating to any payment with respect to dissenting
shares. See "The Merger Agreements--Dissenters' Rights Regarding the Mergers"
in the accompanying joint information statement/prospectus.
After careful consideration, your board of directors has unanimously
approved the merger agreement and the transactions provided for therein and has
concluded that they are in the best interests of Mann Frankfort and its
stockholders. Your board of directors recommends a vote in favor of the merger
agreement and the merger.
<PAGE>
Only stockholders of record at the close of business on , 1999 are
entitled to notice of, and will be entitled to vote at, the meeting or any
postponements or adjournment of the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
_____________________________________
Secretary
Mann Frankfort Stein & Lipp, P.C.
Houston, Texas
, 1999
<PAGE>
REZNICK FEDDER & SILVERMAN, CERTIFIED PUBLIC ACCOUNTANTS,
A PROFESSIONAL CORPORATION
REZNICK FEDDER & SILVERMAN, C.P.A.s, L.L.C.
----------------
NOTICE OF SPECIAL MEETING
Dear Members:
We will hold a special meeting of the members of Reznick Fedder & Silverman,
C.P.A.s, L.L.C., a Maryland limited liability company, at a.m., local time,
on , 1999 at 4520 East West Highway, Bethesda, Maryland 20814. At the
meeting, we will ask you to vote on:
1. A proposal to cause Reznick LLC to approve and adopt the agreement, dated
as of March 31, 1999 among CenterPoint Advisors, Inc., Reznick Mergersub Inc.,
Reznick Fedder & Silverman, Certified Public Accountants, A Professional
Corporation, Reznick LLC and the members of Reznick LLC and the arrangement
through which:
. Reznick will be converted from a Maryland professional corporation to a
Maryland business corporation;
. each outstanding share of Reznick will be converted into the right to
receive cash and shares of CenterPoint common stock; and
. Reznick will be become a wholly-owned subsidiary of CenterPoint.
2. Such other business as may properly come before the meeting or any
postponement or adjournment of the meeting.
The closing of the merger will occur simultaneously with the closing of the
initial public offering of CenterPoint. Under the merger agreement, Reznick LLC
will receive a total of $ in cash and shares of CenterPoint common stock
for all of the Reznick shares.
Approval of the merger and related transactions with CenterPoint requires
the affirmative vote of Reznick LLC which, in turn, requires the affirmative
vote of the holders of 75% of Reznick LLC's membership interests. Certain
members of Reznick LLC who collectively own the requisite number of membership
interests to approve the merger, have agreed with CenterPoint to vote their
membership interests in Reznick LLC in favor of the merger. In addition, the
closing of the Reznick merger is contingent on the closing of each of the other
mergers described in the accompanying joint information statement/prospectus.
After careful consideration, the board of directors of Reznick and the
management committee of Reznick LLC have concluded that the transactions
contemplated in the merger agreement are in the best interests of Reznick and
the members of Reznick LLC and recommends a vote in favor of the merger
agreement and the merger.
Only members of record at the close of business on , 1999 are entitled
to notice of, and will be entitled to vote at, the meeting or any postponements
or adjournment of the meeting.
REZNICK FEDDER & SILVERMAN,
CERTIFIED PUBLIC ACCOUNTANTS, A
PROFESSIONAL CORPORATION
REZNICK FEDDER & SILVERMAN, C.P.A.s,
L.L.C.
By: _________________________________
<PAGE>
ROBERT F. DRIVER CO., INC.
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Dear Stockholders:
We will hold a special meeting of stockholders of Robert F. Driver Co.,
Inc., a Delaware Corporation, at a.m., local time, on , 1999 at 1620
Fifth Avenue, San Diego, California 92101-2797. At the meeting, we will ask you
to vote on:
1. A proposal to approve and adopt the agreement, dated as of March 31, 1999
between Driver and CenterPoint Advisors, Inc. and the arrangement through
which:
. a wholly-owned subsidiary of CenterPoint will be merged with and into
Driver with Driver continuing as the surviving corporation;
. each outstanding share of Driver will be converted into the right to
receive cash and shares of CenterPoint common stock; and
. Driver will become a wholly-owned subsidiary of CenterPoint.
2. Such other business as may properly come before the meeting or any
postponement or adjournment of the meeting.
The closing of the merger will occur simultaneously with the closing of the
initial public offering of CenterPoint. Under the merger agreement, you will
receive $ in cash and shares of CenterPoint common stock for each Driver
share you own. The value of the CenterPoint shares issued in the merger will
depend on the initial public offering price of CenterPoint common stock.
Driver stockholders may dissent by voting against the merger. A dissenting
holder who complies with the requirements of either the California Corporations
Code or the Delaware General Corporation Law will have the right to demand
payment for, and appraisal of, the value of his or her shares. In the event
that a holder exercises such dissenters' rights, the aggregate consideration to
be received by the Driver stockholders will be reduced by the number of shares
of CenterPoint common stock and amount of cash that such dissenting security
holder would have received in the merger. Notwithstanding the foregoing, the
exercise of dissenters' rights by one or more holders will have no effect on
the number of shares of CenterPoint common stock and cash consideration to be
received for each share held by non-dissenting security holders. Under
applicable law, no dissenting security holder 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 or other interests required to
approve the merger have been legally voted in favor of the merger. The Driver
shareholders have agreed to indemnify CenterPoint for any costs relating to any
payment with respect to dissenting shares. See "The Merger Agreements--
Dissenters' Rights Regarding the Mergers" in the accompanying joint information
statement/prospectus.
Approval of the merger agreement and related transactions requires the
affirmative vote of the holders of a majority of the shares of Driver entitled
to vote on this matter. Certain stockholders of Driver, who collectively own
the requisite number of shares to approve the merger, have agreed with
CenterPoint to vote all of the Driver's shares owned by them in favor of the
merger. In addition, the closing of the Driver merger is contingent on the
closing of each of the other mergers described in the accompanying joint
information statement/prospectus.
<PAGE>
After careful consideration, your board of directors has unanimously
approved the merger agreement and the transactions provided for therein and has
concluded that they are in the best interests of Driver and its stockholders.
Your board of directors recommends a vote in favor of the merger agreement and
the merger.
Only stockholders of record at the close of business on , 1999 are
entitled to notice of, and will be entitled to vote at, the meeting or any
postponements or adjournment of the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
_____________________________________
Secretary
Robert F. Driver Co., Inc.
San Diego, California
, 1999
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
----------------
NOTICE OF SPECIAL MEETING OF MEMBERS
Dear Members:
We will hold a special meeting of members of Simione, Scillia, Larrow &
Dowling LLC, a Connecticut limited liability company, at a.m., local time,
on , 1999 at 555 Long Wharf Drive, 12th Floor, New Haven, Connecticut
06511. At the meeting, we will ask you to vote on:
1. A proposal to approve and adopt the agreement, dated as of March 31, 1999
between Simione and CenterPoint Advisors, Inc. and the arrangement through
which:
. SSLD LLC, a Delaware limited liability company, wholly owned by Simione,
will be merged with and into a wholly-owned subsidiary of CenterPoint,
with such subsidiary continuing as the surviving company;
. the outstanding interests of the Company will be converted into the
right to receive cash and shares of CenterPoint common stock; and
. the Company will become a wholly-owned subsidiary of CenterPoint.
2. Such other business as may properly come before the meeting or any
postponement or adjournment of the meeting.
The closing of the merger will occur simultaneously with the closing of the
initial public offering of CenterPoint common stock. Under the merger
agreement, Simione will receive $ in cash and shares of CenterPoint
common stock.
Approval of the merger and related transactions with CenterPoint requires
the approval of all of the managers of Simione and the affirmative vote of the
holders of a majority of the interests of SSLD. Certain members of Simione, who
collectively own the requisite number of membership interests to approve the
merger, have agreed with CenterPoint to vote their ballots as managers of
Simione and cause the membership interests of the Company owned by Simione be
voted in favor of the merger. In addition, the closing of the Simione merger is
contingent on the closing of each of the other mergers described in the
accompanying joint information statement/prospectus.
After careful consideration, your managers have unanimously approved the
merger agreement and the transactions provided for therein and have concluded
that they are in the best interests of Simione and its members. Your managers
recommend a vote in favor of the merger agreement and the merger.
Only members of record at the close of business on , 1999 are entitled
to notice of, and will be entitled to vote at, the meeting or any postponements
or adjournment of the meeting.
BY ORDER OF THE MANAGERS
_____________________________________
Secretary
Simione, Scillia, Larrow & Dowling
LLC
New Haven, Connecticut
, 1999
<PAGE>
URBACH KAHN & WERLIN PC
UKW MANAGEMENT LLC
----------------
NOTICE OF SPECIAL JOINT MEETING OF
STOCKHOLDERS AND MEMBERS
Dear Stockholders and Members:
We will hold a special joint meeting of stockholders of Urbach Kahn & Werlin
PC, a New York professional corporation, and the members of UKW Management LLC,
a Delaware limited liability company, at a.m., local time, on , 1999 at
66 State Street, Albany, New York 12207. At the meeting, we will ask you to
vote on:
1. A proposal to approve and adopt the agreement, dated as of March 31, 1999
between Urbach and CenterPoint Advisors, Inc. and the arrangement through
which:
. Urbach will merge with and into Urbach, Kahn & Werlin, P.C., a
Massachusetts professional corporation, and convert to a business
corporation;
. Following this merger, Urbach stockholders will transfer their shares to
UKW Management;
. A wholly-owned subsidiary of CenterPoint will merge with and into Urbach
leaving Urbach as the surviving company and a wholly-owned subsidiary of
CenterPoint; and
. Each outstanding share of Urbach will be converted into the right to
receive cash and shares of CenterPoint common stock.
2. Such other business as may properly come before the meeting or any
postponement or adjournment of the meeting.
The closing of these mergers and the exchange will occur simultaneously with
the closing of the initial public offering of CenterPoint common stock. UKW
Management, as the sole shareholder of Urbach, will receive an aggregate of
$ in cash and shares of CenterPoint common stock for all of the Urbach
shares.
Urbach stockholders may dissent from the first-step merger by voting against
the merger. A dissenting holder who complies with the requirements of Section
910 of the New York Business Corporation Law will have the right to demand
payment for, and appraisal of, the value of his or her shares. In the event
that a holder exercises such dissenters' rights, the aggregate consideration to
be received by the Urbach stockholders will be reduced by the number of shares
of CenterPoint common stock and amount of cash that such dissenting security
holder would have received in the merger. Notwithstanding the foregoing, the
exercise of dissenters' rights by one or more holders will have no effect on
the number of shares of CenterPoint common stock and cash consideration to be
received for each share held by non-dissenting security holders. Under
applicable law, no dissenting security holder 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 or other interests required to
approve the merger have been legally voted in favor of the merger. The
shareholders of Urbach have agreed to indemnify CenterPoint for any costs
relating to any payment with respect to dissenting shares. See "The Merger
Agreements--Dissenters' Rights Regarding the Mergers" in the accompanying joint
information statement/prospectus.
<PAGE>
Approval of these mergers, the exchange and related transactions with
CenterPoint requires (1) for the first-step merger under the New York Business
Corporation Law and the exchange, the affirmative vote of the holders of 66
2/3% of the shares of Urbach entitled to vote on this matter and (2) for the
second-step merger under the Massachusetts Business Corporation Law, the
affirmative vote of the holders of 66 2/3% of the membership interests of UKW
Management, as the sole stockholder of Urbach entitled to vote on this matter.
Certain stockholders of Urbach, who collectively own the requisite number of
shares to approve the merger, have agreed with CenterPoint to vote all of the
Urbach shares owned by them in favor of the merger agreement and the series of
transactions that will ultimately result in a merger. In addition, the closing
of the mergers and the exchange is contingent on the closing of each of the
other mergers described in the accompanying joint information
statement/prospectus.
After careful consideration, each of the executive committee of Urbach and
the operating committee of UKW Management has unanimously approved the merger
agreements and the exchange agreement and the transactions provided for therein
and have concluded that they are in the best interests of Urbach and its
Stockholders and UKW Management and its members. Each of the executive
committee of Urbach and the operating committee of UKW Management recommends a
vote in favor of the merger agreement and the exchange and merger.
Only stockholders and members of record at the close of business on ,
1999 are entitled to notice of, and will be entitled to vote at, the meeting or
any postponements or adjournment of the meeting.
BY ORDER OF THE EXECUTIVE COMMITTEE
_____________________________________
Secretary
Urbach Kahn & Werlin PC
BY ORDER OF THE OPERATING COMMITTEE
_____________________________________
Secretary
UKW Management LLC
Albany, New York
, 1999
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TABLE OF CONTENTS
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Questions and Answers About the CenterPoint Mergers With the CenterPoint
Companies................................................................ ii
Summary................................................................... 1
Risk Factors.............................................................. 6
Forward-Looking Statements................................................ 14
The Meetings.............................................................. 15
Approval of the Mergers and Related Transactions.......................... 19
The Merger Agreements..................................................... 25
CenterPoint Selected Financial Data....................................... 35
CenterPoint Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 37
Industry Overview......................................................... 45
Business of CenterPoint After the Mergers................................. 47
CenterPoint Management.................................................... 58
Certain Transactions...................................................... 66
Information Regarding the CenterPoint Companies........................... 71
Description of CenterPoint Capital Stock.................................. 101
Comparison of Rights of Security Holders of CenterPoint and the
CenterPoint Companies.................................................... 103
Security Ownership of Management and Principal Stockholders of
CenterPoint.............................................................. 122
Experts................................................................... 123
Legal Matters............................................................. 124
Where You Can Find More Information....................................... 124
Index to Financial Statements............................................. F-1
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Appendices
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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
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QUESTIONS AND ANSWERS ABOUT THE CENTERPOINT MERGERS WITH THE CENTERPOINT
COMPANIES
This joint information statement/prospectus provides you with detailed
information about the proposed CenterPoint mergers with the CenterPoint
Companies. You are encouraged to read this entire document carefully before
voting on the mergers at your company's special meeting. In addition,
CenterPoint 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 CenterPoint from the Registration Statement.
Q: Why are CenterPoint and the CenterPoint Companies proposing these mergers?
A: CenterPoint and the CenterPoint 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 14. To review the reasons for the mergers in
greater detail, and related uncertainties, see pages 20 to 21.
Q: What will I receive for my ownership interest in a CenterPoint Company?
A: Following the mergers, security holders of the CenterPoint Companies will
receive, directly or indirectly, shares of CenterPoint 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 CenterPoint 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 mid 1999.
Q: What are the tax consequences of the merger?
A: Your receipt of CenterPoint 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 CenterPoint
stock you receive in the merger and your basis in the ownership interest in
the CenterPoint Company involved in the merger. For more detail, see pages
23 and 24 of this joint information statement/prospectus.
Q: Will my rights as a stockholder or owner of a CenterPoint Company change as
a result of the merger?
A: Yes. CenterPoint stockholder rights are governed by Delaware law and
CenterPoint's charter and bylaws, whereas each of the CenterPoint 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 CenterPoint stockholders and the
rights of owners of the CenterPoint Companies, see "Comparison of Rights of
Security Holders of CenterPoint and the CenterPoint Companies" beginning on
page 103.
Q: Am I entitled to dissenters' rights?
A: You may be entitled to dissenters' rights. Please see pages 29 to 34 for a
description of the rights afforded by the laws of the state in which your
company is organized.
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 Roscoe (207) 775-2387
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Follmer Anthony Frabotta (810) 254-1040
Grace Larry Porschen (314) 615-1200
Mann Richard H. Stein (800) 949-1706
Frankfort
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
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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.
CenterPoint will acquire in separate transactions eleven companies that
collectively provide professional, business and financial services and
products. We refer to these eleven companies collectively as the "CenterPoint
Companies."
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 210.3605-for-1 stock split that will
occur prior to CenterPoint's initial public offering, and
. assume that the underwriters' over-allotment option is not exercised in
the IPO.
CenterPoint and the CenterPoint Companies
CenterPoint was recently formed to acquire the CenterPoint Companies in
order to create a leading provider of professional, business and financial
services and products to middle market clients. CenterPoint intends to provide
clients with personalized, local service backed by the resources and
capabilities of a national firm. CenterPoint has assembled a group of founding
companies with expert capabilities, reputations for quality, effective
leadership and strong "trusted advisor" relationships with clients. The
CenterPoint Companies have been in business an average of 27 years. On a
combined historical basis, the revenues of the CenterPoint Companies increased
from $169.8 million in fiscal 1997 to $201.0 million in fiscal 1998,
representing an annual growth rate of 18.4%.
Upon completion of the mergers, CenterPoint will offer a full range of
consulting, accounting, tax and related professional services and products, 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 CenterPoint is:
CenterPoint Advisors, Inc.
225 West Washington Street, 16th Floor
Chicago, Illinois 60606
The principal executive office of each CenterPoint 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
Holthouse Carlin & Van Trigt LLP
11845 West Olympic Boulevard
Suite 1177
Los Angeles, California 90064
(310) 477-5551
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
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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 CenterPoint Companies
Each CenterPoint 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 CenterPoint. 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 15 to 18.
Recommendations to Security Holders
The board of directors or other governing board of each CenterPoint Company
has unanimously approved its merger agreement with Centerpoint, and recommends
that the security holders of its CenterPoint Company approve the merger. The
board considered the potential benefits and adverse effects of the merger. See
pages 20 through 22.
CenterPoint'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 CenterPoint'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 CenterPoint's registration statements on Form S-1
and Form S-4 effective;
. The security holders of each CenterPoint Company must approve its merger
agreement and merger; and
. All of the mergers and the IPO must close simultaneously.
Termination
Either CenterPoint or any CenterPoint Company may terminate its merger
agreement if the merger is not completed by August 31, 1999, and in certain
other circumstances. See pages 28 and 29.
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.
CenterPoint will pay the fees and expenses associated with its IPO and this
joint information statement/prospectus, whether or not the IPO is completed.
Interests of Certain Persons in the Mergers
Certain managers and directors of the CenterPoint Companies have interests
in the
2
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mergers that are different from or in addition to those of the CenterPoint
Companies security holders generally. See pages 21 through 23.
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 29 to 34.
Certain Income Tax Considerations
The receipt of CenterPoint stock in the mergers will be tax free for federal
income tax purposes. The receipt of cash in the mergers, including cash
received for a fractional share, will be taxable to the extent described on
page 23.
Accounting Treatment
The mergers will be recorded by CenterPoint under the purchase accounting
method.
3
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Summary Unaudited Pro Forma Combined Financial Data
(in thousands, except share and per share data)
CenterPoint will acquire the CenterPoint Companies simultaneously with the
closing of the IPO. For financial statement presentation purposes, CenterPoint
has been identified as the "accounting acquiror." The following presents
summary unaudited pro forma combined financial data for CenterPoint, 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 $14.00
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 March 31, 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 CenterPoint'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.
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Pro Forma Combined
----------------------------------
Three Months Ended
Year Ended March 31,
December 31, ---------------------
1998 1998 1999
------------ ---------- ----------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Professional services................... $ 150,096 $ 47,985 $ 56,032
Business and financial services......... 53,128 11,435 13,410
---------- ---------- ----------
Total revenues........................ 203,224 59,420 69,442
Expenses:
Professional services compensation and
related costs (1)...................... 95,367 27,622 35,250
Business and financial services
compensation and related costs (1)..... 35,358 7,060 8,854
Other operating expenses (2)............ 37,611 9,275 10,160
Depreciation and amortization (3)....... 10,870 2,431 2,723
---------- ---------- ----------
Income from operations.................... 24,018 13,032 12,455
Other income, net (4)..................... 1,407 210 436
---------- ---------- ----------
Income before income taxes................ 25,425 13,242 12,891
Provision for income taxes (5)............ 12,547 5,891 5,751
---------- ---------- ----------
Net income................................ $ 12,878 $ 7,351 $ 7,140
========== ========== ==========
Net income per share, basic and diluted... $ 0.50 $ 0.29 $ 0.28
========== ========== ==========
Shares used in computing net income per
share (6)................................ 25,662,791 25,662,791 25,662,791
========== ========== ==========
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<CAPTION>
Pro Forma
Combined
As Adjusted
March 31,
1999
-----------
<S> <C>
Balance Sheet Data:
Working capital................................................... $ 13,499
Total assets...................................................... 306,267
Total long-term debt, net of current portion...................... 4,000
Stockholders' equity.............................................. 258,614
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(1) Reflects pro forma reductions in compensation and benefits to owners and
employees of the CenterPoint Companies. Such amounts include an aggregate
of approximately $21,980, $9,438 and $6,972 million for the year ended
December 31, 1998 and the three months ended March 31, 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.
(2) Reflects the reduction in other operating expenses related to a non-
recurring stock compensation charges for management of CenterPoint, net of
prospective compensation to management of CenterPoint as agreed to in
employment agreements. Such amounts totaled $58, $(210) and $2,395 million
for the year ended December 31, 1998 and the three months ended March 31,
1998 and 1999, respectively.
(3) Includes amortization related to $237,714 of goodwill to be recorded as a
result of the mergers over a 40-year period and computed on the basis
described in the notes to the unaudited pro forma combined financial
statements.
(4) Reflects a reduction of net interest expense associated with long-term debt
to be repaid from the proceeds of the IPO or retained by the owners of the
CenterPoint Companies of $2,200, $392 and $734 for the year ended December
31, 1998 and the three months ended March 31, 1998 and 1999, respectively.
(5) Assumes all income is subject to a corporate income tax rate of 40% and
assumes all goodwill is non-deductible.
(6) Includes (a) 12,569,367 shares to be issued to the owners and employees of
the CenterPoint Companies in the mergers; (b) 3,681,309 shares held by
initial investors and management of CenterPoint; and (c) 9,412,115 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 CenterPoint
Companies and to pay estimated expenses of the IPO.
5
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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 CenterPoint common stock. You should consider these factors together
with the other information contained in this joint information
statement/prospectus.
CenterPoint has no operating history and cannot assure you that its future
operating results will match the historical combined results of the CenterPoint
Companies
CenterPoint was recently formed and has conducted no operations and
generated no revenues. CenterPoint cannot guarantee that its operating results
as a combined company will equal or exceed the combined historical operating
results of the CenterPoint Companies prior to the offering. Unless the
financial benefits resulting from the combination of the CenterPoint Companies
exceed the incremental corporate overhead, CenterPoint's results will fall
short of the combined historical operating results of the CenterPoint
Companies. 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 CenterPoint 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
"CenterPoint 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.
Failure to integrate the CenterPoint Companies quickly and effectively, or
client concerns about the impact of the mergers, could materially increase
expenses or decrease revenues
CenterPoint's success will depend, in part, on its ability to integrate
successfully the operations of the CenterPoint Companies. Failure to accomplish
the integration quickly and effectively, or client concerns regarding the
impact of the mergers, could cause a material increase in CenterPoint's
expenses or a material decrease in its revenues, or both. Each CenterPoint
Company has operated, and until the mergers will operate, independently. In
addition, a number of the CenterPoint 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, CenterPoint will not
have a fully integrated financial reporting system. Integration of the
CenterPoint Companies will require significant management resources, and may
distract certain members of management of the CenterPoint Companies from normal
operations. CenterPoint cannot guarantee that its recently assembled corporate
management team will effectively oversee the combined entity and implement its
business, acquisition or growth strategies.
Absent proper controls, CenterPoint's integrated management strategy could
adversely affect CenterPoint's financial condition or operating results
CenterPoint 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 proper controls are
not implemented, this strategy could result in inconsistent operating and
financial practices at the various business units and CenterPoint's financial
condition or results of operations could be materially and adversely affected.
Regulation of the accounting profession will constrain CenterPoint's operations
and impact its structure and could impair its ability to provide services to
some clients, including the Attest Firms
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.
CenterPoint will not render any services that may not be performed by persons
and firms not licensed to practice accountancy. Such
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services are defined by most states 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
attest services, e.g., reports on compliance with laws and contractual
obligations and the adequacy of internal accounting controls. Some states
define regulated services more broadly. For purposes of this prospectus, the
term "attest services" will be used to describe the services that can be
provided only by a licensed CPA or firm under laws and regulations of the
applicable states. Following the mergers, attest services will continue to be
performed by the CPAs who currently own the CenterPoint Companies. Such CPAs
will provide the attest services through separate firms (the "Attest Firms")
which will be licensed to practice accountancy and in which CenterPoint will
have no ownership interest. Pursuant to services agreements, CenterPoint will
provide, for a fee, professional and other personnel, equipment, office space
and business and administration services necessary for the operation of the
Attest Firms. For more detailed information concerning CenterPoint's regulatory
environment and the services agreements, see "Business of CenterPoint 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 CenterPoint:
.Revenues under the services agreements cannot be assured. In order to
comply with regulatory restrictions, the services agreements are non-exclusive,
and one or more Attest Firms could choose to contract with entities other than
CenterPoint for some or all of these services. Failure by one or more Attest
Firms to use CenterPoint's services could have a material adverse effect on
CenterPoint's revenue production capabilities.
.CenterPoint's operations may be challenged as constituting the illegal
practice of accountancy in one or more states in which it operates. If
CenterPoint's operations are challenged, provisions in the services agreements
could limit CenterPoint's flexibility to modify its operations in response to
regulatory issues. A successful challenge to CenterPoint's separate practice
structure could result in, among other things, a reduction in the operations of
or services provided by CenterPoint or the divestiture by CenterPoint 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 CenterPoint's economic interests.
CenterPoint 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, which
is currently being considered by some states. However, only five states have
published interpretations that specifically address alternative practice
structures. Connecticut has issued a ruling recognizing CenterPoint's proposed
structure as being in compliance with its laws, and New York, Texas, Ohio and
Kansas have issued rulings recognizing separate practice formats similar to
CenterPoint'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.
.Disciplinary action may be instituted by one or more states against CPAs in
CenterPoint's employ. CPAs who will be employed by CenterPoint are subject to
regulation not only with respect to attest services, but also with respect to
other activities which they may undertake as employees of CenterPoint. Although
CenterPoint 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 CenterPoint currently has material operations, should state
regulators deem such activities 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
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to the clients which the Attest Firms share with CenterPoint. This result could
adversely affect both the revenues that CenterPoint would otherwise receive
under the services agreements and CenterPoint's ability to render non-attest
services to these clients.
.Under numerous states' regulatory regimes, the CPAs employed by CenterPoint
will not be able, while performing non-attest services on behalf of
CenterPoint, to proclaim expertise in accounting principles or auditing
standards or use their "CPA" designation on letters, business cards or
promotional literature. These limitations could adversely affect CenterPoint's
marketing efforts and revenues.
.Restrictions imposed by independence requirements and conflict of interest
rules could limit the clients to whom CenterPoint and the Attest Firms may
provide services. The accounting profession and accounting regulators have
adopted independence standards which prohibit CPAs, employees of accounting
firms and members of their immediate families from having specified ownership,
financial and other relationships with attest clients. Under recent
interpretations, as applied to CenterPoint's proposed operations, these
standards extend to CenterPoint's executives, board members and controlling
stockholders as well as CPA employees of CenterPoint who own the Attest Firms.
In addition to the independence standards, CPAs who provide litigation
consulting services on behalf of CenterPoint 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. Although
CenterPoint does not believe that the restrictions imposed by independence
standards or the conflict of interest rules will have a material adverse effect
upon its business, there can be no assurance that CenterPoint or the Attest
Firms will not be forced to discontinue their services on behalf of some
existing clients of the CenterPoint Companies or to forego providing services
to potential future clients as a result of these restrictions.
.State laws will limit CenterPoint's flexibility in using incentive fees.
State accountancy laws currently prohibit CPAs from paying or receiving
referral fees with respect to some or all of their clients or using fee
arrangements that are contingent upon the outcome of their engagements or the
results imparted to some or all of their clients. These laws could adversely
affect CenterPoint's marketing efforts and revenues by placing significant
restrictions upon the use of incentive fee arrangements that CenterPoint could
otherwise employ in its operations.
.State regulators could preclude CenterPoint's employees from performing
certain services. Many state accountancy laws and regulations contain
prohibitions against CPAs engaging in "incompatible" occupations. Few states
have provided guidance as to what activities are encompassed by these
prohibitions. There can be no assurance that one or more states may not invoke
these prohibitions to preclude CenterPoint's employees from engaging in one or
more types of services which CenterPoint will be offering to its clients, which
preclusion could adversely affect CenterPoint's business and operating results.
.Applicable laws, regulations and codes of ethics could change in a manner
adverse to CenterPoint. Existing state laws, regulations and codes of ethics
are subject to evolving interpretations and enforcement policies and practices.
CenterPoint cannot ensure that the laws, regulations or codes of ethics of any
state, or other elements of the regulatory environment, will not change so as
to materially restrict CenterPoint's operations. Accordingly, CenterPoint's
ability to continue to operate in, or expand its operations in or to, certain
states may depend on its flexibility to modify its operational structure in
response to changes in laws, regulations, codes of ethics or their
interpretation or enforcement. This flexibility may be constrained by
provisions of the services agreements between CenterPoint and the Attest Firms.
Limitations on CenterPoint's ability to use the separate practice structure in
order to comply with applicable laws could have a material adverse effect on
its relationship with the Attest Firms, their clients and/or CenterPoint's
business, financial condition or results of operations.
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CenterPoint's failure to successfully complete acquisitions would limit its
growth prospects
As part of its growth strategy, CenterPoint 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.
CenterPoint will be competing to acquire attractive companies with other firms,
many of which have greater financial and other resources. CenterPoint believes
this competition will increase, making it more difficult to acquire suitable
companies on acceptable terms.
Completed acquisitions pose numerous risks to CenterPoint
Completed acquisitions involve numerous risks that could materially and
adversely impact CenterPoint's growth prospects. For example:
. CenterPoint may incur additional debt and amortization expense related to
goodwill and other intangible assets purchased in future acquisitions.
. CenterPoint 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 CenterPoint 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 CenterPoint's ongoing
business, distract management and other resources, and make it difficult
to maintain CenterPoint's standards, controls and procedures.
. CenterPoint cannot ensure that the acquired businesses will achieve
anticipated revenues, earnings or cash flow.
Completion of future acquisitions may cause further dilution to stockholders
CenterPoint 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 CenterPoint's stockholders.
CenterPoint may not be able to obtain adequate financing to implement its
strategies
Successful implementation of CenterPoint's strategies will require continued
access to capital. If CenterPoint 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. CenterPoint
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, CenterPoint may be required to
use more of its cash resources or obtain other financing. CenterPoint cannot
ensure that equity or debt financings will be available as required for
acquisitions or other needs. Even if financing is available, it may not be on
terms that are favorable to CenterPoint or sufficient for its needs.
CenterPoint's insurance services revenues depend on premiums set by other
companies; premiums have been cyclical and depend on market conditions
A portion of CenterPoint'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 CenterPoint. CenterPoint cannot
predict the timing or
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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 CenterPoint, these insurance companies
may seek to further reduce their expenses by reducing the commission rates
payable to such insurance agents.
CenterPoint may expand its insurance business to include activities that
involve bearing the risk of loss
CenterPoint 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 CenterPoint would focus on products in which it has particular expertise
through its brokerage business, as a risk-bearing entity CenterPoint would be
subject to significant additional risks that it does not currently encounter in
its brokerage business. CenterPoint cannot guarantee that it will be able to
manage any risk of loss its assumes. Failure by CenterPoint to successfully
manage such risk could have a material adverse effect on its business,
financial condition or results of operations.
Claims for errors and malpractice could subject CenterPoint to liability or
increased insurance premiums and harm its reputation and client relationships
Some of the services that CenterPoint offers, including accounting,
valuation and financial planning, 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. CenterPoint 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, failure to properly file plan
forms or tax returns could have a material adverse effect on CenterPoint's
reputation or materially and adversely affect its relationships with existing
clients and its ability to gain new clients.
CenterPoint maintains professional liability and errors and omissions
insurance coverage that it believes is adequate both as to risks and amounts.
However, CenterPoint cannot ensure that actual future claims will not exceed
the coverage amounts. If CenterPoint experiences a large claim or claims, the
rates for such insurance may increase. CenterPoint'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 have a material adverse effect on its business, financial condition or
results of operations. In addition, a determination adverse to CenterPoint in
connection with one or more significant claims, whether or not insured, could
adversely affect CenterPoint's reputation and client relationships.
CenterPoint's client contracts do not ensure revenues
CenterPoint enters into agreements with most of its clients. While these
contracts typically define fee arrangements, the scope of services and
termination provisions, they generally do not obligate the client to use
CenterPoint's services and do not, therefore, ensure revenues. While
CenterPoint believes that its relationships with its current clients are good,
it cannot guarantee that such clients will renew their existing agreements or
engage CenterPoint.
The loss of key management personnel could harm CenterPoint's business and
prospects
The loss of the services of one or more of CenterPoint's key management
personnel could materially and adversely affect CenterPoint'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. CenterPoint's
success depends largely on the efforts of its senior management team including
Robert C. Basten, president and chief executive officer,
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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, CenterPoint's success will depend significantly on the senior
management of the CenterPoint Companies as a result of their experience in
managing these companies and their strong relationships with their clients. See
"CenterPoint Management."
Competition for qualified accounting professionals could impair CenterPoint's
ability to execute its business strategies
CenterPoint 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, CenterPoint 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
CenterPoint's expenses.
CenterPoint's quarterly operating results will fluctuate due to seasonality and
other factors, and unexpected variations in quarterly results could cause the
price of CenterPoint's stock to decline
CenterPoint expects its revenues, expenses and operating results to vary
materially from quarter to quarter. Unexpected variations in quarterly results
could cause the price of CenterPoint common stock to decline, which in turn
could limit CenterPoint's ability to pursue acquisitions. CenterPoint
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.
Failure to be year 2000 compliant could materially and adversely affect
CenterPoint
CenterPoint 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 CenterPoint's ongoing survey of the
assessment made by each CenterPoint Company, CenterPoint estimates that the
total cost of year 2000 compliance activities will be approximately $400,000 to
$500,000, of which approximately $380,000 had been incurred as of March 31,
1999. However, CenterPoint cannot guarantee that (1) actual compliance costs
will fall within the range of this estimate, (2) any business acquired in the
future will not require substantial year 2000 compliance expenditures or (3)
precautions that the CenterPoint Companies have taken to protect their
businesses from or minimize the impact of the year 2000 issue will be adequate.
Any damage to CenterPoint'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.
CenterPoint is in the process of surveying the year 2000 readiness of
significant customers, business partners and vendors. If CenterPoint's efforts
to address year 2000 risks are not successful, or if significant third parties
with whom CenterPoint conducts business do not successfully address such risks,
it could have a material adverse effect on CenterPoint's business. None of the
CenterPoint Companies have engaged in any independent verification or
validation processes in assessing their year 2000 risks. See "CenterPoint
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance" for detailed information on CenterPoint's
state of readiness, potential risks and contingency plans regarding the year
2000 issue.
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Several of the CenterPoint Companies periodically provide year 2000
consulting services. Although CenterPoint 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.
Amortization of a material amount of intangible assets will reduce net income
Approximately $237.7 million, or 77.6%, of CenterPoint's pro forma as
adjusted total assets as of December 31, 1998 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
CenterPoint's pro forma balance sheet. CenterPoint will amortize the goodwill
from the mergers over 40 years with the amount amortized in a particular period
constituting an expense that reduces net income for that period. The amount
amortized, however, will not give rise to a deduction for tax purposes. In
addition, CenterPoint will be required to amortize the goodwill, if any, from
any future acquisitions. Under accounting rules, CenterPoint 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, CenterPoint would be required
to write down goodwill and incur a related 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.
Industry billing and collection experience may affect CenterPoint's liquidity
In general, professional services firms experience higher average accounts
receivable days outstanding than businesses in many other industries. This may
affect CenterPoint's liquidity. See "CenterPoint Management's Discussion and
Analysis of Financial Condition and Results of Operations--Introduction--Pro
Forma Combined Liquidity and Capital Resources."
CenterPoint'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 offering, CenterPoint's management, its initial investors and the
owners and employees of the CenterPoint Companies will own approximately 60.7%
of the outstanding shares of common stock, or 57.4% 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
CenterPoint'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 CenterPoint
or a change in the composition of the board of directors. See "Security
Ownership of Management and Principal Stockholders of CenterPoint" and
"Description of Capital Stock" for information concerning the beneficial
ownership of CenterPoint's stockholders and the terms of the stockholders'
agreement.
CenterPoint's common stock has never been publicly traded and its liquidity is
uncertain
There has been no public market for CenterPoint's common stock. CenterPoint
has applied to list the common stock for trading on The New York Stock
Exchange. CenterPoint does not know whether investor interest will lead to the
development of a trading market or, if a trading market develops, how liquid
that market will be. CenterPoint 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.
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CenterPoint's stock price may be volatile
The price at which CenterPoint's shares will trade following the offering
may be volatile and will depend upon a number of factors, including
. CenterPoint's historical and anticipated operating results;
. announcements by CenterPoint or its competitors;
. changes in financial estimates by securities analysts regarding
CenterPoint, its industry, its competitors or its clients;
. conditions and trends in the industries in which CenterPoint 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 adversely affect
the market price of the shares.
Anti-takeover provisions in CenterPoint's charter documents and Delaware law
could make an acquisition of CenterPoint difficult
CenterPoint's certificate of incorporation and Delaware law contain
provisions that may delay, deter or inhibit a future acquisition of CenterPoint
if the board of directors does not approve of such acquisition. This could
occur even if CenterPoint'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 CenterPoint Capital Stock" for a description of these provisions.
You will be restricted in transferring the shares of CenterPoint common stock
you receive in the mergers
The merger agreement applicable to you will prohibit the sale or other
transfer of any of the shares you receive in the merger for a period of 18
months following CenterPoint'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 CenterPoint or a CenterPoint 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 CenterPoint Company and by CenterPoint'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 (1)
to the former owners of IDA if their employment is terminated without cause as
defined in their employment agreements and (2) to former owners of Driver and
Reppond entering into employment agreements with CenterPoint, if their
employment is terminated without cause or within 60 days of a constructive
termination, in each case as defined in the employment agreements. In addition,
CenterPoint and the owners and employees of the CenterPoint Companies have
agreed 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
CenterPoint 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 CenterPoint shares before you vote on the
mergers
The value of the shares of CenterPoint common stock you will receive in the
merger that applies to you depends on the initial public offering price of the
CenterPoint common stock. For this reason you will not know precisely the value
of the CenterPoint shares you will receive at the time you are asked to vote on
the merger transaction that applies to you.
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The security holders of the CenterPoint Companies may fail to approve the
mergers
If the security holders of the CenterPoint Companies fail to approve the
mergers, the CenterPoint Companies will not realize the benefits of the mergers
identified by their governing boards. However, the holders of the requisite
amount of ownership interests in each CenterPoint Company to approve the
applicable merger have entered into voting agreements to vote their ownership
interests in favor of the applicable merger. See "The Merger Agreements--
Conditions of the Merger Agreements."
Certain persons have interests in the mergers
Several individuals have interests in the mergers which are different than
the interests of the CenterPoint Companies' security holders. The following
individuals will become directors of CenterPoint 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; Philip J. Holthouse of
Holthouse; and Anthony P. Scillia of Simione. Thomas W. Corbett of Driver will
become a director and an officer of CenterPoint. 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 CenterPoint. See "CenterPoint Management."
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 CenterPoint 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 CenterPoint's future expectations;
.contain projections of CenterPoint'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 CenterPoint's actual results to differ materially
from the expectations described in these forward-looking statements.
CenterPoint 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
CenterPoint and each of the CenterPoint Companies provides this joint
information statement/prospectus in connection with the meetings of the owners
of each CenterPoint Company called to consider the applicable merger.
Berry Dunn Meeting
Time, Place and Date
The Berry Dunn meeting will be held on 1999 at , Portland, Maine
04104, commencing at 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 CenterPoint 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 ,
1999 are entitled to receive notice of and to vote at the meeting. On the
record date, record holders held an aggregate of 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. Votes will be counted by the Berry Dunn board.
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 presence of the holders of a majority of the outstanding common shares
on the record date is necessary to constitute a quorum at the meeting.
Follmer Meeting
Time, Place and Date
The Follmer meeting will be held on , 1999 at 26200 American Drive, Suite
400, Southfield, Michigan 48034, commencing at a.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
CenterPoint 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 Follmer common shares at the close of business on ,
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.
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. Votes will be counted by the Follmer board.
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 presence of the holders of a majority of the outstanding common shares
on the record date is necessary 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
The Grace Capital meeting will be held on , 1999 at 3117 South Big Bend
Boulevard, Suite 100, St. Louis, Missouri 63143, commencing at 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 CenterPoint 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 , 1999 are entitled to receive notice of and to vote at the
meeting. On the record date, record holders held an aggregate of 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 presence of the holders of a majority of the partnership interests of
Grace Capital is necessary to constitute a quorum at the meeting.
Mann Frankfort Meeting
Time, Place and Date
The Mann Frankfort meeting will be held on , 1999 at 12 Greenway Plaza,
8th Floor, Houston, Texas 77046, commencing at a.m. (local time).
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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 CenterPoint 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
, 1999 are entitled to receive notice of and to vote at the meeting. On the
record date, record holders held an aggregate of 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. Votes will be counted by
the Mann Frankfort board.
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 presence of the holders of a majority of the outstanding common shares
on the record date is necessary to constitute a quorum at the meeting. Mann
Frankfort intends to include abstentions as present or represented for purposes
of establishing a quorum.
Reznick Meeting
Time, Place and Date
The Reznick meeting will be held on , 1999 at 4520 East West Highway,
Suite 300, Bethesda, Maryland 20814, commencing at 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 CenterPoint 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 , 1999 are entitled to receive notice of and to vote at the meeting. On
the record date, record holders of Reznick LLC membership interests held an
aggregate of 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. Votes will be counted by the Reznick board.
The presence of the holders of a majority of the membership interests of
Reznick LLC is necessary to constitute a quorum at the meeting. Reznick intends
to include abstentions as present or represented for purposes of establishing a
quorum.
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Driver Meeting
Time, Place and Date
The Driver meeting will be held on , 1999 at 1620 5th Avenue, San Diego,
California 92101, commencing at 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 CenterPoint 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
, 1999 are entitled to receive notice of and to vote at the Driver meeting.
On the record date, record holders held an aggregate of 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. Votes will be counted by the Driver board.
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 presence of holders of a majority of the outstanding Class A common
shares of Driver is necessary 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
The Simione meeting will be held on , 1999 at 555 Long Wharf Drive, New
Haven, Connecticut 06511, commencing at 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 CenterPoint 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
, 1999 are entitled to receive notice of and to vote at the Simione meeting.
On the Simione record date, record holders held an aggregate of
interests.
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. Votes will be counted by the
Simione board.
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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
The joint Urbach and UKW Management meeting will be held on , 1999 at 66
State Street, Albany, New York 12207, commencing at a.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 CenterPoint 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 ,
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
record holders of UKW Management membership interests held 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. Votes will be
counted by the Urbach board and UKW Management operating committee.
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 presence of holders of a majority of the outstanding Urbach common
shares and UKW Management membership interests outstanding on the record date
is necessary 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.
APPROVAL OF THE MERGERS AND RELATED TRANSACTIONS
Background of the Transaction
CenterPoint was created to acquire the CenterPoint 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, CenterPoint and BGL Capital
Partners, L.L.C. developed a list of companies throughout the United States to
approach regarding possible affiliation with CenterPoint. During this period,
Robert C. Basten and representatives of BGL Capital commenced discussions with
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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, CenterPoint continued its affiliation
development efforts and entered into confidentiality agreements with Berry
Dunn, Urbach and Simione; CenterPoint also began to negotiate letters of intent
with these firms. On October 5, 1998, CenterPoint met with representatives of
Urbach, Simione, Mann Frankfort, Reznick and Berry Dunn, for preliminary
discussions regarding the mergers and CenterPoint's strategy. On November 15,
16 and 17, 1998, CenterPoint held a meeting at which representatives of the
following CenterPoint Companies were present: Reznick, Mann Frankfort, IDA,
Grace, Driver, Berry Dunn, Urbach and Simione. During those meetings,
CenterPoint management along with representatives of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, PricewaterhouseCoopers LLP, CenterPoint's
auditors, and Katten Muchin & Zavis, CenterPoint's legal counsel, gave
presentations regarding the acquisitions of the CenterPoint Companies and the
initial public offering of CenterPoint's common stock. During November 1998,
CenterPoint 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 and negotiated and entered into letters of intent with
these firms. Legal and financial due diligence of Follmer and Holthouse also
began during November 1998. In December 1998, CenterPoint agreed to acquire
Reppond which had already been in discussions with Driver for an acquisition by
Driver.
At the end of November 1998, CenterPoint 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. The first draft
of an acquisition agreement for each of Follmer and Holthouse was distributed
in December 1998.
During December 1998 and January 1999, PricewaterhouseCoopers began
financial audits of the CenterPoint Companies on behalf of CenterPoint. Legal
and financial due diligence of the CenterPoint Companies continued throughout
this period. CenterPoint also began negotiations and discussions with the
CenterPoint Companies regarding their respective merger agreements. Beginning
late November 1998, representatives of CenterPoint, BGL Capital,
PricewaterhouseCoopers, Katten Muchin & Zavis and all of the CenterPoint
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, all of the merger
agreements were executed.
CenterPoint's Reasons for the Mergers
CenterPoint was formed on November 9, 1998 for the purpose of acquiring the
CenterPoint Companies. CenterPoint 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. CenterPoint believes that
certain industry trends have created a significant opportunity for a company
that provides high quality, diversified professional, business and financial
services and products to middle market clients. See "Industry Overview," and
"Business of CenterPoint after the Mergers--Introduction."
The CenterPoint Companies' Reasons for the Mergers and Recommendations of the
Management of the CenterPoint Companies
The management of each of the CenterPoint Companies has identified a number
of potential benefits of the mergers to security holders of the CenterPoint
Companies. The potential benefits include the following:
. CenterPoint's management will offer the CenterPoint 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
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of the CenterPoint Companies, each CenterPoint 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 CenterPoint.
. As part of CenterPoint's growth strategy, the CenterPoint Companies will
serve as platforms for future acquisitions and alliances with
professional, business and financial services firms in regions in which
the CenterPoint Companies are located. Through such acquisitions and
alliances, the CenterPoint 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 CenterPoint 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
CenterPoint 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 CenterPoint Companies. In addition, a substantial portion of
the consideration to be received by security holders of the CenterPoint
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.
The respective boards of directors or operating boards of the CenterPoint
Companies also identified a number of potential adverse effects of the mergers
on the security holders of each CenterPoint Company, including:
. Initial decrease in compensation for certain security holders.
. Dependence on the operating results of the other CenterPoint 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
boards of each of the CenterPoint Companies were influenced by the potential
benefits described above. The importance of each benefit varied to some extent
for each board; however, each board was positively influenced by each of the
benefits to some degree.
Interests of Certain Persons in the Mergers
In considering the recommendations of the boards of directors or other
governing bodies of the CenterPoint Companies, the securityholders of the
CenterPoint Companies should be aware that certain members of the boards or
governing bodies of the CenterPoint Companies have interests in the mergers
that may be considered different from, or in addition to, the interests of the
security holders of the CenterPoint Companies. The boards of the CenterPoint
Companies were aware of such interests and considered them in approving the
merger agreements and the mergers.
Directors. Certain members of the boards of CenterPoint Companies will
become directors of CenterPoint upon closing of the mergers. See "CenterPoint
Management."
Driver Employment Agreements. Upon the closing of the Driver merger, Driver
and CenterPoint 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
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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 CenterPoint.
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 CenterPoint's insurance business. Should CenterPoint
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 CenterPoint's insurance business on the same 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
CenterPoint's business and financial services group in any territory
where Driver or CenterPoint conducts such business;
. soliciting for employment a CenterPoint 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 CenterPoint's business and
financial services group, or that was known by Mr. Zimmer to have been
actively solicited by CenterPoint during such period;
. calling upon a prospective acquisition candidate which was approached or
analyzed by CenterPoint 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 CenterPoint or any current or prospective policyholder
or premium finance customer for any reason or purpose.
Upon the closing of the offering, Driver and CenterPoint 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.
CenterPoint 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 "CenterPoint Management--Employment Agreements;
Covenants-Not-To-Compete."
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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 CenterPoint common stock
as compensation, or persons who hold their interests in the CenterPoint
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 of 1986, as amended. Accordingly:
1.No gain or loss will be recognized by a security holder of a CenterPoint
Company with respect to shares of CenterPoint common stock received in
exchange for their CenterPoint Company stock.
2. Each security holder of a CenterPoint Company who receives cash in
exchange for CenterPoint Company stock 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 CenterPoint
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 CenterPoint Company stock is more
than twelve months.
3. A security holder's holding period for the CenterPoint 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 CenterPoint common stock received in the merger
will be equal to the adjusted tax basis that such exchanging security
holder has in the CenterPoint Company stock which it transfers 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.
The analysis contained herein 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, each exchanging
security holder should consult his or her own tax advisor as to the specific
tax consequences of the mergers as they pertain to such holder.
Accounting Treatment
The mergers will be recorded by CenterPoint under the purchase method of
accounting.
Certain Federal Securities Law Consequences
The 3,074,361 shares of CenterPoint 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 CenterPoint
will not be freely tradeable under the Securities Act. Affiliates may not sell
their shares of CenterPoint 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 CenterPoint common stock and also on the number of shares of CenterPoint
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 CenterPoint.
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In addition to securities law restrictions, the merger agreements impose
restrictions on the transferability of shares of common stock issued in the
mergers, including the shares offered by this prospectus. All of the owners of
the CenterPoint Companies have agreed not to sell, transfer or otherwise
dispose of any of the shares of CenterPoint 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 CenterPoint or a
CenterPoint Company are subject to additional restrictions. If a stockholder's
employment with a CenterPoint Company is terminated within 30 months of the
IPO, other than through death, disability, retirement or circumstances approved
by management of the CenterPoint Company and by CenterPoint'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
CenterPoint 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, CenterPoint and the owners and employees of the CenterPoint Companies
have agreed 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
CenterPoint intends to list the shares of CenterPoint common stock to be
issued in the Merger (including the shares of CenterPoint common stock issuable
pursuant to the bonus plans) on The New York Stock Exchange.
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THE MERGER AGREEMENTS
Following is a summary of the structure and material provisions of the
merger agreements. The merger agreements have been filed as Exhibits to
CenterPoint's registration statement on Form S-4. See "Where You Can Find More
Information." You should read the full text of the merger agreements.
Structure of the Mergers
The following is a summary of the merger structure for each of the
CenterPoint Companies:
.Berry Dunn
Prior to the Berry Dunn merger, stockholders of Berry Dunn will transfer
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 CenterPoint will then merge
with and into Berry Dunn, leaving Berry Dunn as the surviving company and
a wholly-owned subsidiary of CenterPoint.
.Driver
Pursuant to the Driver merger, a wholly-owned subsidiary of CenterPoint
will merge with and into Driver, leaving Driver as the surviving company
and a wholly-owned subsidiary of CenterPoint.
.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 CenterPoint will then merge
with and into Follmer, leaving Follmer as the surviving company and a
wholly-owned subsidiary of CenterPoint.
.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 CenterPoint will then merge with and into Grace, leaving
Grace as the surviving company and a wholly-owned subsidiary of
CenterPoint.
.Holthouse
Holthouse is a limited liability partnership owned by seven professional
corporations and one individual partner. Holthouse will transfer all of
its assets to a newly formed Delaware limited liability company. The
partners will dissolve Holthouse and, in exchange for each of their
partnership interests in Holthouse, will receive membership interests in
the newly formed limited liability company. Prior to the closing, the
individual partner will transfer her interest in the limited liability
company to a newly formed Delaware limited liability company. Each
professional corporation will convert into a business corporation.
Wholly-owned subsidiaries of CenterPoint will merge with and into each
entity owned by a Holthouse partner, and each such entity will survive
the merger and be a wholly-owned subsidiary of CenterPoint.
.IDA
Pursuant to the IDA merger, a wholly-owned subsidiary of CenterPoint will
merge with and into IDA, leaving IDA as the surviving company and a
wholly-owned subsidiary of CenterPoint.
.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 CenterPoint will merge with and into Mann Frankfort,
leaving Mann Frankfort as the surviving company and a wholly-owned
subsidiary of CenterPoint.
.Reppond
Pursuant to the Reppond merger, wholly-owned subsidiaries of CenterPoint
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
CenterPoint.
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.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 CenterPoint will then merge with and into Reznick, leaving
Reznick as the surviving company and a wholly-owned subsidiary of
CenterPoint.
.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
CenterPoint, leaving such CenterPoint subsidiary as the surviving entity
and a wholly-owned subsidiary of CenterPoint.
.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 CenterPoint will merge with and into Urbach, leaving Urbach
as the surviving company and a wholly-owned subsidiary of CenterPoint.
Conditions to Each Party's Obligations to Effect the Mergers
Consummation of the mergers is subject to the satisfaction of the following
conditions:
. Underwriting Agreement. The underwriting agreement related to the IPO
shall have been executed and the closing of the sale of CenterPoint
common stock to the underwriters pursuant thereto shall have occurred
simultaneously with the closing of the mergers.
. Closings of the Mergers. The closings of all the mergers shall have
occurred simultaneously, unless terminated in accordance with the
respective merger agreements.
. Securities Approvals. This registration statement and the registration
statement on Form S-1 registering the CenterPoint 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 initial public offering price of the CenterPoint
common stock shall not be less than $11.90 per share.
. No Government Action. No action shall have been taken, and no statute,
rule or regulation shall have been enacted, by any state or federal
government or government agency in the United States which would prevent
the consummation of any of the mergers or make the consummation of the
mergers illegal.
. Consents. All material governmental and third party waivers, consents and
members' approvals required for the consummation of the mergers and the
transactions contemplated by the merger agreements shall have been
obtained and be in effect.
. No Legal Proceedings. No action, suit or proceeding with respect to the
mergers shall have been filed or threatened by a third party and remain
threatened or pending before any court, governmental authority or
regulatory person.
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. Authorization. The merger agreements, the mergers and the transactions
contemplated thereby shall have been approved and adopted by the
requisite number of security holders of each respective CenterPoint
Company in the manner required by any applicable law and the respective
organizational documents.
. Credit Facility. CenterPoint shall have entered into one or more credit
facilities providing for aggregate commitments of not less than $75
million.
Conditions to Obligations of each CenterPoint Company and its Security Holders
to Effect the Mergers
In addition, unless waived by the applicable CenterPoint Company, the
obligation of each CenterPoint Company and its security holders to consummate
each respective merger is subject to certain additional conditions, including:
. Representations and Warranties. The representations and warranties of
CenterPoint contained in each respective merger agreement shall be
accurate in all material respects.
. Covenants. CenterPoint and each merger subsidiary shall have performed in
all material respects the covenants required by each merger agreement.
. Legal Opinion. Each respective CenterPoint Company shall have received a
legal opinion from counsel to CenterPoint.
. Incentive Compensation Agreement. Each of the security holders of each of
the CenterPoint Companies (other than Driver, IDA and Reppond) shall have
been afforded the opportunity to enter into an incentive compensation
agreement with CenterPoint.
. Employment Agreements. Certain officers of Driver, IDA and Reppond shall
have been afforded the opportunity to enter into employment agreements
with CenterPoint.
. Stockholders' Agreement. The security holders of each CenterPoint Company
and the other stockholders of CenterPoint (other than those acquiring
stock in the IPO) shall have entered into a stockholders' agreement.
. Other Mergers. All conditions to the other mergers shall have been
satisfied.
Conditions to Obligation of CenterPoint to Effect the Mergers
In addition, unless waived by CenterPoint, the obligation of CenterPoint to
consummate each merger is subject to certain conditions, including:
. Representations and Warranties. The representations and warranties of
each CenterPoint Company and its respective security holders contained in
the applicable merger agreement shall be accurate in all material
respects.
. Covenants. Each CenterPoint Company and its respective security holders
shall have performed in all material respects the covenants required by
the applicable merger agreement.
. Legal Opinion. CenterPoint shall have received a legal opinion from
counsel to each CenterPoint Company.
. Comfort Letters. CenterPoint and the Underwriters shall have received
comfort letters in customary form from each of the CenterPoint 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
CenterPoint), 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.
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. Stockholders' Agreement. The security holders of each CenterPoint Company
shall have executed the stockholders' agreement.
In addition, with respect to the mergers with the CenterPoint Companies
other than Driver, IDA and Reppond, it shall be a further condition to
CenterPoint'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 CenterPoint
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 transactions contemplated by the initial public
offering are consummated. 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 CenterPoint 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 CenterPoint Company agreed to conduct its
business in the ordinary and usual course and consistent with past practices,
and 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, and 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
CenterPoint 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 CenterPoint Company and its security holders will (1) not, and
the CenterPoint 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 CenterPoint Company or any equity interest
therein, and (2) promptly advise CenterPoint of the terms of any communications
the CenterPoint 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 (1) a CenterPoint Company seeks to amend or
supplement certain schedules of the applicable merger agreement, (2) such
amendment or supplement constitutes or reflects a material adverse effect
on the operations, assets, condition (financial or otherwise), operating
results, client relations or prospects of the CenterPoint Company, and (3)
CenterPoint and a majority of the CenterPoint Companies do not consent to
such amendment or supplement;
(c) at any time prior to the Closing Date by CenterPoint, (1) if the
merger is not completed by August 31, 1999 other than on account of delay
or default on the part of CenterPoint or any of its stockholders or any of
their affiliates or associates; (2) if the merger is enjoined by a final,
unappealable
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court order not entered at the request or with the support of CenterPoint
or any of its stockholders or any of their affiliates or associates; (3) if
the applicable CenterPoint Company (A) fails to perform in any material
respect any of its material covenants in the respective merger 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 applicable
CenterPoint Company by CenterPoint; or (4) if the security holders of the
applicable CenterPoint Company (A) fail to perform in any material respect
any of their material covenants in the respective merger agreement and (B)
do not cure such default in all material respects within thirty (30) days
after written notice of such default is given to the security holder
representative by CenterPoint;
(d) by mutual consent of the managers, general partners or boards of
directors of the CenterPoint Company, as applicable, and the board of
directors of CenterPoint;
(e) at any time prior to the Closing Date by the applicable CenterPoint
Company (1) if the related merger is not completed by August 31, 1999 other
than on account of delay or default on the part of the applicable
CenterPoint Company or its security holders, or any of their affiliates or
associates; (2) if the related merger is enjoined by a final, unappealable
court order not entered at the request or with the support of the
applicable CenterPoint Company or its security holders, or any of their
affiliates or associates; or (3) if CenterPoint (A) fails to perform in any
material respect any of its material covenants in the related merger
agreement and (B) does not cure such default in all material respects
within 30 days after written notice of such default is given to
CenterPoint.
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. CenterPoint 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 holder of securities in a CenterPoint 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 CenterPoint common stock into
which such securities are converted in each merger. Shares of CenterPoint
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 CenterPoint 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 CenterPoint 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, Holthouse, IDA,
Reppond Company, Reppond Administrators, VeraSource, Reznick and Simione are
not entitled to dissenters' rights.
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 CenterPoint common stock
pursuant to the merger may choose to follow the procedures specified by either
California law or Delaware law or both.
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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 ten 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.
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 (1) the date upon which such price was
agreed or (2) 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
Corporations 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.
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If a Driver stockholders 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 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 stockholders 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.
Berry Dunn
The following is a summary of Sections 908 and 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. Berry Dunn stockholders should carefully review Maine Law as well as the
information discussed below to determine their dissenters' rights.
If a Berry Dunn stockholder elects to exercise its dissenters rights under
Maine law, such stockholder must do ALL of the following:
(1) prior to or at the Berry Dunn meeting, deliver to Berry Dunn a
written objection to the proposed merger;
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<PAGE>
(2) not vote in favor of the merger agreement;
(3) within 15 days after the Berry Dunn meeting, personally deliver or
mail via certified or registered mail to Berry Dunn a written demand for
payment of the fair value of the dissenting stockholder's shares of Berry
Dunn that also specifies the stockholder's current address; and
(4) at or within 20 days of filing the written demand for payment,
submit to Berry Dunn the certificates representing the shares for which
payment is demanded with a notation of such certificates that a demand for
payment has been made.
All written objections and demands for payment should be addressed to:
President, Berry, Dunn, NcNeil & Parker, 100 Middle Street, Portland, Maine
04104.
Any shareholder failing either to object to the merger or to make demand in
the time and manner provided shall be bound by the terms of the merger. Any
Berry Dunn stockholder making such objection and demand shall thereafter be
entitled only to payment as provided under Maine law and shall not be entitled
to vote or to exercise any other rights of a shareholder.
Within 25 days after the effective time of the merger, Berry Dunn will give
written notice to each dissenting shareholder that the merger has been
effected, and offering to pay for such shares at a specified price deemed by
Berry Dunn to be the fair value thereof. Berry Dunn will offer the same price
per share to all dissenting shareholders. The notice and offer shall be
accompanied by a balance sheet of Berry Dunn, as of the latest available date,
and a profit and loss statement for the 12 months' period ended on the date of
such balance sheet. Within 20 days after the time which Berry Dunn is required
to make a written offer to the dissenting shareholder, Berry Dunn or any
dissenting shareholder may bring an action to determine the fair value of the
Berry Dunn shares in the Superior Court in the county in Maine where the
registered office of Berry Dunn was last located. However, no such action may
be brought, either by Berry Dunn or by a dissenting shareholder, more than six
months after the effective time of the merger.
In an action to determine fair value is timely filed, the court will
determine which shareholders are entitled to dissenters rights and thereafter
determine the fair value of the shares.
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.
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<PAGE>
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 Urbach fails to make an offer within the required
15-day period discussed above or a dissenting security holder rejects the
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.
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 (which 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
33
<PAGE>
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. Court costs shall be
allocated between the parties in such manner as the court shall determine to be
fair and equitable.
Government and Regulatory Approvals
It is a condition to the consummation of the transactions contemplated by
each merger agreement that each of the CenterPoint 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 CenterPoint Companies believes that the merger
applicable to each such CenterPoint Company can be effected in compliance with
federal and state antitrust laws. None of the CenterPoint Companies is aware of
any governmental or regulatory approvals required for the consummation of the
applicable merger, other than compliance with federal and applicable state
securities and corporate laws.
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<PAGE>
CENTERPOINT SELECTED FINANCIAL DATA
(in thousands, except share and per share data)
CenterPoint will acquire the CenterPoint Companies simultaneously with the
completion of the IPO. For financial statement presentation purposes,
CenterPoint has been identified as the "accounting acquiror." The table below
presents unaudited pro forma combined financial data for CenterPoint 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 $14.00 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 March 31, 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 CenterPoint. See the unaudited pro
forma combined financial statements and related notes and the historical
financial statements of the CenterPoint Companies and related notes included
elsewhere in this prospectus. Selected financial data related to the historical
balance sheet and statement of operations for CenterPoint have been omitted as
they are immaterial and do not provide meaningful information.
<TABLE>
<CAPTION>
Pro Forma Combined
----------------------------------
Three Months Ended
Year Ended March 31,
December 31, ---------------------
1998 1998 1999
------------ ---------- ----------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Professional services..................... $ 150,096 $ 47,985 $ 56,032
Business and financial services........... 53,128 11,435 13,410
---------- ---------- ----------
Total revenues.......................... 203,224 59,420 69,442
Expenses:
Professional services compensation and
related costs (1)........................ 95,367 27,622 35,250
Business and financial services
compensation and related costs (1)....... 35,358 7,060 8,854
Other operating expenses (2).............. 37,611 9,275 10,160
Depreciation and amortization (3)......... 10,870 2,431 2,723
---------- ---------- ----------
Income from operations...................... 24,018 13,032 12,455
Other income, net (4)....................... 1,407 210 436
---------- ---------- ----------
Income before income taxes.................. 25,425 13,242 12,891
Provision for income taxes (5).............. 12,547 5,891 5,751
---------- ---------- ----------
Net income.................................. $ 12,878 $ 7,351 $ 7,140
========== ========== ==========
Net income per share........................ $ 0.50 $ 0.29 $ 0.28
========== ========== ==========
Shares used in computing net income per
share (6).................................. 25,662,791 25,662,791 25,662,791
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
-------------------
Pro Forma As
Combined Adjusted
--------- --------
<S> <C> <C>
Balance Sheet Data:
Working (deficit) capital................................ $(90,405) $ 13,499
Total assets............................................. 300,493 306,267
Total long-term debt, net of current portion............. 24,175 4,000
Stockholders' equity..................................... 130,535 258,614
</TABLE>
35
<PAGE>
- --------
(1) Reflects pro forma reductions in compensation and benefits to certain
owners and employees of the CenterPoint Companies. Such amounts include an
aggregate of approximately $21,980, $9,438 and $6,972 for the year ended
December 31, 1998 and the three months ended March 31, 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.
(2) Reflects the reduction in other operating expenses related non-recurring
stock compensation charge for management of CenterPoint, net of prospective
compensation to management of CenterPoint as agreed to in the employment
agreements. Such amounts totaled $58, $(210) and $2,395 for the year ended
December 31, 1998 and the three months ended March 31, 1998 and 1999,
respectively.
(3) Includes amortization related to $237,714 of goodwill to be recorded as a
result of the mergers over a 40-year period and computed on the basis
described in the notes to the unaudited pro forma combined financial
statements.
(4) Reflects a reduction of net interest expense associated with long-term debt
to be repaid from the proceeds of the IPO or retained by the owners of the
CenterPoint Companies of $2,220, $392 and $734 for the year ended December
31, 1998 and the three months ended March 31, 1998 and 1999, respectively.
(5) Assumes all income is subject to a corporate income tax rate of 40% and
assumes all goodwill is non-deductible.
(6) Includes (a) 12,569,367 shares to be issued to the owners and employees of
the CenterPoint Companies in the mergers; (b) 3,681,309 shares held by
initial investors and management of CenterPoint; and (c) 9,412,115 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 CenterPoint
Companies and to pay estimated expenses of the IPO.
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<PAGE>
CENTERPOINT MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "CenterPoint Selected
Financial Data," the pro forma combined financial statements and related notes
and the historical financial statements of the CenterPoint Companies and
related notes appearing elsewhere in this prospectus.
Introduction
General
CenterPoint was created to become a leading provider of diversified
professional, business and financial services and products to a broad spectrum
of middle-market clients. CenterPoint has conducted no operations and generated
no revenues to date and has entered into agreements to acquire the eleven
CenterPoint Companies simultaneously with the closing of the IPO. CenterPoint's
revenues are derived primarily from professional services and business and
financial services and products. CenterPoint's pro forma combined revenues for
the year ended December 31, 1998 totaled $205.5 million, of which approximately
74% was derived from professional services and approximately 26% from business
and financial services and products.
Overview--Professional Services--Historical Results of Operations
CenterPoint's professional services firms provide a full range of
consulting, accounting, tax and related professional services to middle-market
clients. The following table presents the combined historical revenues of
CenterPoint's professional services firms for the periods shown:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
----------- -----------
(Dollars in thousands)
<S> <C>
$124,844 $149,280
</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
CenterPoint'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
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<PAGE>
following table presents the combined historical revenues of CenterPoint's
business and financial services firms for the periods shown:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
----------- -----------
(Dollars in thousands)
<S> <C>
$44,916 $51,711
</TABLE>
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--CenterPoint--Unaudited Pro Forma Combined Results of Operations
The following table sets forth the unaudited pro forma combined operating
results of CenterPoint for the year ended December 31, 1998 and the three
months ended March 31, 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 Three Months Ended March
December 31, 1998 31,
----------------------------------------------------
1998 1999
(Dollars in thousands) ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Professional services.. $ 150,096 73.9% $47,985 80.8% $56,032 80.7%
Business and financial
services.............. 53,128 26.1 11,435 19.2 13,410 19.3
------------ --------- ------- ----- ------- -----
203,224 100.0 59,420 100.0 69,442 100.0
Expenses:
Compensation and
related costs......... 130,725 64.3 34,682 58.4 44,104 63.5
Other operating
expenses.............. 37,611 18.5 9,275 15.6 10,160 14.6
Depreciation and
amortization.......... 10,870 5.1 2,431 4.1 2,723 3.9
------------ --------- ------- ----- ------- -----
Income from operations... $ 24,018 11.8% $13,032 21.9% $12,455 18.0%
============ ========= ======= ===== ======= =====
</TABLE>
CenterPoint'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
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<PAGE>
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.
CenterPoint has created a unique compensation structure 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 CenterPoint of a
specified fixed dollar amount ("CenterPoint Base Earnings") of each firm's
annual operating earnings before any compensation is paid to the firm's senior
professionals. Such compensation structure is designed to provide CenterPoint
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 CenterPoint and 60% allocated to the senior
professionals. For more information concerning the compensation agreements,
including the definitions of certain terms, see "Business of CenterPoint 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),
CenterPoint Base Earnings and senior professionals' compensation would have
been as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1998 March 31, 1999
----------------- ------------------
(Dollars in thousands)
<S> <C> <C>
Operating Earnings................. $56,794 $28,443
CenterPoint Base Earnings.......... $29,871 $14,178
------- -------
Senior professionals'
compensation...................... $26,923 14,265
Senior professionals' compensation
as a percentage of Operating
Earnings.......................... 47.4% 50.2%
</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.
CenterPoint 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. CenterPoint has not and cannot quantify these savings until
completion of the mergers and the integration of the CenterPoint Companies.
CenterPoint 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
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
CenterPoint. These various future costs and possible future cost savings may
make useful comparisons of future operating results with historical operating
results difficult.
Centerpoint'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.
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<PAGE>
CenterPoint'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
CenterPoint. 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. CenterPoint's third party administration business
recognizes revenues as the related services are provided. CenterPoint 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 CenterPoint 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
Certain of CenterPoint'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, CenterPoint generated approximately 31% of its
revenues in the first quarter, 24% in the second quarter, 23% in the third
quarter, and 22% in the fourth quarter. CenterPoint believes that quarter-to-
quarter comparisons of results of operations are not necessarily meaningful or
indicative of the results that CenterPoint may achieve for any subsequent
quarter or fiscal year.
On a prospective basis, CenterPoint'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.
CenterPoint's earnings from professional services firms in excess of baseline
earnings will also be recognized as earned on a seasonal basis.
Pro forma combined results for the three months ended March 31, 1999 compared
to the three months ended March 31, 1998
Revenues. Professional services revenues increased $8.0 million, or 16.8%,
from $48.0 million in the three months ended March 31, 1998 to $56.0 million
in the three months ended March 31, 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 $2.0
million, or 17.3%, from $11.4 million in the three months ended March 31, 1998
to $13.4 million in the three months ended March 31, 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
$9.4 million, or 27.2%, from $34.7 million in the three months ended March 31,
1998 to $44.1 million in the three months ended March 31, 1999, primarily due
to salary increases, signing bonuses and staff additions. As a percentage of
revenues, these expenses increased from 58.4% in the three months ended March
31, 1998 to 63.5% in the three months ended March 31, 1999.
Other Operating Expenses. Other operating expenses increased $885,000, or
9.5%, from $9.3 million in the three months ended March 31, 1998 to $10.2
million in the three months ended March 31, 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
decreased from 15.6% in the three months ended March 31, 1998 to 14.6% in the
three months ended March 31, 1999.
Depreciation and amortization. Depreciation and amortization expense
increased $292,000 or 12.0% from $2.4 million in the three months ended March
31, 1998 to $2.7 million in the three months ended March 31, 1999, primarily
due to an increase in depreciation expense resulting from additional equipment
and leasehold
40
<PAGE>
improvement purchases. As a percentage of revenues, these expenses increased
from 4.1% in the three months ended March 31, 1998 to 3.9% in the three months
ended March 31, 1999.
Pro Forma Combined Liquidity and Capital Resources
The CenterPoint Companies' principal sources of liquidity have historically
been cash flows from operating activities. After the completion of the mergers
and the IPO, CenterPoint will have approximately $12.2 million of working
capital. CenterPoint expects that certain short-term and long-term debt of the
CenterPoint Companies, totaling approximately $28.4 million as of March 31,
1999, will be repaid from the net proceeds of the IPO. Driver borrowed
approximately $16.8 million of such debt in connection with a recapitalization
and the CenterPoint Companies incurred the balance primarily for purchases of
equipment and general corporate purposes.
CenterPoint is seeking to obtain a revolving credit facility of up to $100
million. Although such revolving credit facility is expected to be available
upon the completion of the IPO, CenterPoint has not obtained any commitment nor
can there be any assurance that CenterPoint will be able to obtain such
revolving credit facility or other financing it may need on terms it deems
acceptable. It is expected that such facility, if obtained, will require
CenterPoint 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. Such 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.
The CenterPoint Companies' capital expenditures were $5.2 million for the
year ended December 31, 1998, primarily for purchases of equipment. CenterPoint
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 CenterPoint's expected working capital needs, debt
service requirements and planned capital expenditures for at least the next 12
months. The Company anticipates borrowing approximately $10.0 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 CenterPoint
Companies is being distributed in connection with the mergers. The working
capital borrowings will be repaid as the Company begins to generate cash flow
from operations, which is anticipated to occur between 90 and 120 days
following the closing of the IPO.
CenterPoint will incur contingent payment obligations in connection with the
mergers. See "Certain Transactions--The Mergers." CenterPoint 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.
CenterPoint intends to pursue selected acquisition opportunities. The timing
or success of any acquisition efforts is unpredictable. Accordingly,
CenterPoint 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--
CenterPoint may not be able to obtain adequate financing to implement its
strategies."
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. CenterPoint has been identified as
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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 CenterPoint Companies of
approximately $234.2 million will be amortized over a period of 40 years as a
non-cash charge to CenterPoint's income statement. This amortization will be
approximately $5.9 million per year.
Amortization of Intangible Assets
The $237.7 million of goodwill resulting from the mergers represents
approximately 77.6% of CenterPoint's pro forma total assets as of December 31,
1998. CenterPoint 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,"
CenterPoint 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 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
CenterPoint'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,
1999, 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. CenterPoint does not currently hold any derivative
instruments or participate in any hedging activities.
Inflation
Substantially all of CenterPoint's client services agreements and insurance
policies allow, at the time of renewal, for adjustments in the fees payable
thereunder and thus may enable CenterPoint to seek increases in the amounts
charged. Such increases have historically allowed the CenterPoint Companies to
respond to increases in their costs, the most significant component of which is
compensation expense. The substantial majority of 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 CenterPoint of the adverse affect 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
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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 CenterPoint 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 CenterPoint Company has completed phases 1 and 2 for all critical
hardware and software systems. Because of CenterPoint's reliance on third party
industry specific software products and mainstream hardware components,
preparation for year 2000 has focused 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.
CenterPoint 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,
CenterPoint has not identified any material year 2000 problems with information
technology or non-information technology systems.
At this time, CenterPoint assesses its year 2000 status for its significant
systems as follows:
. Laptop/desktop/servers. Each CenterPoint Company reports
substantial completion of equipment upgrades or replacements.
. General accounting systems. All of the CenterPoint Companies have
completed the upgrades and replacements, with the exception of
Grace which expects to purchase and install new software by
September 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.
. 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 September 1, 1999.
Based on an ongoing survey of year 2000 project progress, CenterPoint
currently estimates that the total cost of its year 2000 compliance and
remediation activities will be approximately $400,000 to $500,000, of which
approximately $380,000 had been incurred as of March 31, 1999. Of the estimated
total year 2000 costs,
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approximately $50,000 represents costs associated with repair of software
problems and approximately $400,000 represents the purchase of replacements or
upgrades of software or hardware. However, CenterPoint 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 CenterPoint has taken to
protect its business from or minimize the impact of year 2000 issues will be
adequate. Any damage to CenterPoint'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. Any such event could have a material adverse effect on
CenterPoint's business, financial condition or results of operations.
Each of the CenterPoint Companies is assessing the year 2000 readiness of
its significant customers, business partners and vendors to determine the
extent to which CenterPoint's interface systems are vulnerable to the failure
of those third parties to remediate their own year 2000 issues. To date,
CenterPoint is not aware of any significant customers, business partners or
vendors with a year 2000 issue that would materially affect CenterPoint or a
CenterPoint Company. However, CenterPoint cannot guarantee that the systems of
other companies, on which CenterPoint's operations rely, will be timely
converted or that failure to timely convert would not have a material adverse
effect on CenterPoint's business, financial condition or results of operations.
CenterPoint believes that each CenterPoint 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 CenterPoint Companies have engaged in any independent
verification or validation processes.
CenterPoint has commenced its contingency planning for critical operational
areas that might be affected by the year 2000 issue if compliance by
CenterPoint is delayed. Elements of CenterPoint's contingency plans include
switching vendors and third party suppliers and using manual processes that do
not rely on computers. CenterPoint expects to complete its contingency planning
by September 30, 1999. Aside from catastrophic failure of banks, utilities or
governmental agencies, CenterPoint believes that it could continue its normal
business operations. Unless such catastrophic failure occurs, CenterPoint does
not believe that the year 2000 issue will materially affect its results of
operations, liquidity or capital resources.
Several of the CenterPoint Companies have information technology consulting
practices that have periodically been asked by clients to provide certain year
2000 consulting services. Although CenterPoint 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.
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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 in these revenues
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
CenterPoint'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 CenterPoint's eight professional
services firms for the fiscal year ended December 31, 1998, CenterPoint would
have been ranked No. 13 in Accounting Today's 1999 Top 100 Accounting Firms had
the CenterPoint Companies been combined throughout such period.
CenterPoint 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 private 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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CenterPoint 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. CenterPoint
believes that the fragmented nature of these segments presents opportunities
for future acquisitions.
Industry Opportunities
CenterPoint 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. CenterPoint 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
CenterPoint believes that market forces 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 as a consequence of the willingness of clients
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 value-added 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. CenterPoint 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. CenterPoint 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
CenterPoint believes that the Big Five are increasingly focused on the needs
of their largest, publicly-held corporate clients. According to a 1998 survey
by Public Accounting Report, 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. CenterPoint 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
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business lines, there is increasing opportunity for and competitive pressure on
accounting firms to enter into these businesses. CenterPoint 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. See "Business of CenterPoint
after the Mergers--Regulation--Accounting Profession."
BUSINESS OF CENTERPOINT AFTER THE MERGERS
Introduction
CenterPoint is a leading provider of professional, business and financial
services and products to middle-market clients. CenterPoint 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 2100
employees provide these services and products to clients located throughout the
United States. CenterPoint 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.
CenterPoint has assembled a group of founding companies with expert
capabilities, reputations for quality, effective leadership and strong "trusted
advisor" relationships with clients. The CenterPoint Companies have been in
business an average of 27 years. On a combined historical basis, revenues of
the CenterPoint Companies increased from $169.8 million in fiscal 1997 to
$201.0 million in fiscal 1998, representing an annual growth rate of 18.4%.
Business Strategy
CenterPoint'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 client-focused business strategy, CenterPoint will:
. Develop and Deliver High Quality Services and Products. CenterPoint
currently offers a broad range of high quality professional, business and
financial services and products. CenterPoint 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 the CenterPoint Companies have developed strong national or regional
reputations relating to a particular industry, service or product. For
example, CenterPoint has significant advisory expertise in the real
estate, manufacturing, health care and construction industries and in
specialized services including litigation consulting services and
information technology consulting services. CenterPoint also has
expertise in insurance brokerage and employee benefits administration
services. CenterPoint intends to use its national practices as:
. Clearinghouses of knowledge that provide industry, service or product
expertise to all CenterPoint business units.
. Resources for the development of "best practices" that will be used
for training, continuing education and practice development
throughout CenterPoint.
. Platforms for identifying, integrating and managing future
acquisitions and alliances.
. Expand Presence in Key Geographic Markets. Capitalizing on the strong
reputations of the CenterPoint Companies, CenterPoint intends to build
upon its local presence through selected acquisitions in its current
markets. At the same time, CenterPoint intends to take advantage of its
geographic diversity by
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adopting a marketing strategy that promotes the CenterPoint brand
nationally and highlights CenterPoint's expanded functional capabilities
and market presence.
. Integrate its Management and its Information Systems. CenterPoint
recognizes the importance of integrating and coordinating its business
units and systems and has hired a chief integration officer to lead this
process. CenterPoint's executive management team will work closely with
the CenterPoint Companies to implement and integrate CenterPoint's
business and growth strategies.
Internal Growth Strategy
To execute its growth strategy, CenterPoint will:
. Build Upon Trusted Advisor Relationships. CenterPoint believes that its
trusted advisor relationships present an opportunity to provide
additional services and products to clients. CenterPoint intends to build
upon these relationships by using its professional services firms as the
focal points for delivering CenterPoint's diversified services and
products. By capitalizing on its client relationships as well as its
reputation for quality, each CenterPoint Company 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. CenterPoint
intends to implement incentives to motivate the sharing of client
relationships and expertise throughout CenterPoint. In addition,
CenterPoint uses stock ownership to align the objectives of its business
units.
. Capture Benefits of Scale. CenterPoint 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. CenterPoint's broad
geographic coverage will enable it to serve clients as they expand into
new markets. In addition, CenterPoint 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
CenterPoint believes that the emergence of a diversified professional,
business and financial services industry will create acquisition opportunities.
CenterPoint believes that many regional and local firms are facing pressure 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, CenterPoint expects that numerous firms
will explore alternatives to independent ownership.
CenterPoint 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, CenterPoint
intends to further its strategy by targeting acquisition and alliance
candidates that:
. provide a professional services practice with a national or regional
reputation;
. expand CenterPoint'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 CenterPoint's existing platforms in their
geographic markets.
CenterPoint believes that the opportunity to be acquired by CenterPoint will
be attractive to many local and regional firms. CenterPoint will offer owners
of such firms the benefits of its business strategy, including:
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. 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, CenterPoint has developed a significant list of potential acquisition
candidates. In addition, each CenterPoint 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
currently 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, CenterPoint intends to use
various combinations of cash, debt and common stock. Other than in connection
with the mergers, CenterPoint is not currently a party to any agreements
regarding any acquisitions.
In addition to acquisitions, CenterPoint will actively pursue alliances
with other providers who offer quality services and products that are not
directly offered by CenterPoint. For example:
. CenterPoint 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, CenterPoint can assist clients
in achieving their business and financial objectives in the international
marketplace.
. CenterPoint 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
CenterPoint's preferred providers of network services, internet design
and implementation, software development, sales force automation and
other information technology services to CenterPoint's clients.
Services and Products
Professional Services
Consulting Services. CenterPoint 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 CenterPoint's professionals as well as the diversity of its clients.
CenterPoint has designed many of these services for clients in particular
industries.
Accounting Services. CenterPoint 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.
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These services are often tailored and packaged to serve clients' particular
needs. Under non-exclusive services agreements, CenterPoint provides
professional personnel to perform field work and other accounting services for
the Attest Firms. See "Certain Transactions--The Mergers--Ancillary Agreements
with Professional Services Firms and their Affiliates--Services Agreements."
Tax Services. CenterPoint provides clients with a complete range of tax
services. CenterPoint assists its clients in planning their overall business
structures and operations to minimize federal, state, local and foreign taxes.
Tax services also include 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. CenterPoint has developed significant practices in
certain specialized services offered to clients across industry lines.
CenterPoint intends to build national practices based on these specialized
services, which include:
. Litigation Consulting Services. CenterPoint provides litigation
consulting services, which include analyzing and providing expert
opinions and testimony on complex financial disputes.
. Information Technology Consulting Services. CenterPoint'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.
Industry Expertise. CenterPoint has considerable expertise with respect to
certain industries and can tailor its consulting, accounting and tax services
to specific business, regulatory or competitive environments. CenterPoint
intends to build national practices based on these areas of expertise, which
include:
. Real Estate. CenterPoint 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. CenterPoint 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. CenterPoint 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. CenterPoint 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. CenterPoint 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. CenterPoint 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.
CenterPoint also brokers life and health insurance products, administers
benefits and provides other services for its clients' employee benefits
programs. In addition, CenterPoint has established relations with most major
bonding companies, that allow it to provide a variety of surety bond products.
CenterPoint 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.
CenterPoint's insurance services businesses do not currently engage in
activities that involve bearing the risk of an insured's loss. CenterPoint may
in the future enter this segment of the industry, through acquisition or
otherwise, by underwriting certain products in which CenterPoint has particular
expertise through its brokerage activities. CenterPoint has no current plans to
engage in risk-bearing activities. Expansion into this area would involve
risks. See "Risk Factors--CenterPoint may expand its insurance business to
include activities that involve bearing the risk of loss."
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Employee Benefits Design and Administration. CenterPoint offers
comprehensive employee benefits design and third party administration services
to businesses and governmental units. CenterPoint 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. CenterPoint
procures quotes for insurance from stop loss carriers and provides claims
processing, plan performance and other administrative services. CenterPoint
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. CenterPoint 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 CenterPoint's employees is critically important to its
success. Senior employees, many of whom were the owners or principals of the
CenterPoint Companies before the Mergers, must continue to generate and
maintain business as they have historically. In addition, because of their
prominence and client relationships, CenterPoint anticipated that these
employees will play an important role in generating cross-selling opportunities
and attracting acquisition candidates.
The principal objectives of the compensation structure include:
. motivating employees to increase CenterPoint'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
CenterPoint's senior professionals are taking significant cuts in cash
compensation--in some cases more than 50%--in order to join CenterPoint.
However, CenterPoint believes that these individuals will continue to be highly
motivated to perform through their significant equity interests in CenterPoint
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
CenterPoint stock options and upon "making partner" will be able to share in
potential increases in their firm's earnings. The current compensation of such
employees will not be directly affected by the mergers.
Compensation Structure. The senior professionals of each CenterPoint
professional services firm will enter into firm-specific incentive compensation
agreements with CenterPoint. 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, CenterPoint will retain a specified fixed dollar amount
of earnings before any compensation is paid to a firm's participants. The
amount retained by CenterPoint is referred to as "CenterPoint Base Earnings."
The amount of CenterPoint Base Earnings has been negotiated with each
professional services firm and varies from firm to firm. Agreed-upon
CenterPoint Base Earnings range from 34.9% to 60.4% of the adjusted earnings of
the respective professional services firms in the four calendar quarters ending
March 31, 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 CenterPoint 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
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40% to be retained by CenterPoint 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. CenterPoint 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.
This compensation structure is designed to provide CenterPoint with a
baseline level of earnings, before corporate expenses, equal to the CenterPoint
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 CenterPoint.
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 (85% in 1999 and 2000 and 75% thereafter) of their total
compensation in the prior year. 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,
CenterPoint will reduce future compensation to recover the deficiency.
A single incentive compensation agreement may be amended with the agreement
of CenterPoint, 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 CenterPoint and representatives of all
of the original professional services firms. Thereafter, any such amendments
will require the approval of CenterPoint and representatives of 75% of the
original professional services firms.
The incentive compensation agreements have been designed to accommodate and
support CenterPoint's growth and acquisition strategies. They provide
mechanisms for adding new participants by allowing the firms 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 CenterPoint, 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 CenterPoint's profit growth objectives.
For example, CenterPoint intends to establish incentives for cross-selling and
cross-servicing of clients and integration of services among all of
CenterPoint'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, CenterPoint will enter into employment
agreements with key employees in its business and financial services group.
Generally, such agreements will provide for competitive base salaries
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and performance bonuses based upon such factors as the financial performance of
CenterPoint and the particular business unit, the achievement of certain
operating objectives and the achievement of personal performance goals. These
key employees are receiving CenterPoint common stock in the mergers, and
CenterPoint may also grant stock options to these and other key employees.
CenterPoint 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 "CenterPoint 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 CenterPoint 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, CenterPoint maintains a wide area network using 14 servers
located at the six offices that house the insurance operations. In providing
employee benefit administration services, CenterPoint uses a fully automated,
high volume claims adjudication system that allows it to integrate claims
administration, group billing and administration, and accounting.
CenterPoint 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 CenterPoint
intends to implement an integrated communications and management control
system. During the initial phase of the implementation, CenterPoint 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
CenterPoint 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. CenterPoint also
intends to deploy workgroup technology that facilitates communication and
collaboration across its workforce. In the next phase, CenterPoint plans to
design and implement centralized financial control systems. During the final
phase, CenterPoint intends to design and implement centralized operational
control systems.
CenterPoint 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, CenterPoint has
created a web site that will link clients to each of the CenterPoint Companies,
and it intends to develop and provide additional on-line connections to a
network of technical expertise and consulting capabilities.
The technology CenterPoint 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. CenterPoint 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. CenterPoint's insurance brokerage business
competes with numerous firms, primarily regional and local insurance brokers,
for customers and insurance carriers. CenterPoint's employee benefit plan
business competes with fully insured plan providers and, to a lesser extent,
other third party administrators. CenterPoint 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.
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The markets in which CenterPoint 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
CenterPoint, offer professional services and business and financial services.
CenterPoint 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. CenterPoint 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 which
establishes procedures for licensing CPAs and grants licensed CPAs and
accounting firms that are wholly-owned by CPAs a monopoly in providing attest
services. 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. 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. Under this 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.
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.
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The laws of most states 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. CenterPoint will comply with these
restrictions in implementing its compensation arrangements.
In addition to regulating the form of practice structures and limiting fee
arrangements, state accountancy laws also include requirements designed to
maintain the objectivity and independence of CPAs 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 CenterPoint's proposed operations, these standards will extend to
CenterPoint's executives, board members and controlling stockholders as well as
CPA employees who own the Attest Firms. In addition to the independence
standards, CPAs who provide litigation consulting services on behalf of
CenterPoint 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. CenterPoint intends to comply with
applicable requirements related to independence and avoidance of conflicts of
interest.
Insurance Business. CenterPoint 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. CenterPoint
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 have a material adverse effect on CenterPoint's insurance brokerage
business.
Employee Welfare Plans. Federal law regulates many aspects of CenterPoint'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 which could reduce or eliminate the need for CenterPoint's services
with respect to employee benefit plans.
Sales and Marketing
CenterPoint's marketing efforts are primarily relationship based.
Historically, the CenterPoint 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 who 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.
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CenterPoint sells its insurance services and products through approximately
114 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
CenterPoint designs specific programs.
In its employee benefits design and administration, CenterPoint's sales and
marketing occurs primarily through referrals and its reputation. In addition,
CenterPoint employs two full time salespeople who market its services and
products.
A key component of CenterPoint's marketing strategy is to introduce its
various services and products to its existing client base and to cross-service
its existing clients through multiple CenterPoint operating units with
complementary service or product expertise. To encourage cross-selling and
servicing of clients, CenterPoint 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
CenterPoint name, while preserving and enhancing the value of the established
regional and local names of its various operating units.
Employees
As of February 28, 1999, CenterPoint had a total of 2,165 employees, of
which 1,620 were employed by CenterPoint's professional services firms, 542
were employed by CenterPoint's business and financial
services firms and three were members of CenterPoint's corporate management. Of
the 1,620 people employed in connection with professional services, more than
600 are licensed CPAs. Of the 412 people employed in connection with insurance
brokerage services, 114 are producers. Of the 130 people employed in connection
with third party administrative services, two are in sales and 74 are in claims
administration. None of these employees is represented by a labor union.
CenterPoint believes that the CenterPoint Companies' relations with their
employees are good.
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Facilities
CenterPoint currently operates 38 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
Long Beach, CA........ Holthouse--Professional Services 3,200
Los Angeles, CA....... Urbach--Professional Services 5,200
Los Angeles, CA....... Holthouse--Professional Services 10,300
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
Westlake Village, CA.. Holthouse--Professional Services 3,000
Yakima, WA............ Reppond--Insurance Brokerage 1,700
</TABLE>
Litigation
CenterPoint is not involved in any legal proceedings which it believes are
material to its business, financial condition or results of operations.
CenterPoint 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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CENTERPOINT MANAGEMENT
Executive Officers and Directors
The following table lists CenterPoint'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 CenterPoint intend to elect two additional independent
directors at or prior to the completion of the offering. CenterPoint is in the
process of selecting these two individuals.
<TABLE>
<CAPTION>
Name Age Position
--------------------- --- ----------------------------------------------
<C> <C> <S>
Robert C. Basten..... 39 Chairman of the board, president and chief
executive officer
Thomas W. Corbett.... 52 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........ 61 Director
Richard H. Stein..... 46 Director
Anthony P. Frabotta.. 48 Director
Charles H. Roscoe.... 54 Director
Steven N. Fischer.... 55 Director
Robert F. Gallo...... 53 Director
Wayne J. Grace....... 58 Director
Philip J. Holthouse.. 40 Director
Anthony P. Scillia... 41 Director
Scott H. Lang........ 52 Director
Louis C. Fornetti.... 47 Director
William J. Lynch..... 56 Director
</TABLE>
Robert C. Basten joined CenterPoint in November 1998 as chairman of the
board, president and chief executive officer. Prior to joining CenterPoint, 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 CenterPoint'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 CenterPoint in March 1999 as executive vice
president, chief financial officer and a director. From 1985 until joining
CenterPoint, 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 CenterPoint in January 1999 as executive vice
president and chief integration officer. From 1990 until joining CenterPoint,
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 CenterPoint in February 1999 as a vice president,
chief accounting officer and treasurer. Prior to joining CenterPoint, 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 CenterPoint 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 CenterPoint 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 CenterPoint 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 CenterPoint 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 CenterPoint 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 CenterPoint 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 CenterPoint 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.
Philip J. Holthouse will become a director of CenterPoint upon the closing
of the offering. Mr. Holthouse has been a partner of Holthouse since its
founding in 1991. Mr. Holthouse is on the faculty of the University of Southern
California, Masters of Business Taxation Program and a member of the board of
advisors for the Leventhal School of Accounting.
Anthony P. Scillia will become a director of CenterPoint 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.
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Scott H. Lang became a director of CenterPoint in November 1998. Since 1996,
Mr. Lang has been managing member of BGL Management Company, LLC, which is the
managing member of BGL Capital, a merchant banking firm which originates and
finances industry consolidations. Mr. Lang is also a managing director and
principal of Brown, Gibbons, Lang & Company, L.P., an investment banking firm,
a position he has held since 1995. From 1985 to 1995, he served as executive
vice president and managing director of investment banking at Rodman & Renshaw,
Inc., a Chicago-based securities firm. 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 CenterPoint 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 CenterPoint 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.
Board of Directors
After completion of the mergers, the board of directors of CenterPoint will
consist of 17 directors, each serving for a term of one year. At each annual
meeting of stockholders, stockholders will elect all directors. The current
stockholders of CenterPoint have entered into an agreement with respect to
nominating and electing directors through the fifth annual meeting following
the offering. See "Description of CenterPoint's Capital Stock--Stockholders'
Agreement." CenterPoint 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 offering.
Director Compensation
Directors who are also employees of CenterPoint or one of its subsidiaries
do not receive compensation for serving as directors. Each director who is not
an employee of CenterPoint 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). CenterPoint 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, CenterPoint 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. See "--Employee Incentive Compensation Plan."
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 $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
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earliest of the closing of the offering, the execution of an employment
agreement with CenterPoint 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 CenterPoint 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 CenterPoint
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 CenterPoint 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
CenterPoint 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 CenterPoint anywhere in the
United States;
. solicit for employment a CenterPoint managerial employee unless that
person has been out of the employ of CenterPoint 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 CenterPoint, or that was known by the employee
to have been actively solicited by CenterPoint during such period; or
. call upon a prospective acquisition candidate which was approached or
analyzed by CenterPoint 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 CenterPoint.
Each of these employment agreements will provide that, if CenterPoint
terminates employment without cause or if the employee terminates for "good
reason," CenterPoint will pay severance compensation to the executive.
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 CenterPoint, payment is due in equal installments on CenterPoint's
normal payroll payment dates during the severance period. If the termination
occurs after a change in control of CenterPoint, severance will be paid 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
CenterPoint 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
reduction in executive's duties or responsibilities which, in either
case, are inconsistent with those customarily associated with such
position;
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. a relocation by CenterPoint 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 CenterPoint of the agreement following notice and
opportunity to cure; and
. subject to certain exceptions, termination by CenterPoint 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 employee 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 employee 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 CenterPoint 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, CenterPoint 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 CenterPoint'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 CenterPoint.
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 CenterPoint's
insurance business. Should CenterPoint 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 CenterPoint's insurance 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
CenterPoint's business and financial services group in any territory
where Driver or CenterPoint conducts such business;
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. soliciting for employment a CenterPoint 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 CenterPoint's business and
financial services group, or that was known by Mr. Corbett to have been
actively solicited by CenterPoint during such period;
. calling upon a prospective acquisition candidate which was approached or
analyzed by CenterPoint 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 CenterPoint 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
CenterPoint.
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 CenterPoint 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 CenterPoint. For a more detailed description of the incentive
compensation agreements, see "Business of CenterPoint After the Mergers--
Employee Incentives--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
CenterPoint at or within one year of the employee's termination, the employee
must pay to CenterPoint 125% of the greater of the average annual fees charged
by CenterPoint to such client during the
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prior three-year period and the fees charged by CenterPoint to such client
during the most recent 12-month period. In addition, if during the restricted
period the employee entices an employee of CenterPoint away from CenterPoint,
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
CenterPoint within six months preceding the employment termination date.
Employee Incentive Compensation Plan
Prior to the IPO, the board of directors and stockholders will adopt
CenterPoint's 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 CenterPoint. Individual awards under this plan 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. CenterPoint's compensation
committee will administer the plan and generally select the individuals who
will receive awards and determine the terms and conditions of those awards.
CenterPoint has reserved 5,771,396 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, CenterPoint will grant non-qualified stock
options to purchase a total of 2,006,301 shares of common stock. CenterPoint
will grant options to purchase an aggregate of shares of common
stock to its corporate management including options to Mr. Basten,
options to Ms. Brunts, options to Mr. Eagle and
options to Mr. Bikun. CenterPoint will grant options to purchase an
aggregate of shares to the employees of the CenterPoint
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 CenterPoint's compensation
committee, each CenterPoint Company will have discretion to determine the
allocation of options among its employees.
The plan also 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 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.
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CenterPoint's compensation committee has discretion to fashion 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
Prior to the closing of the IPO, CenterPoint will adopt the 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 CenterPoint 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 CenterPoint.
Employees are eligible to participate in the stock purchase plan if they are
customarily employed by CenterPoint 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 CenterPoint.
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CERTAIN TRANSACTIONS
Organization of CenterPoint
CenterPoint was incorporated in November 1998 and is currently a 71.4%
subsidiary of CPA Holdings, LLC, a Delaware limited liability company. CPA
Holdings is 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 CenterPoint'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 CenterPoint upon
the closing of the offering. CenterPoint 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 CenterPoint, 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 CenterPoint. David
Reznick, who will become a director of CenterPoint upon the closing of the
offering, 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 CenterPoint upon the closing of the
offering, is a managing member of the general partner of MFSL Investments.
Following the IPO, CPA Holdings intends to distribute its shares of
CenterPoint 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. See "Description
of CenterPoint Capital Stock."
The remaining 28.6% of CenterPoint's outstanding shares of common stock are
held by Mr. Basten, Ms. Brunts, Mr. Eagle, Mr. Bikun, Jonathan R. Rutenberg and
Reznick LLC.
Following the approximate 210.3605-for-one stock split to be effected prior
to the completion of the IPO, the 17,500 shares of common stock initially
issued by CenterPoint to its initial investors and management will total
3,681,309 shares.
The Mergers
The aggregate purchase price to be paid by CenterPoint in the mergers
consists of approximately $83.9 million in cash and 12,569,367 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
CenterPoint Companies and the percentage of CenterPoint's outstanding common
stock to be beneficially owned by the former owners of each CenterPoint Company
following the closing of the offering.
<TABLE>
<CAPTION>
Percentage
Shares of Ownership of
Company Cash common stock CenterPoint
----------------------------------------- ------- ------------ ------------
(Dollars in
thousands)
<S> <C> <C> <C>
Reznick.................................. $16,899 1,810,553 6.8%
Driver................................... 500 2,944,445 11.0
Mann Frankfort........................... 16,503 1,768,200 6.6
Follmer.................................. 13,600 1,457,143 5.4
Berry Dunn............................... 6,821 931,357 3.5
Urbach................................... 9,190 1,023,943 3.8
IDA...................................... 8,154 873,669 3.3
Grace.................................... 2,840 304,286 1.1
Holthouse................................ 5,603 600,343 2.2
Reppond.................................. -- 447,428 1.7
Simione.................................. 3,808 408,000 1.5
------- ---------- ----
Total................................ $83,918 12,569,367 46.9%
======= ========== ====
</TABLE>
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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 $3,290,000. 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 CenterPoint'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.
CenterPoint and representatives of each CenterPoint Company determined the
price to be paid for the CenterPoint Companies through arm's-length
negotiations. The parties considered several factors including the amount of
CenterPoint Base Earnings for each professional services firm, and the
historical operating results, net worth, level and type of indebtedness and
future prospects of each CenterPoint Company. Each CenterPoint Company was
represented by independent counsel in the negotiation of the terms and
conditions of the merger agreement between CenterPoint, the CenterPoint Company
and its owners.
Each merger agreement contains standard representations and warranties of
each party as well as indemnification provisions relating to breaches of
representations and warranties made by the parties to the agreement and certain
liabilities under federal securities laws. 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 CenterPoint Company, the owners
of the CenterPoint Company and CenterPoint;
. 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 CenterPoint Company;
. the simultaneous closing of all of the mergers;
. the approval of the merger agreement and related transactions by the
owners of the CenterPoint Company as required by applicable law; and
. CenterPoint's having entered into one or more credit facilities providing
for aggregate commitments of not less than $75 million.
Owners of each CenterPoint Company who have voting power over equity interests
sufficient to approve the merger have entered into a voting agreement with
CenterPoint to vote those interests in favor of the merger.
Under applicable state laws, shareholders of Mann Frankfort, Berry Dunn,
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 CenterPoint Companies
have agreed to indemnify CenterPoint for any payments required to be made with
respect to dissenting shares.
Pursuant to each merger agreement, the owners of the CenterPoint Companies
have agreed not to compete with CenterPoint, 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
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CenterPoint Companies, within a 50-mile radius of any location at which the
particular CenterPoint Company conducts business. The owners of the CenterPoint
Companies have also agreed 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 CenterPoint Companies, certain directors and officers of CenterPoint 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.................................. 0 509,388
Richard H. Stein................................... 2,857,390 363,654
Anthony P. Frabotta................................
Charles H. Roscoe.................................. 380,000 45,142
Steven N. Fischer.................................. 727,700 79,031
Robert F. Gallo.................................... 4,647,780 497,991
Wayne J. Grace..................................... 583,000 54,714
Philip J. Holthouse................................ 1,360,000 145,714
Anthony P. Scillia................................. 0 154,876
</TABLE>
For information regarding these individuals' beneficial ownership of
CenterPoint's common stock, see "Security Ownership of Management and Principal
Stockholders of CenterPoint."
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,
CenterPoint 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, Holthouse and Scillia
will be parties to their firms' incentive compensation agreements. For a more
detailed description of these agreements, see "Business of CenterPoint after
the Mergers--Employee Incentives--Professional Services."
Separate Practice Agreements. Under current state laws and regulations
governing the accounting profession, CenterPoint is prohibited from providing
attest services to its clients. See "Business of CenterPoint after the
Mergers--Regulation--Accounting Profession." CenterPoint 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
CenterPoint has no ownership interest. CenterPoint and the Attest Firm and its
owners will enter into a separate practice agreement, which permits the Attest
Firm to provide attest services to CenterPoint's clients. Under such agreement,
the Attest Firm is responsible for the attest services provided by it,
maintenance of professional liability insurance and compliance with applicable
ethical, professional and legal requirements. The term of each separate
practice agreement will be 40 years. Either CenterPoint'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.
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Services Agreements. Pursuant to non-exclusive services agreements between
CenterPoint and the Attest Firms, CenterPoint 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. CenterPoint 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.
The term of each agreement will be 40 years. CenterPoint'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 CenterPoint, 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 CenterPoint, or subject to applicable cure periods, if
CenterPoint 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 CenterPoint'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, CenterPoint and the Attest Firm have
agreed that if any provision of the agreement is found to be in violation of
applicable laws or regulations, CenterPoint 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 CenterPoint's flexibility to modify its operations in
response to regulatory issues. See "Risk Factors--Regulation of the accounting
profession will constrain CenterPoint's operations and impact its structure and
could impair its ability to provide services to some clients, including the
Attest Firms."
Other Transactions
As of March 31, 1999, BGL Capital had funded $715,000 in expenses in
connection with CenterPoint's formation, the offering 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. See "Management." CenterPoint anticipates
that additional amounts will be advanced by BGL Capital on CenterPoint's behalf
prior to completion of the offering. All amounts advanced by BGL Capital to
CenterPoint or paid by BGL Capital under the consulting agreements, together
with interest at 8% per annum from the date of payment by BGL Capital, will be
repaid by CenterPoint from the proceeds of the offering.
Follmer leases its Southfield, MI 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 March 31, 1999, the outstanding balance of working capital advances to
Grace from Wayne J. Grace was approximately $60,000.
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At March 31, 1999, the outstanding balance of loans made by David Reznick to
Reznick was approximately $66,000.
Pursuant to a promissory note dated as of March 16, 1999, Driver loaned
Thomas W. Corbett $250,000 to enable him to make certain tax payments. Interest
on this amount accrues at the prime rate published in The Wall Street Journal.
All loans and advances between the CenterPoint Companies and their
shareholders, affiliates or employees will be paid in full prior to or at the
time of the closing of the mergers.
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INFORMATION REGARDING THE CENTERPOINT 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 CenterPoint with a regional distribution point in New
England, Berry Dunn will participate significantly in developing CenterPoint'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 CenterPoint After the
Mergers--Regulation."
Employees
As of February 28, 1999, Berry Dunn employed approximately 156 professional
employees, of which 100 were licensed CPAs, and 45 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>
Nine Months Ended
Year Ended June 30, March 31,
------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $14,844 100.0% $16,812 100.0% $17,916 100.0% $14,201 100.0% $14,692 100.0%
Expenses:
Member compensation and
related costs......... 5,024 33.8 6,214 37.0 7,113 39.7 5,986 42.2 5,611 38.2
Employee compensation
and related costs..... 6,037 40.7 6,441 38.3 6,318 35.3 4,712 33.2 5,196 35.4
Other operating
expenses.............. 3,727 25.1 4,113 24.4 4,405 24.6 3,371 23.7 3,656 24.8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from operations.. $ 56 0.4% $ 44 0.3% $ 80 0.4% $ 132 0.9% $ 229 1.6%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Nine Months Ended March 31, 1999 Compared to the Nine Months
Ended March 31, 1998--Berry Dunn
Revenues. Revenues increased $491,000, or 3.5%, from $14.2 million in the
nine months ended March 31, 1998 to $14.7 million in the nine months ended
March 31, 1999, primarily due to a net increase in billings for recurring
services as well as special projects.
71
<PAGE>
Member Compensation and Related Costs. Member compensation and related costs
decreased $375,000, or 6.3%, from $6.0 million in the nine months ended March
31, 1998 to $5.6 million in the nine months ended March 31, 1999, primarily due
to the departure of two members. As a percentage of revenues, these expenses
decreased from 42.2% in the nine months ended March 31, 1998 to 38.2% in the
nine months ended March 31, 1999.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $484,000, or 10.3%, from $4.7 million in the nine months ended
March 31, 1998 to $5.2 million in the nine months ended March 31, 1999,
primarily due to staff additions and salary increases. As a percentage of
revenues, these expenses increased from 33.2% in the nine months ended March
31, 1998 to 35.4% in the nine months ended March 31, 1999.
Other Operating Expenses. Other operating expenses increased $285,000, or
8.5%, from $3.4 million in the nine months ended March 31, 1998 to $3.7 million
in the nine months ended March 31, 1999, primarily due to increased business
development costs, depreciation, occupancy costs and expenditures for new tax
software. As a percentage of revenues, these expenses increased from 23.7% in
the nine months ended March 31, 1998 to 24.8% in the nine months ended March
31, 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.
Results for the Year Ended June 30, 1997 Compared to the Year Ended June 30,
1996--Berry Dunn
Revenues. Revenues increased $2.0 million or 13.3%, from $14.8 million in
the year ended June 30, 1998 to $16.8 million in the year ended June 30, 1997,
primarily due to a net increase in billings to clients for recurring services
as well as special projects.
Member Compensation and Related Costs. Member compensation and related costs
increased $1.2 million, or 23.7%, from $5.0 million in the year ended June 30,
1996 to $6.2 million in the year ended June 30, 1997, primarily due to
increased profits and the admission of new principals. As a percentage of
revenues, these expenses increased from 33.8% in the year ended June 30, 1996
to 37.0% in the year ended June 30, 1997.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $404,000, or 6.7%, from $6.0 million in the year ended June 30,
1996 to $6.4 million in the year ended
72
<PAGE>
June 30, 1997, primarily due to salary increases. As a percentage of revenues,
these expenses decreased from 40.7% in the year ended June 30, 1996 to 38.3% in
the year ended June 30, 1997.
Other Operating Expenses. Other operating expenses increased $386,000, or
10.4%, from $3.7 million in the year ended June 30, 1996 to $4.1 million in the
year ended June 30, 1997, primarily due to increases in health insurance,
occupancy, software, insurance and telephone expenses. As a percentage of
revenues, these expenses decreased from 25.1% in the year ended June 30, 1996
to 24.4% in the year ended June 30, 1997.
Liquidity and Capital Resources--Berry Dunn
Berry Dunn generated cash from operating activities of approximately
$516,000 in the nine months ending March 31, 1999. Net cash used in operations
was approximately $35,000 in the nine months ending March 31, 1998. Berry Dunn
generated net cash flow from operating activities of approximately $1.6
million, $1.1 million and $29,000 in the years ended June 30, 1998, 1997 and
1996, respectively. Net cash used in investing activities was approximately
$1.4 million and $938,000 in the nine months ended March 31, 1999 and 1998,
respectively, primarily for property and equipment purchases and business
acquisitions. Net cash used in investing activities was approximately $1.1
million in each of the years ended June 30, 1998 and 1997 and $1.3 million in
the year ended June 30, 1996. Net cash used in financing activities was
approximately $1.1 million for the nine months ended March 31, 1999,
principally due to payments of debt net of capital contributed by principals
and repayments from related parties. Net cash provided by financing activities
was approximately $310,000 in the nine months ended March 31, 1998,
representing repayments from related parties, proceeds from the issuance of
debt and capital contributed by principals. In the years ended June 30, 1998,
1997 and 1996, net cash provided by financing activities was approximately
$337,000, $1.1 million and $501,000, respectively, principally from repayments
from related parties, proceeds from debt and capital contributed by principals.
At March 31, 1999, Berry Dunn had a net working capital deficit of $2.4
million.
Interest of Continuing Directors
Upon consummation of the offering, Charles H. Roscoe will become a director
of CenterPoint. See "CenterPoint Management."
73
<PAGE>
Principal Stockholders
The following table sets forth, as of April 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(1)..................... 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
Stephen J. Ferrari....................... 1.000 0.01
J. Maurice L. Bisson..................... 382.653 3.93
Richard A. Charpentier................... 204.082 2.09
--------- ------
9,744.898 100.00
</TABLE>
- --------
(1) Mr. Lavigne does not currently have any voting or dispositive power with
respect to these shares.
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
CenterPoint with a regional distribution point in the upper Midwest and a
platform for CenterPoint'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.
74
<PAGE>
Regulation
As a service provider in the accounting profession, Follmer's operations are
subject to state regulation. See "Business of CenterPoint After the Mergers--
Regulation."
Employees
As of February 28, 1999, Follmer employed 142 professional employees, of
which 76 were licensed CPAs, and 48 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>
Nine Months Ended
Year Ended May 31, February 28,
------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------ ------------- ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $15,528 100% $17,954 100% $19,417 100% $13,308 100.0% $15,357 100.0%
Expenses:
Member compensation and
related costs......... 4,833 31.1 6,646 37.0 7,339 37.8 4,290 32.2 5,095 33.2
Employee compensation
and related costs..... 6,649 42.8 7,567 42.1 8,225 42.4 5,858 44.0 6,710 43.7
Other operating
expenses.............. 3,781 24.4 4,042 22.6 3,891 20.0 3,019 22.7 3,524 22.9
------- ---- ------- ---- ------- ---- ------- ----- ------- -----
Income (loss) from
operations............. $ 265 1.7% $ (301) (1.7)% $ (38) (0.2)% $ 141 1.1% $ 28 0.2%
======= ==== ======= ==== ======= ==== ======= ===== ======= =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Nine Months Ended February 28, 1999 Compared to the Nine
Months Ended February 28, 1998--Follmer
Revenues. Revenues increased $2.0 million, or 15.4%, from $13.3 million in
the nine months ended February 28, 1998 to $15.4 million in the nine months
ended February 28, 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 $805,000, or 18.8%, from $4.3 million in the nine months ended
February 28, 1998 to $5.1 million in the nine months ended February 28, 1999.
As a percentage of revenues, these expenses increased from 32.2% in the nine
months ended February 28, 1998 to 33.2% in the nine months ended February 28,
1999.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $852,000, or 14.5%, from $5.9 million in the six months ended
February 28, 1998 to $6.7 million in the nine months ended February 28, 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 decreased
slightly from 44.0% in the nine months ended February 28, 1998 to 43.7% in the
nine months ended February 28, 1999.
75
<PAGE>
Other Operating Expenses. Other operating expenses increased $505,000, or
16.7%, from $3.0 million in the nine months ended February 28, 1998 to $3.5
million in the nine months ended February 28, 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 remained relatively constant at 22.7% in the nine
months ended February 28, 1998 and 22.9% in the nine months ended February 28,
1999.
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.
76
<PAGE>
Liquidity and Capital Resources--Follmer
Follmer generated net cash flow from operating activities of approximately
$2.0 million and $2.8 million in the nine months ended February 28, 1999 and
1998, respectively. Net cash flow from operating activities was approximately
$1.4 million, $226,000 and $286,000 in the years ended May 31, 1998, 1997 and
1996, respectively. In the nine months ended February 28, 1999 and 1998, net
cash used in investing activities was approximately $754,000 and $588,000,
respectively, primarily for property and equipment purchases. Net cash used in
investing activities was approximately $927,000, $1.2 million and $958,000 in
the years ended May 31, 1998, 1997 and 1996, respectively, primarily for
purchases of property and equipment. Net cash used in financing activities for
the nine months ended February 28, 1999 and 1998 was approximately $1.8 million
and $1.6 million respectively, consisting principally of net repayments to
shareholders and payment of debt. 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. In the year ended May 31, 1996, cash used in
financing activities totaled $59,000 and was used primarily for net repayments
to shareholders and payments of long-term debt net of proceeds from the
issuance of long-term debt and stock. At February 28, 1999, Follmer had a
working capital deficit of $157,000.
Interest of Continuing Directors
Upon consummation of the offering, Anthony P. Frabotta will become a
director of CenterPoint. See "CenterPoint Management."
Principal Stockholders
The following table sets forth, as of March 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 2.0
Anthony P. Frabotta...................... 1,100 10.8
Timothy J. Caughlin...................... 900 8.9
Peter E. Meagher, III.................... 550 5.4
Patrick J. Gregory....................... 350 3.4
Daniel P. Markey......................... 350 3.4
James J. Bauters......................... 300 2.9
Gordon R. Follmer........................ 2,900 28.5
John J. Rudzewicz........................ 2,900 28.5
Dennis J. Petri.......................... 200 2.0
Gerald J. Grady.......................... 200 2.0
Dennis J. LaPorte........................ 200 2.0
------ ------
Total.................................. 10,150 100.00
</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
CenterPoint 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.
77
<PAGE>
Regulation
As a service provider in the accounting profession, Grace's operations are
subject to state regulation. See "Business of CenterPoint After the Mergers--
Regulation."
Employees
As of February 28, 1999, Grace employed 102 professional employees, of
which 47 were licensed CPAs, and 27 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>
Three Months Ended March
31,
Year Ended --------------------------
December 31, 1998 1998 1999
------------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $ 9,691 100.0% $3,380 100.0% $3,687 100.0%
Expenses:
Member compensation and
related costs........... 2,709 28.0 711 21.0 733 19.9
Employee compensation and
related costs........... 5,075 52.4 1,445 42.8 1,542 41.8
Other operating
expenses................ 1,380 14.2 385 11.4 430 11.7
--------- -------- ------ ----- ------ -----
Income from operations..... $ 527 5.4% $ 839 24.8% $ 982 26.6%
========= ======== ====== ===== ====== =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Three Months Ended March 31, 1999 Compared to the Three
Months Ended March 31, 1998--Grace
Revenues. Revenues increased $307,000, or 9.1%, from $3.4 million for the
three months ended March 31, 1998 to $3.7 million for the three months ended
March 31, 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 $711,000 and $733,000 for the three
months ended March 31, 1998 and 1999, respectively. As a percentage of
revenues, these expenses decreased from 21.0% in the three months ended March
31, 1998 to 19.9% in the three months ended March 31, 1999.
Employee compensation and related costs. Employee compensation and related
costs increased $97,000, or 6.7%, from $1.4 million in the three months ended
March 31, 1998 to $1.5 million in the three months ended March 31, 1999,
primarily due to annual performance-based compensation increases. As a
percentage of revenues, these expenses decreased from 42.8% in the three
months ended March 31, 1998 to 41.8% in the three months ended March 31, 1999.
Other operating expenses. Other operating expenses increased $45,000, or
11.7%, from $385,000 in the three months ended March 31, 1998 to $430,000 in
the three months ended March 31, 1999. The increase was primarily due to
increased occupancy costs related to a recent expansion. As a percentage of
revenues, these expenses increased from 11.4% in the three months ended March
31, 1998 to 11.7% in the three months ended March 31, 1999.
Liquidity and Capital Resources--Grace
Grace used cash in operating activities of approximately $396,000 and
$39,000 in the three months ended March 31, 1999 and 1998, respectively. For
the three months ended March 31, 1999 and 1998, net cash used in
78
<PAGE>
investing activities was approximately $40,000 and $27,000, respectively,
principally for property and equipment purchases. In the three months ended
March 31, 1999 and 1998, net cash provided by financing activities was
approximately $621,000 and $57,000 respectively, principally from short-term
borrowings. At March 31, 1999, Grace had working capital of approximately
$228,000.
Interest of Continuing Directors
Upon consummation of the offering, Wayne J. Grace will become a director of
CenterPoint. See "CenterPoint Management."
Principal Stockholders
Grace Capital owns 100% of the common stock of Grace. The following table
sets forth, as of March 30, 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>
Holthouse Carlin & Van Trigt LLP
General
Holthouse Carlin & Van Trigt LLP, founded in 1991, provides accounting
services, tax services and litigation consulting services. Holthouse is
headquartered in Los Angeles, California and maintains offices in Long Beach
and Westlake Village, California. Holthouse will provide CenterPoint with a
regional distribution point on the West Coast and participate significantly in
CenterPoint's anticipated national practice in litigation consulting services.
Its principal executive offices are located at 11845 West Olympic Boulevard,
Suite 1177, Los Angeles, California 90064.
Regulation
As a service provider in the accounting profession, Holthouse's operations
are subject to state regulation. See "Business of CenterPoint After the
Mergers--Regulation."
Employees
As of February 28, 1999, Holthouse employed 46 professional employees, of
which 24 were licensed CPAs and 15 non-professional employees. None of
Holthouse's employees is represented by a labor union. Management of Holthouse
believes its employee relations are good.
79
<PAGE>
Selected Financial Data
The following table sets forth selected financial data for Holthouse on a
historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended March
Year Ended December 31, 31,
-------------------------- --------------------------
1997 1998 1998 1999
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $7,720 100.0% $9,446 100.0% $2,848 100.0% $3,234 100.0%
Expenses:
Employee compensation
and related costs.... 2,617 33.9 3,089 32.7 745 26.2 839 25.9
Other operating
expenses............. 1,448 18.8 1,578 16.7 416 14.6 289 8.9
------ ----- ------ ----- ------ ----- ------ -----
Income from operations.. $3,655 47.3% $4,779 50.6% $1,687 59.2% $2,106 65.2%
====== ===== ====== ===== ====== ===== ====== =====
Partners' withdrawals... $3,530 45.7% $4,238 44.9% $ 990 34.8% $1,062 32.8%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Three Months Ended March 31, 1999 Compared to the Three
Months Ended March 31, 1998--Holthouse
Revenues. Revenues increased $386,000, or 13.6%, from $2.8 million for the
three months ended March 31, 1998 to $3.2 million for the three months ended
March 31, 1999, primarily due to increases in the number of clients and the
firm's audit services business.
Employee compensation and related costs. Employee compensation and related
costs increased $94,000, or 12.6%, from $745,000 in the three months ended
March 31, 1998 to $839,000 in the three months ended March 31, 1999, primarily
due to staff additions and performance-based compensation increases. As a
percentage of revenues, these expenses decreased from 26.2% in the three
months ended March 31, 1998 to 25.9% in the three months ended March 31, 1999.
Other operating expenses. Other operating expenses decreased $127,000, or
30.5%, from $416,000 in the three months ended March 31, 1998 to $289,000 in
the three months ended March 31, 1999. The decrease was primarily due to a
reduction in bad debt expenses. As a percentage of revenues, these expenses
decreased from 14.6% in the three months ended March 31, 1998 to 8.9% in the
three months ended March 31, 1999.
Results for the Year Ended December 31, 1998 Compared to the Year Ended
December 31, 1997--Holthouse
Revenues. Revenues increased $1.7 million, or 22.4%, from $7.7 million for
the year ended December 31, 1997 to $9.4 million for the year ended December
31, 1998, primarily due to an increase in billable hours and an increase in
hourly billing rates. The increase in billable hours resulted from the
expansion of services provided to the firm's clients supported by an increase
in professional staff.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $472,000, or 18.0%, from $2.6 million in the year ended
December 31, 1997 to $3.1 million in the year ended December 31, 1998,
primarily due to the addition of professional and administrative staff and
annual performance-based compensation increases. As a percentage of revenues,
these expenses decreased from 33.9% in the year ended December 31, 1997 to
32.7% in the year ended December 31, 1998.
80
<PAGE>
Other Operating Expenses. Other operating expenses increased $130,000, or
9.0%, from $1.4 million in the year ended December 31, 1997 to $1.6 million in
the year ended December 31, 1998, primarily due to higher occupancy costs
resulting from an expansion of the firm's office. As a percentage of revenues,
these expenses decreased from 18.8% in the year ended December 31, 1997 to
16.7% in the year ended December 31, 1998.
Liquidity and Capital Resources--Holthouse
Holthouse generated net cash flow from operating activities of approximately
$607,000 and $749,000 in the three months ended March 31, 1999 and 1998,
respectively. Holthouse generated net cash from operating activities of
approximately $4.5 million in the year ended December 31, 1998 and
approximately $3.7 million in the year ended December 31, 1997. For the three
months ended March 31, 1999 and 1998, net cash used in investing activities was
approximately $60,000 and $21,000, respectively, principally for property and
equipment purchases. Net cash used in investing activities was approximately
$142,000 and $115,000 in the years ended December 31, 1998 and 1997,
respectively, principally for property and equipment purchases. In the three
months ended March 31, 1999 and 1998, cash used in financing activities was
approximately $1.1 million and $990,000, respectively, primarily for payments
of partner capital. Cash used in financing activities was approximately $4.2
million and $3.5 million in the years ended December 31, 1998 and 1997,
primarily due to payments of partner capital. At March 31, 1999, Holthouse had
working capital of approximately $4.1 million.
Interest of Continuing Directors
Upon consummation of the offering, Philip J. Holthouse will become a
director of CenterPoint. See "CenterPoint Management."
Principal Partners
The following table sets forth, as of January 1, 1999, the capital account
allocation of all of the partners of Holthouse. These percentages shift
periodically. The persons named below have sole voting and investment power
with respect to the interests shown as beneficially owned by them:
<TABLE>
<CAPTION>
Capital Account
Name Allocation
---- ---------------
<S> <C>
James S. Carlin........................................... 20.51%
Blake E. Christian........................................ 11.18
Philip J. Holthouse....................................... 24.61
Gregory J. Hutchins....................................... 11.81
Janet L. Pass............................................. 3.91
Zachary G. Shuman......................................... 10.21
John E. Van Trigt......................................... 17.76
------
Total................................................... 100.00%
======
</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
81
<PAGE>
by Employee Benefit News in July 1998 as the 11th largest third party
administrator in the United States. IDA will provide the platform for
CenterPoint'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 CenterPoint After
the Mergers--Regulation."
Employees
As of February 28, 1999, IDA had 130 employees, of which 12 were in
management, 2 in sales, 74 in claims administration, 27 in general
administration and 15 were part-time employees.
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>
Three Months Ended March
Year Ended December 31, 31,
--------------------------- --------------------------
1997 1998 1998 1999
------------ ------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $9,756 100.0% $10,933 100.0% $2,902 100.0% $2,978 100.0%
Expenses:
Employee compensation
and related costs.... 6,047 62.0 6,361 58.2 1,394 48.0 1,557 52.3
Other operating
expenses............. 2,668 27.3 3,050 27.9 1,073 37.0 1,002 33.6
------ ----- ------- ----- ------ ----- ------ -----
Income from operations.. $1,041 10.7% $ 1,522 13.9% $ 435 15.0% $ 419 14.1%
====== ===== ======= ===== ====== ===== ====== =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Three Months Ended March 31, 1999 Compared to the Three
Months Ended March 31, 1998--IDA
Revenues. Revenues remained relatively constant at approximately $2.9
million for the three months ended March 31, 1998 and 1999.
Employee compensation and related costs. Employee compensation and related
costs increased $163,000, or 11.7%, from $1.4 million in the three months
ended March 31, 1998 to $1.6 million in the three months ended March 31, 1999,
primarily due to staff additions, salary increases and bonuses. As a
percentage of revenues, these expenses increased from 48.0% in the three
months ended March 31, 1998 to 52.3% in the three months ended March 31, 1999.
Other operating expenses. Other operating expenses remained relatively
constant at approximately $1.0 million in the three months ended March 31,
1998 and 1999. As a percentage of revenues, these expenses decreased from
37.0% in the three months ended March 31, 1998 to 33.6% in the three months
ended March 31, 1999.
82
<PAGE>
Results for the Year Ended December 31, 1998 Compared to the Year Ended
December 31, 1997--IDA
Revenues. Revenues increased $1.2 million, or 12.1%, from $9.8 million for
the year ended December 31, 1997 to $10.9 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 $314,000, or 5.2%, from $6.0 million in the year ended December
31, 1997 to $6.4 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 62.0% in the year ended December 31, 1997 to 58.2% in the year
ended December 31, 1998.
Other Operating Expenses. Other operating expenses increased $382,000, or
14.3%, from $2.7 million in the year ended December 31, 1997 to $3.1 million in
the year ended December 31, 1998. As a percentage of revenues, these expenses
increased slightly from 27.3% in the year ended December 31, 1997 to 27.9% in
the year ended December 31, 1998.
Liquidity and Capital Resources--IDA
IDA generated net cash flow from operating activities of approximately
$443,000 and 362,000 in the three months ended March 31, 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 three months ended March 31, 1999 and 1998, net cash used
in investing activities was approximately $2,000 and $50,000, 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, used for purchases of property and equipment. In the three
months ended March 31, 1999 and 1998, net cash used in financing activities was
approximately $244,000 and $207,000, 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 $350,000 in 1997. At
March 31, 1998, IDA had working capital of approximately $1.3 million.
Interest of Continuing Directors
Upon completion of the offering, Robert F. Gallo will become a director of
CenterPoint. 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 "CenterPoint Management."
Principal Stockholders
The following table sets forth, as of March 26, 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 50.7
Russell Minetti......... 74 7,235 49.3
--- ------ -----
Total................. 149 14,600 100.0
</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.
83
<PAGE>
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 CenterPoint's anticipated
national practice in litigation consulting services. Its principal executive
offices are located at 12 Greenway Plaza, 8th Floor, Houston, Texas 77046.
Regulation
As a service provider in the accounting profession, Mann Frankfort's
operations are subject to state regulation. See "Business of CenterPoint After
the Mergers--Regulation."
Employees
As of February 28, 1999, Mann Frankfort had 140 professional employees, of
which 95 were licensed CPAs, and 40 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, Three Months Ended March 31,
------------------------------------------ -------------------------------
1996 1997 1998 1998 1999
------------ ------------- ------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $9,921 100.0% $17,475 100.0% $21,631 100.0% $ 5,889 100.0% $ 8,324 100.0%
Expenses:
Member compensation and
related costs......... 4,412 44.4 6,636 38.0 8,921 41.2 1,317 22.4 1,572 18.9
Employee compensation
and related costs..... 3,608 36.4 6,405 36.7 8,829 40.8 2,269 38.5 2,966 35.6
Other operating
expenses.............. 1,763 17.8 2,996 17.1 3,347 15.5 1,011 17.2 1,254 15.1
------ ----- ------- ----- ------- ----- ------- ------ ------- ------
Income from operations.. $ 138 1.4% $ 1,438 8.2% $ 534 2.5% $ 1,292 21.9% $ 2,532 30.4%
====== ===== ======= ===== ======= ===== ======= ====== ======= ======
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Three Months Ended March 31, 1999 Compared to the Three
Months Ended March 31, 1998--Mann Frankfort
Revenues. Revenues increased $2.4 million, or 41.3%, from $5.9 million for
the three months ended March 31, 1998 to $8.3 million for the three months
ended March 31, 1999, 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 $255,000, or 19.4%, from $1.3 million for the three months
ended March 31, 1998 to $1.6 million for the three months ended March 31,
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 22.4% in the three
months ended March 31, 1998 to 18.9% in the three months ended March 31, 1999.
84
<PAGE>
Employee compensation and related costs. Employee compensation and related
costs increased $697,000, or 30.7%, from $2.3 million in the three months ended
March 31, 1998 to $3.0 million in the three months ended March 31, 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 38.5% in the three months ended March 31, 1998 to 35.6%
in the three months ended March 31, 1999.
Other operating expenses. Other operating expenses increased $243,000, or
24.0%, from $1.0 million in the three months ended March 31, 1998 to $1.3
million in the three months ended March 31, 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 17.2% in the three
months ended March 31, 1998 to 15.1% in the three months ended March 31, 1999.
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 $7.6 million, or 76.1%, from $9.9 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 50.4%, 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, however,
these expenses decreased from 44.4% in the year ended December 31, 1996 to
38.0% in the year ended December 31, 1997.
85
<PAGE>
Employee Compensation and Related Costs. Employee compensation and related
costs increased $2.8 million, or 77.5%, from $3.6 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 increased from 36.4% in the year ended
December 31, 1996 to 36.7% in the year ended December 31, 1997.
Other Operating Expenses. Other operating expenses increased $1.2 million, or
69.9%, from $1.8 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 17.8% in the
year ended December 31, 1996 to 17.1% in the year ended December 31, 1997.
Liquidity and Capital Resources--Mann Frankfort
Mann Frankfort generated net cash flow from operating activities of
approximately $797,000 and $466,000 in the three months ended March 31, 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 used in operating activities was approximately $196,000 and $103,000 in
the years ended December 31, 1997 and 1996, respectively. Net cash used in
investing activities was approximately $100,000 and $58,000 in the three months
ended March 31, 1999 and 1998, respectively, principally for property and
equipment purchases. Net cash used in investing activities was approximately
$534,000, $714,000 and $77,000 in the years ended December 31, 1998, 1997 and
1996, respectively, primarily for the purchases of property and equipment. In
the three months ended March 31, 1999, cash provided by financing activities
was approximately $301,000, consisting principally of proceeds from the
issuance of long-term debt. In the three months ended March 31, 1998, cash used
in financing activities was approximately $263,000, consisting primarily 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 $1.1
million, 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
$132,000 for the year ended December 31, 1996, principally due to payments of
debt. At March 31, 1999, Mann Frankfort had net working capital of $4.5
million.
Interest of Continuing Directors
Upon consummation of the offering, Richard H. Stein will become a director
of CenterPoint. See "CenterPoint Management."
86
<PAGE>
Principal Stockholders
The following table sets forth, as of January 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>
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 CenterPoint'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 CenterPoint After
the Mergers--Regulation."
Employees
As of February 28, 1999, Reppond had 83 employees.
87
<PAGE>
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>
Three Months Ended March
31,
Year Ended --------------------------
December 31, 1998 1998 1999
----------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $ 7,892 100.0% $1,909 100.0% $2,191 100.0%
Expenses:
Producer compensation and
related costs........... 2,359 29.9 635 33.3 674 30.8
Employee compensation and
related costs........... 2,708 34.3 586 30.7 646 29.5
Other operating
expenses................ 2,314 29.3 478 25.0 712 32.5
----------- ---------- ------ ----- ------ -----
Income from operations..... $ 511 6.5 $ 210 11.0% $ 159 7.2%
=========== ========== ====== ===== ====== =====
</TABLE>
Results for the Three Months Ended March 31, 1999 Compared to the Three
Months Ended March 31, 1998--Reppond
Revenues. Revenues increased $282,000, or 14.8%, from $1.9 million for the
three months ended March 31, 1998 to $2.2 million for the three months ended
March 31, 1999, primarily due to premium increases and the addition of several
new customers.
Producer compensation. Producer compensation increased $39,000, or 6.1%,
from $635,000 for the three months ended March 31, 1998 to $674,000 for the
three months ended March 31, 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 decreased from 33.3% in 1998 to 30.8%
in 1999.
Employee compensation and related costs. Employee compensation and related
costs increased $60,000, or 10.2%, from $586,000 in the three months ended
March 31, 1998 to $646,000 in the three months ended March 31, 1999, primarily
due to annual performance-based compensation increases and staff additions. As
a percentage of revenues, these expenses decreased from 30.7% in the three
months ended March 31, 1998 to 29.5% in the three months ended March 31, 1999.
Other operating expenses. Other operating expenses increased $234,000, or
49.0%, from $478,000 in the three months ended March 31, 1998 to $712,000 in
the three months ended March 31, 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
25.0% in the three months ended March 31, 1998 to 32.5% in the three months
ended March 31, 1999.
Liquidity and Capital Resources--Reppond
Reppond used cash in operating activities of approximately $112,000 in the
three months ended March 31, 1999 and generated net cash flow from operating
activities of approximately $182,000 in the three months ended March 31, 1998.
For the three months ended March 31, 1999 and 1998, net cash used in investing
activities was approximately $121,000 and $48,000, respectively, principally
for property and equipment purchases. In the three months ended March 31,
1999, net cash provided by financing activities was approximately $259,000,
principally from the issuance of short-term debt. In the three months ended
March 31, 1998, net cash used in financing activities was approximately
$81,000, principally for the repayment of long-term and short-term debt. At
March 31, 1999, Reppond had a working capital deficit of approximately
$24,000.
88
<PAGE>
Principal Stockholders
The following table sets forth, as of March 31, 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
Louis R. Baransky........................ 125 25
--- ---
500 100
</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 1.0
----- ----
250 100
</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>
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 CenterPoint with multiple distribution points
in the Mid-Atlantic region, Reznick will provide the foundation for
CenterPoint's anticipated national practice in real estate consulting services
and participate significantly in CenterPoint'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 CenterPoint After the Mergers--
Regulation."
Employees
As of February 28, 1999, Reznick had 496 professional employees, of which
200 were licensed CPAs, and 138 non-professional employees. None of Reznick's
employees is represented by a labor union. Management of Reznick believes its
employee relations are good.
89
<PAGE>
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, Six Months Ended March 31,
------------------------------------------------ -------------------------------
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% $27,887 100.0% $31,552 100.0%
Expenses:
Member compensation and
related costs......... 7,784 24.7 8,170 23.3 13,516 28.2 10,782 38.7 11,528 36.5
Employee compensation
and related costs..... 17,477 55.5 19,617 55.9 25,792 53.9 12,766 45.8 15,413 48.8
Other operating
expenses.............. 6,231 19.8 7,530 21.4 8,502 17.8 4,356 15.6 4,687 14.9
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating loss.......... $ (9) (0.0)% $ (214) (0.6)% $ (67) (0.1)% $ (17) (0.1)% $ (76) (0.2)%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Six Months Ended March 31, 1999 Compared to the Six Months
Ended March 31, 1998--Reznick
Revenues. Revenues increased $3.7 million, or 13.1%, from $27.9 million in
the six months ended March 31, 1998 to $31.6 million in the six months ended
March 31, 1999, primarily due to an expansion of the firm's core real estate
and health care practices.
Member Compensation and Related Costs. Member compensation and related
costs increased $746,000, or 6.9%, from $10.8 million in the six months ended
March 31, 1998 to $11.5 million in the six months ended March 31, 1998,
primarily due to an increase in operating income available for member
compensation. As a percentage of revenues, these expenses decreased from 38.7%
in the six months ended March 31, 1998 to 36.5% in the six months ended March
31, 1999.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $2.6 million, or 20.7%, from $12.8 million in the six months
ended March 31, 1998 to $15.4 million in the six months ended March 31, 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 45.8% in the six months ended March 31, 1998 to
48.8% in the six months ended March 31, 1999.
Other Operating Expenses. Other operating expenses increased $331,000, or
7.6%, from $4.4 million in the six months ended March 31, 1998 to $4.7 million
in the six months ended March 31, 1999. The increase was primarily due to
higher occupancy, selling, general and administrative expenses. As a
percentage of revenues, these expenses decreased from 15.6% in the six months
ended March 31, 1998 to 14.9% in the six months ended March 31, 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.
90
<PAGE>
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.
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 $6.8
million and $3.0 million in the six months ended March 31, 1999 and 1998,
respectively. 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 six months ended March 31, 1999 and
1998, net cash used in investing activities was approximately $207,000 and
$1.0 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 six
91
<PAGE>
months ended March 31, 1999 and 1998, net cash provided by financing activities
was approximately $3.0 million and $1.9 million, respectively, principally from
proceeds of short-term borrowings and long-term debt. 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 March 31, 1999, Reznick had
working capital of $3.6 million.
Interest of Continuing Directors
Upon completion of the offering, David Reznick will become a director of
CenterPoint. See "CenterPoint Management."
Principal Stockholders
The following table sets forth, as of March 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
92
<PAGE>
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 CenterPoint 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 CenterPoint After
the Mergers--Regulation."
Employees
As of March 14, 1999, Driver had 317 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>
Six Months Ended
Year Ended July 31, January 31,
------------------------------------------- -----------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions and fees.... $26,939 100.0% $28,170 100.0% $32,886 100.0% $13,474 100.0% $14,891 100.0%
Expenses:
Producer compensation.. 13,074 48.5 12,965 46.0 15,422 46.9 6,553 48.6 6,626 44.5
Employee compensation
and related costs..... 7,261 27.0 7,433 26.4 8,475 25.8 4,011 29.8 5,511 37.0
Other operating
expenses.............. 6,214 23.1 6,548 23.3 6,631 20.1 2,661 19.8 3,754 25.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income (loss) from
operations............. $ 390 1.4% $ 1,224 4.3% $ 2,358 7.2% $ 249 1.8% $(1,000) (6.7)%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Six Months Ended January 31, 1999 Compared to the Six Months
Ended January 31, 1998-- Driver
Commissions and Fees. Commissions and fees increased $1.4 million, or
10.5%, from $13.5 million in the six months ended January 31, 1998 to $14.9
million in the six months ended January 31, 1999, primarily due to revenues
derived from two insurance brokerage firms acquired in 1998.
Producer Compensation. Producer compensation remained constant at $6.6
million in the six months ended January 31, 1998 and 1999. As a percentage of
revenues, these expenses decreased from 48.6% in the six months ended January
31, 1998 to 44.5% in the six months ended January 31, 1999.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $1.5 million, or 37.4%, from $4.0 million in the six months
ended January 31, 1998 to $5.5 million in the six months ended January 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 29.8% in the six months ended January
31, 1998 to 37.0% in the six months ended January 31, 1999.
93
<PAGE>
Other Operating Expenses. Other operating expenses increased $1.1 million,
or 41.1%, from $2.7 million in the six months ended January 31, 1998 to $3.8
million in the six months ended January 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 pursuing a non-compete agreement
infringement suit against a former employee. As a percentage of revenues, these
expenses increased from 19.8% in the six months ended January 31, 1998 to 25.2%
in the six months ended January 31, 1999.
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.
Results for the Year Ended July 31, 1997 Compared to the Year Ended July 31,
1996--Driver
Commissions and Fees. Commissions and fees increased $1.2 million, or 4.6%,
from $26.9 million in the year ended July 31, 1996 to $28.2 million in the year
ended July 31, 1997, primarily due to an expansion of Driver's public entity
and specialty refuse lines of business and an increase in the number of
producers.
Producer Compensation. Producer compensation decreased $109,000 or 0.8%,
from $13.1 million in the year ended July 31, 1996 to $13.0 million in the year
ended July 31, 1997, primarily due to a reduction in producer compensation
rates. As a percentage of revenues, these expenses decreased from 48.5% in the
year ended July 31, 1996 to 46.0% in the year ended July 31, 1997.
Employee Compensation and Related Costs. Employee compensation and related
costs increased $172,000 or 2.4%, from $7.3 million in the year ended July 31,
1996 to $7.4 million in the year ended July 31, 1997, primarily due to annual
performance-based compensation increases. As a percentage of revenues, these
expenses decreased from 27.0% in the year ended July 31, 1996 to 26.4% in the
year ended July 31, 1997.
94
<PAGE>
Other Operating Expenses. Other operating expenses increased $334,000, or
5.4%, from $6.2 million in the year ended July 31, 1996 to $6.5 million in the
year ended July 31, 1997, primarily due to increases in depreciation,
consulting fees and legal expenses. As a percentage of revenues, these expenses
increased from 23.1% in the year ended July 31, 1996 to 23.3% in the year ended
July 31, 1997.
Liquidity and Capital Resources--Driver
Driver generated net cash from operating activities of approximately
$498,000 and $1.1 million in the six months ended January 31, 1999 and 1998,
respectively. Net cash flow from operating activities was approximately $2.5
million, $426,000 and $515,000 in the years ended July 31, 1998, 1997 and 1996,
respectively. Net cash used in investing activities was approximately $3.5
million in the six months ended January 31, 1999, primarily for the purchases
of property and equipment and acquisitions. In the six months ended January 31,
1998, cash used in investing activities was approximately $208,000 and was used
primarily for the purchase of property and equipment. 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 and $327,000
in the years ended July 31, 1997 and 1996, and was used primarily for the
purchases of property and equipment. Net cash provided by financing activities
was approximately $3.6 million in the six months ended January 31, 1999,
consisting primarily of payments received on stockholder notes and proceeds
from issuance of debt. Net cash used in financing activities in the six months
ended January 31, 1998 was approximately $113,000 and was primarily due to the
repurchase of common stock. In the year ended July 31, 1998, cash generated by
financing activities totaled $16.5 million and was used primarily to finance
the acquisition of the predecessor company. Net cash used in financing
activities in the year ended July 31, 1997 and 1996 totaled $64,000 and
$546,000, respectively. At January 31, 1999, Driver had working capital of $2.3
million.
Interest of Continuing Directors
Upon completion of the offering, Thomas W. Corbett will become a director
and the president and chief operating officer of CenterPoint'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 CenterPoint. See "CenterPoint Management."
Principal Stockholders
The following table sets forth, as of March 30, 1999, the number of shares
beneficially owned by (i) each person known by Driver to own beneficially more
than five percent of the outstanding common stock, (ii) each director and (iii)
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 19.1171
Jerold D. Hall......................... 75,000 7.1689
Ted E. Davidson........................ 35,640 3.4067
Robert G. Combe........................ 62,596 5.9833
Gordon DesCombes....................... 64,091 6.1261
Michael D. Driver...................... 63,402 6.0604
John T. Warnock........................ 62,011 5.9274
Lawrence A. Weitzen.................... 61,535 5.8819
P. Gregory Zimmer, Jr.................. 60,000 5.7352
R. Joseph DeBriyn...................... 10,000 0.9559
Robert R. Gould**...................... -0- -0-
Richard B. Gulley...................... 64,725 6.1868
All directors and executive officers as
a group............................... 826,037 78.7254
</TABLE>
95
<PAGE>
--------
* 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 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 CenterPoint After the Mergers--
Regulation."
Employees
As of February 28, 1999, Simione had 48 professional employees, of which 30
were licensed CPAs, and 8 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>
Three Months Ended March
31,
Year Ended --------------------------
December 31, 1998 1998 1999
------------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 6,217 100.0% $1,983 100.0% $2,478 100.0%
Expenses:
Membership
compensation and
related expenses..... 2,306 37.1 570 28.7 627 25.3
Employee compensation
and related costs.... 2,090 33.6 588 29.7 574 23.2
Other operating
expenses............. 1,364 21.9 327 16.5 333 13.4
--------- -------- ------ ----- ------ -----
Income from operations.. $ 457 7.4% $ 498 25.1% $ 944 38.1%
========= ======== ====== ===== ====== =====
</TABLE>
Results for the Three Months Ended March 31, 1999 Compared to the Three Months
Ended March 31, 1998--Simione
Revenues. Revenues increased $495,000, or 25%, from $2.0 million for the
three months ended March 31, 1998 to $2.5 million for the three months ended
March 31, 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.
96
<PAGE>
Member Compensation and Related Costs. Member compensation and related costs
increased $57,000, or 10.0%, from $570,000 for the three months ended March 31,
1998 to $627,000 for the three months ended March 31, 1999, primarily due to
the addition of three members. As a percentage of revenues, these expenses
decreased from 28.7% for the three months ended March 31, 1998 to 25.3% for the
three months ended March 31, 1999.
Employee Compensation and Related Costs. Employee compensation and related
costs remained relatively constant at $588,000 and $574,000 for the three
months ended March 31, 1998 and 1999, respectively. As a percentage of
revenues, these expenses decreased from 29.7% for the three months ended March
31, 1998 to 23.2% for the three months ended March 31, 1999.
Other Operating Expenses. Other operating expenses remained relatively
constant at $327,000 and $333,000 for the three months ended March 31, 1998 and
1999, respectively. As a percentage of revenues, these expenses decreased from
16.5% for the three months ended March 31, 1998 to 13.4% for the three months
ended March 31, 1999.
Liquidity and Capital Resources--Simione
Simione generated net cash flow from operating activities of approximately
$33,000 and $57,000 for the three months ended March 31, 1999 and 1998,
respectively. Net cash provided by financing activities was $33,000 for the
three months ended March 31, 1999, principally from the proceeds from short-
term debt. Net cash used in financing activities was $27,000 for the three
months ended March 31, 1998, primarily for payments of debt. At March 31, 1999,
Simione had working capital of approximately $1.3 million.
Interest of Continuing Directors
Upon completion of the offering, Anthony P. Scillia will become a director
of CenterPoint. See "CenterPoint Management."
Principal Members
The following table sets forth, as of March 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.
97
<PAGE>
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 distribution points in the Northeast and Mid-Atlantic regions and play
a significant role in CenterPoint's anticipated national practice in litigation
consulting services. In addition, through Urbach's international affiliate,
Urbach Hacker Young International Limited, CenterPoint 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 CenterPoint After the Mergers--
Regulation."
Employees
As of February 28, 1999, Urbach had 110 professional employees, of which 52
were licensed CPAs, and 42 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>
Three Months Ended
Year Ended October 31, January 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% $3,678 100.0% $4,346 100.0%
Expenses:
Shareholders
compensation and
related costs......... 4,798 30.0 4,853 28.4 752 20.5 1,221 28.1
Employee compensation
and related costs..... 6,590 41.1 7,147 41.8 1,674 45.5 1,817 41.8
Other operating
expenses.............. 4,317 27.0 4,860 28.5 1,207 32.8 1,137 26.2
------- ----- ------- ----- ------ ----- ------ -----
Income from operations.. $ 307 1.9% $ 225 1.3% $ 45 1.2% $ 171 3.9%
======= ===== ======= ===== ====== ===== ====== =====
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results for the Three Months Ended January 1, 1999 Compared to the Three
Months Ended January 31, 1998--Urbach
Revenues. Revenues increased $668,000, or 18.2%, from $3.7 million for the
three months ended January 31, 1998 to $4.3 million for the three months ended
January 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 $469,000, or 62.4%, from $752,000 for the three months
ended January 31, 1998 to $1.2 million for the three months ended January 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 20.5% in 1998 to 28.1% in 1999.
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Employee compensation and related costs. Employee compensation and related
costs increased $143,000, or 8.5%, from $1.7 million in the three months ended
January 31, 1998 to $1.8 million in the three months ended January 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 45.5% in
the three months ended January 31, 1998 to 41.8% in the three months ended
January 31, 1999.
Other operating expenses. Other operating expenses decreased $70,000, or
5.8%, from $1.2 million in the three months ended January 31, 1998 to $1.1
million in the three months ended January 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 32.8% in the three months ended January 31, 1998 to 26.2% in the
three months ended January 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 generated cash from operating activities of approximately $776,000
and $67,000 in the three months ended January 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 used in investing
activities was approximately $619,000 and $201,000 in the three months ended
January 31, 1999 and 1998, respectively, 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. Net cash used in financing
activities in the three months ended January 31, 1999 was approximately
$321,000, consisting principally of payments on debt. In the three months ended
January 31, 1998, cash provided by financing activities was approximately
$260,000, 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 January 31, 1999, Urbach had working capital
of approximately $4.1 million.
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Interest of Continuing Directors
Upon consummation of the offering, Steven N. Fischer will become a director
of CenterPoint. See "CenterPoint Management."
Principal Stockholders
The following table sets forth, as of February 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 CENTERPOINT CAPITAL STOCK
Upon the completion of the IPO, the authorized capital stock of CenterPoint
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, 26,750,676 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 CenterPoint, 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 17 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 CenterPoint 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. CenterPoint 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 CenterPoint. CenterPoint 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 CenterPoint'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 CenterPoint 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, CenterPoint's initial investors, management
and the owners and employees of the CenterPoint Companies who receive common
stock in the mergers will enter into a stockholders' agreement governing the
nomination and election of CenterPoint's directors. The stockholders'
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agreement sets 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 CenterPoint,
including voting its common stock, to cause the incumbent directors of
CenterPoint 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 CenterPoint
Company is unable to or does not stand for reelection, representatives of BGL
Capital or such CenterPoint 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
CenterPoint'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
CenterPoint'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 CENTERPOINT AND THE CENTERPOINT COMPANIES
Upon consummation of the mergers, the holders of equity interests in the
CenterPoint Companies will become holders of CenterPoint common stock.
CenterPoint is a Delaware corporation and is bound by Delaware law, whereas
each of the CenterPoint Companies is bound by the corporate, partnership or
limited liability company law of the state in which such CenterPoint Company
was organized. In addition, the CenterPoint certificate of incorporation and
bylaws differ from the governance documents of each CenterPoint Company. The
difference between the CenterPoint certificate of incorporation and bylaws and
the governance documents of each CenterPoint Company, and between Delaware
corporate law and the corporate law of each state in which each CenterPoint
Company was organized, will ultimately result in changes to the rights of
holders of common stock, partnership or membership interests of each of the
CenterPoint Companies.
The following is a summary of the material differences between the rights of
the security holders of CenterPoint and the security holders of each of Berry
Dunn, Follmer, Grace, Mann Frankfort, 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 CenterPoint
certificate of incorporation and bylaws and the applicable state laws and
governance documents of the CenterPoint 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 CenterPoint 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.
. 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
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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.
. 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 CenterPoint 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 CenterPoint
certificate of incorporation and bylaws contain provisions relating to the
declaration and payment of dividends consistent with Delaware law.
Voting Rights
As Both a CenterPoint Company Security Holder and a CenterPoint Stockholder:
Each holder of a voting security is entitled to one vote per share or
interest owned. Neither any of the CenterPoint Companies security holders nor
CenterPoint stockholders have cumulative voting rights in the election of
directors or other governing board members.
Directors--Number of Directors
As a CenterPoint 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
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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 (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.
. 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.
. 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.
. 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 CenterPoint 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 CenterPoint bylaws provide that the number of directors
shall be fixed by resolution of the board. Upon completion of the Mergers,
CenterPoint expects its board to have 17 directors.
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Directors--Vacancies
As a CenterPoint 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.
. 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.
. 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 CenterPoint Stockholder:
Vacant director positions may be filled by a majority of the CenterPoint
directors then in office, even though less than a quorum.
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Directors--Removal
As a CenterPoint 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 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.
. 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.
. 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 (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.
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As a CenterPoint 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.
CenterPoint's charter provides that directors may be removed only with cause
by a vote of a majority of the combined voting power of CenterPoint's
outstanding stock.
Directors--Nominations
As a CenterPoint 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.
. Mann Frankfort--Neither Texas law nor the organizational documents of
Mann Frankfort address nominations.
. 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 CenterPoint Stockholder:
The CenterPoint bylaws provide that nominations for directors may be made
only by or at the direction of the CenterPoint 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 CenterPoint in a manner and within the time
period specified in the bylaws of CenterPoint.
Limitation on Director's Liability; Indemnification of Officers and Directors
As a CenterPoint 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.
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. 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.
. 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.
. 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
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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.
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.
. 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
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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. 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.
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. 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. 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 CenterPoint 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
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(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.
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 CenterPoint charter provides that CenterPoint shall indemnify
CenterPoint directors to the maximum extent permitted by Delaware law. The
CenterPoint charter provides that CenterPoint may, at the direction of the
CenterPoint board, indemnify officers and employees of CenterPoint.
Call of Special Meetings
As a CenterPoint 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.
. 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%. 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).
. 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
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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.
As a CenterPoint 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
CenterPoint's bylaws, a special meeting of stockholders may be called only by
the CenterPoint board.
Action of Shareholders Without a Meeting
As a CenterPoint 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.
. 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.
. 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 (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.
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. 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 CenterPoint 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 CenterPoint charter contains a
prohibition that prevents CenterPoint's stockholders from taking any action
without a meeting.
Shareholder Proposals
As a CenterPoint 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 (Missouri)--Shareholder proposals are not addressed by Missouri law
or Grace's bylaws.
. Mann Frankfort--Shareholder proposals are not addressed by Texas law or
Mann Frankfort's bylaws.
. 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.
As a CenterPoint Stockholder:
The CenterPoint bylaws provide that, to be timely, the Secretary of
CenterPoint must receive written notice at the principal executive offices of
CenterPoint between 120 and 150 days prior to the first anniversary of the date
of CenterPoint'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."
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Amendment to Charter
As a CenterPoint 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.
. 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.
. 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
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<PAGE>
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: (i) specify or change the location of the
corporation's office, (ii) 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 (iii) to make, revoke or change the
designation of a registered agent, or to specify or change the address of
its registered agent.
As a CenterPoint 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 CenterPoint 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 CenterPoint.
Amendment to Bylaws
As a CenterPoint 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.
. 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.
. 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
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<PAGE>
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 CenterPoint 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
CenterPoint charter, the CenterPoint board is expressly authorized to make,
alter, amend or repeal the bylaws of CenterPoint. 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.
Conflict of Interest
As a CenterPoint 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.
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. 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; or (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.
. 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.
. 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 (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.
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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 CenterPoint Stockholder:
The CenterPoint bylaws provide that no contract entered into between
CenterPoint and one or more of its directors or officers or between CenterPoint
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.
Business Combinations Involving Interested Shareholders
As a CenterPoint 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.
. Mann Frankfort--Business combinations involving interested shareholders
are not addressed under Texas law.
. Reznick--There are no provisions of Maryland law regarding business
combinations involving interested shareholders which are applicable to
Reznick.
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. 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 (i)
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; (ii)
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 (iii) 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.
As a CenterPoint 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 CenterPoint charter nor bylaws contain any provision that
modifies Delaware law.
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SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS OF CENTERPOINT
The following lists information with respect to the beneficial ownership of
CenterPoint's common stock by (1) each person known by CenterPoint 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)
CenterPoint'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 offering After offering
- -------------------------------------- --------- --------------- --------------
<S> <C> <C> <C>
CPA Holdings LLC(2)................... 2,629,506 16.2 9.8
Reznick, Fedder & Silverman, C.P.A.s,
L.L.C(3)............................. 1,942,028 12.0 7.3
FRF Holdings, LLC(4).................. 1,457,143 9.0 5.4
Robert C. Basten...................... 608,363 3.7 2.3
DeAnn L. Brunts....................... 210,361 1.3 *
Rondol E. Eagle....................... 70,050 * *
Dennis W. Bikun....................... 31,554 * *
David Reznick(5)...................... 108,973 * *
Thomas W. Corbett..................... 509,388 3.1 1.9
Richard H. Stein...................... 363,654 2.2 1.4
Anthony P. Frabotta(6)................
Charles H. Roscoe..................... 45,142 * *
Steven N. Fischer..................... 79,031 * *
Robert F. Gallo....................... 497,991 3.1 1.9
Wayne J. Grace........................
Philip J. Holthouse................... 145,714 * *
Anthony P. Scillia.................... 154,876 1.0 *
Scott H. Lang(2)(7)(8)................ 2,644,506 16.3 9.9
Louis C. Fornetti(8).................. 15,000 * *
William J. Lynch(8)................... 15,000 * *
All directors and executive officers
as a group
(17 persons)(5)(6)(7)(9).............
</TABLE>
- --------
* Less than 1.0%.
(1) Unless otherwise indicated, the address of the beneficial owners is c/o
CenterPoint 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 CenterPoint. The address of Reznick
L.L.C. 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 held by Reznick LLC and beneficially owned by Mr. Reznick.
(6) Includes shares owned by FRF Holdings, LLC. Mr. Frabotta is one of
the managing members of FRF Holdings, LLC. Mr. Frabotta disclaims
beneficial ownership of the shares held by FRF Holdings, LLC except to the
extent of his pecuniary interest therein.
(7) Includes 2,629,506 shares held by CPA Holdings. Mr. Lang is a managing
member of BGL Management Company, which is the managing member of BGL
Capital, which is the managing member of CPA Holdings. 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 LLC except to the extent of his pecuniary
interest therein.
(8) Includes 15,000 shares of common stock issuable upon the exercise of
options which will be granted and vest upon completion of the IPO.
(9) Includes 45,000 shares of common stock issuable upon the exercise of
options which will be granted and vest upon completion of the IPO.
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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 CenterPoint 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 for the year ended July 31, 1998;
. 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, 1997 and 1998 and for each of the three years in the
period ended May 31, 1998;
. the consolidated financial statements of Berry, Dunn, McNeil & Parker,
Chartered as of June 30, 1997 and 1998 and for each of the three years in
the period ended June 30, 1998;
. the financial statements of Urbach Kahn & Werlin PC as of October 31,
1997 and 1998 and for each of the two years in the period ended October
31, 1998;
. 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 financial statements of Holthouse Carlin & Van Trigt LLP as of
December 31, 1997 and 1998 and for each of the two years in the period
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., as of
July 31, 1997 and for each of the years in the two-year period 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.
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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 CenterPoint by Katten Muchin & Zavis, Chicago, Illinois.
Partners of Katten Muchin & Zavis are investors in BGL Capital, which is an
initial investor in CenterPoint. BGL Capital intends to distribute its shares
of CenterPoint 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
CenterPoint 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. All material terms of each contract or other document are described in
this document. However, statements contained in this joint information
statement/prospectus concerning the contents of any contract or other document
are not necessarily complete, and reference is made to the copy of such
contract or other document filed as an exhibit to the registration statement,
and each such statement being qualified in all respects by such reference. For
further information concerning CenterPoint, 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 CenterPoint 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.
CenterPoint 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
CenterPoint and its affiliates has been furnished by CenterPoint. All
information in this joint information statement/prospectus concerning a
CenterPoint Company has been furnished by that CenterPoint Company.
You should rely only on the information contained in this joint information
statement/prospectus. CenterPoint has not, and the CenterPoint 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. CenterPoint is not, and the CenterPoint 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 CenterPoint and the
CenterPoint Companies may have changed since that date.
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CENTERPOINT ADVISORS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
CenterPoint 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 Statement 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
CENTERPOINT COMPANIES
Reznick Fedder & Silverman, P.C.
Report of Independent Accountants........................................ F-25
Consolidated Balance Sheet............................................... F-26
Consolidated Statement of Income......................................... F-27
Consolidated Statement of Stockholders' Equity........................... F-28
Consolidated Statement of Cash Flows..................................... F-29
Notes to Consolidated Financial Statements............................... F-30
Robert F. Driver Co., Inc.
Report of Independent Accountants........................................ F-39
Consolidated Balance Sheet............................................... F-41
Consolidated Statement of Income......................................... F-42
Consolidated Statement of Stockholders' Equity........................... F-43
Consolidated Statement of Cash Flows..................................... F-44
Notes to Consolidated Financial Statements............................... F-46
Mann Frankfort Stein & Lipp, P.C.
Report of Independent Accountants........................................ F-58
Balance Sheet............................................................ F-59
Statement of Income...................................................... F-60
Statement of Shareholders' Equity........................................ F-61
Statement of Cash Flows.................................................. F-62
Notes to Financial Statements............................................ F-63
Follmer, Rudzewicz & Company, P.C.
Report of Independent Accountants........................................ F-68
Consolidated Balance Sheet............................................... F-69
Consolidated Statement of Operations..................................... F-70
Consolidated Statement of Stockholder's Equity........................... F-71
Consolidated Statement of Cash Flows..................................... F-72
Notes to Consolidated Financial Statements............................... F-73
Berry, Dunn, McNeil & Parker, Chartered
Report of Independent Accountants........................................ F-81
Consolidated Balance Sheet............................................... F-82
Consolidated Statement of Income......................................... F-83
Consolidated Statement of Shareholders' Equity........................... F-84
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Consolidated Statement of Cash Flows.................................... F- 85
Notes to Consolidated Financial Statements.............................. F- 86
Urbach Kahn & Werlin P.C.
Report of Independent Accountants....................................... F- 93
Balance Sheet........................................................... F- 94
Statement of Income..................................................... F- 95
Statement of Shareholders' Equity....................................... F- 96
Statement of Cash Flows................................................. F- 97
Notes to Financial Statements........................................... F- 98
Self Funded Benefits, Inc. d/b/a Insurance Design Administrators
Report of Independent Accountants....................................... F-107
Balance Sheet........................................................... F-108
Statement of Income..................................................... F-109
Statement of Shareholders' Equity....................................... F-110
Statement of Cash Flows................................................. F-111
Notes to Financial Statements........................................... F-112
Grace & Company, P.C.
Report of Independent Accountants....................................... F-117
Balance Sheet........................................................... F-118
Statement of Income..................................................... F-119
Statement of Shareholders' Equity....................................... F-120
Statement of Cash Flows................................................. F-121
Notes to Financial Statements........................................... F-122
Holthouse Carlin & Van Trigt LLP
Report of Independent Accountants....................................... F-128
Balance Sheet........................................................... F-129
Statement of Income..................................................... F-130
Statement of Partners' Equity........................................... F-131
Statement of Cash Flows................................................. F-132
Notes to Financial Statements........................................... F-133
The Reppond Companies
Report of Independent Accountants....................................... F-138
Combined Balance Sheet.................................................. F-139
Combined Statement of Income............................................ F-140
Combined Statement of Shareholders' Equity.............................. F-141
Combined Statement of Cash Flows........................................ F-142
Notes to Combined Financial Statements.................................. F-143
Simione, Scillia, Larrow & Dowling LLC
Report of Independent Accountants....................................... F-149
Balance Sheet........................................................... F-150
Statement of Income..................................................... F-151
Statement of Members' Equity............................................ F-152
Statement of Cash Flows................................................. F-153
Notes to Financial Statements........................................... F-154
</TABLE>
F-2
<PAGE>
CENTERPOINT ADVISORS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the acquisitions by CenterPoint Advisors, Inc. ("CenterPoint") 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"); Holthouse Carlin & Van Trigt LLP ("Holthouse"); the
Reppond Companies ("Reppond"); and Simione, Scillia, Larrow & Dowling LLC
("Simione") (together, the "CenterPoint Companies"). These acquisitions (the
"Mergers") will occur simultaneously with the closing of CenterPoint'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, CenterPoint 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 March 31, 1999. The unaudited pro
forma combined statement of operations gives effect to these transactions as if
they had occurred on January 1, 1998.
CenterPoint has preliminarily analyzed the savings that it expects to
realize from changes in salaries and certain benefits to the CenterPoint
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, CenterPoint has not and cannot
quantify these savings at this time. It is anticipated that CenterPoint 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 CenterPoint and savings
expected to be realized from changes in salaries and certain benefits to the
CenterPoint Companies' former owners, neither the anticipated savings nor the
anticipated costs have been included in the pro forma financial information of
CenterPoint.
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 CenterPoint'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 CenterPoint's financial position or results of
operations for any future period. Since the CenterPoint 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>
CENTERPOINT ADVISORS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
March 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Merger
Center Mann Berry Adjustments
ASSETS Point Reznick Driver Frankfort Follmer Dunn Urbach IDA Grace Holthouse Reppond Simione (See Note 3)
- ------ ------ ------- ------- --------- ------- ------- ------- ------ ------ --------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents....... $ 30 $ 1,804 $ 2,989 $ 1,604 $ 277 $ 36 $ 25 $1,006 $ 191 $ 129 $ 174 $ 235 $(6,380)
Funds held for
customers......... -- -- 12,155 -- 70 -- -- 499 -- -- -- -- --
Investments....... -- -- -- -- -- -- 1,292 -- -- 287 -- -- (1,579)
Receivables,
net............... -- 24,207 11,005 6,532 4,954 3,964 7,656 969 2,003 2,469 885 2,265 (50,283)
Unbilled fees at
net realizable
value............. -- 3,749 -- 1,186 3,970 2,943 836 -- 2,085 1,365 -- 487 (6,179)
Notes
receivable........ -- -- -- -- -- -- -- -- -- -- -- 12 (12)
Due from related
parties and
stockholders...... -- -- -- 18 -- -- 799 -- -- -- -- -- (817)
Prepaid expenses
and other current
assets............ -- 185 719 143 131 129 709 67 264 78 94 75 (115)
Deferred offering
costs............. 4,286 -- -- -- -- -- -- -- -- -- -- -- --
Deferred income
taxes............. -- 1,648 -- -- -- -- -- -- -- -- -- -- (1,260)
------ ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ ------ -------
Total current
assets.......... 4,316 31,593 26,868 9,483 9,402 7,072 11,317 2,541 4,543 4,328 1,153 3,074 (66,625)
Property and
equipment, net..... -- 2,534 1,275 1,174 1,306 2,023 982 747 501 318 837 125 (938)
Goodwill and other
intangible assets,
net................ -- 395 21,396 -- -- 1,231 -- -- -- -- -- -- 214,692
Long-term
investments........ -- -- -- -- -- -- 1,048 -- -- -- -- -- (970)
Deferred income
taxes.............. -- 1,379 905 -- 1,424 423 2,248 -- 11 -- 7 -- (4,481)
Other assets....... -- 558 786 6 3,229 25 347 38 1,029 44 30 89 (5,345)
------ ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ ------ -------
Total assets.... $4,316 $36,459 $51,230 $10,663 $15,361 $10,774 $15,942 $3,326 $6,084 $4,690 $2,027 $3,288 136,333
====== ======= ======= ======= ======= ======= ======= ====== ====== ====== ====== ====== =======
<CAPTION>
Pro Offering
Forma Adjustments As
ASSETS Combined (See Note 3) Adjusted
- ------ -------- ------------ --------
<S> <C> <C> <C>
Current assets:
Cash and cash
equivalents....... $ 2,120 $10,060 $12,180
Funds held for
customers......... 12,724 -- 12,724
Investments....... -- -- --
Receivables,
net............... 16,626 -- 16,626
Unbilled fees at
net realizable
value............. 10,442 -- 10,442
Notes
receivable........ -- -- --
Due from related
parties and
stockholders...... -- -- --
Prepaid expenses
and other current
assets............ 2,479 -- 2,479
Deferred offering
costs............. 4,286 (4,286) --
Deferred income
taxes............. 388 -- 388
-------- ------------ --------
Total current
assets.......... 49,065 5,774 54,839
Property and
equipment, net..... 10,884 -- 10,884
Goodwill and other
intangible assets,
net................ 237,714 -- 237,714
Long-term
investments........ 78 -- 78
Deferred income
taxes.............. 1,916 -- 1,916
Other assets....... 836 -- 836
-------- ------------ --------
Total assets.... 300,493 5,774 306,267
======== ============ ========
</TABLE>
F-4
<PAGE>
CENTERPOINT ADVISORS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
March 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' Center Mann Berry
EQUITY Point Reznick Driver Frankfort Follmer Dunn Urbach IDA Grace Holthouse Reppond Simione
- --------------- ------- ------- ------- --------- ------- ------- ------- ------ ------ --------- ------- -------
<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.... $ -- $ 2,780 $ 2,042 $ 851 $ 350 $ 1,561 $ 721 $ 138 $1,497 $ -- $ 673 $1,171
Accounts
payable........... -- 1,026 3,883 374 178 817 1,593 129 163 36 229 216
Insurance
premiums
payable........... -- -- 18,639 -- -- -- -- -- -- -- -- --
Accrued
compensation and
related costs..... -- 24,081 -- 1,292 7,580 597 1,337 70 949 56 148 --
Deferred
compensation...... -- 91 -- -- -- 541 257 -- -- -- -- --
Income taxes
payable........... -- -- -- (4) 575 -- -- -- -- -- 20 --
Deferred income
taxes............. -- -- -- 2,491 561 653 2,805 -- 1,142 -- 107 --
Current portion
of customer
deposits.......... -- -- -- -- -- -- -- 499 -- -- -- --
Due to related
parties........... 1,145 -- -- -- 293 5,127 -- -- 473 -- -- 208
Other accrued
liabilities....... 4,614 -- -- -- -- 197 464 372 91 112 -- 139
------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Total current
liabilities..... 5,759 27,978 24,564 5,004 9,537 9,493 7,177 1,208 4,315 204 1,177 1,734
Long-term debt, net
of current
maturities......... -- 2,439 15,083 799 -- -- 1,513 125 413 -- 84 120
Deferred
compensation....... -- 765 1,325 -- 3,953 517 4,896 -- -- -- -- --
Deferred income
taxes.............. -- -- -- 95 -- -- -- -- -- -- -- --
Other long-term
liabilities........ -- 2,474 -- -- -- 56 149 -- -- -- -- 115
------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Total
liabilities..... 5,759 33,656 40,972 5,898 13,490 10,066 13,735 1,333 4,728 204 1,261 1,969
Redeemable
preferred stock of
subsidiary......... -- -- 4,000 -- -- -- -- -- -- -- -- --
Stockholders'
equity:
Members' equity... -- -- -- -- -- -- -- -- -- 4,486 13 1,319
Common stock...... 37 -- 9 2 10 1,358 -- -- 17 -- 1 --
Additional paid-
in capital........ 3,333 1,422 8,334 61 1,210 -- 3,199 208 350 -- 56 --
Retained earnings
(deficit)......... (4,813) 1,381 (1,245) 4,702 791 (216) (1,224) 1,949 1,078 -- 724 --
Note receivable
from
shareholder....... -- -- (840) -- -- (230) -- -- -- -- (28) --
Accumulated other
comprehensive
income............ -- -- -- -- -- -- 232 -- -- -- -- --
Treasury stock.... -- -- -- -- (140) (204) -- (164) (89) -- -- --
------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Total
stockholders'
equity.......... (1,443) 2,803 6,258 4,765 1,871 708 2,207 1,993 1,356 4,486 766 1,319
------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ ------
Total liabilities
and stockholders'
equity............. $4,316 $36,459 $51,230 $10,663 $15,361 $10,774 $15,942 $3,326 $6,084 $4,690 $2,027 $3,288
======= ======= ======= ======= ======= ======= ======= ====== ====== ====== ====== ======
<CAPTION>
LIABILITIES AND Merger Pro Offering
STOCKHOLDERS' Adjustments Forma Adjustments As
EQUITY (See Note 3) Combined (See Note 3) Adjusted
- --------------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Current
liabilities:
Short-term debt,
including current
maturities of
long-term debt.... $ (1,171) $ 10,613 $ (8,203) $ 2,410
Accounts
payable........... -- 8,644 -- 8,644
Insurance
premiums
payable........... -- 18,639 -- 18,639
Accrued
compensation and
related costs..... (28,975) 7,135 -- 7,135
Deferred
compensation...... (91) 798 -- 798
Income taxes
payable........... -- 591 -- 591
Deferred income
taxes............. (6,510) 1,249 -- 1,249
Current portion
of customer
deposits.......... -- 499 -- 499
Due to related
parties........... 77,817 85,063 (85,063) --
Other accrued
liabilities....... 250 6,239 (4,864) 1,375
------------ --------- ------------ ---------
Total current
liabilities..... 41,320 139,470 (98,130) 41,340
Long-term debt, net
of current
maturities......... 3,599 24,175 (20,175) 4,000
Deferred
compensation....... (9,696) 1,760 -- 1,760
Deferred income
taxes.............. 138 233 -- 233
Other long-term
liabilities........ (2,474) 320 -- 320
------------ --------- ------------ ---------
Total
liabilities..... 32,887 165,958 (118,305) 47,653
Redeemable
preferred stock of
subsidiary......... -- 4,000 (4,000) --
Stockholders'
equity:
Members' equity... (5,818) -- -- --
Common stock...... (1,271) 163 105 268
Additional paid-
in capital........ 114,160 132,333 127,974 260,307
Retained earnings
(deficit)......... (5,088) (1,961) -- (1,961)
Note receivable
from
shareholder....... 1,098 -- -- --
Accumulated other
comprehensive
income............ (232) -- -- --
Treasury stock.... 597 -- -- --
------------ --------- ------------ ---------
Total
stockholders'
equity.......... 103,446 130,535 128,079 258,614
------------ --------- ------------ ---------
Total liabilities
and stockholders'
equity............. $136,333 $300,493 $ 5,774 $306,267
============ ========= ============ =========
</TABLE>
F-5
<PAGE>
CENTERPOINT 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>
Center Mann Berry
Point Reznick Driver Frankfort Follmer Dunn Urbach IDA Grace Holthouse Reppond Simione
--------- ------- ------- --------- ------- ------- ------- ------- ------ --------- ------- -------
<S> <C> <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 $9,446 $ -- $6,217
Service
agreements...... -- -- -- -- -- -- -- -- -- -- -- --
--------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total
professional
services........ -- 48,387 -- 21,631 20,564 18,662 17,753 -- 9,691 9,446 -- 6,217
Business and
financial
services........ -- -- 34,303 -- -- -- -- 10,933 -- -- 7,892 --
--------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total revenues.. -- 48,387 34,303 21,631 20,564 18,662 17,753 10,933 9,691 9,446 7,892 6,217
Expenses:
Professional
services
compensation and
related costs... -- 39,825 -- 17,750 16,629 13,722 12,612 -- 7,784 3,089 -- 4,396
Business and
financial
services
compensation and
related costs... -- -- 25,470 -- -- -- -- 6,361 -- -- 5,067 --
Other operating
expenses........ 1,961 7,575 6,060 3,081 3,711 3,753 4,510 2,808 1,190 1,505 1,982 1,333
Depreciation and
amortization.... -- 976 1,664 266 539 1,000 280 242 190 73 332 31
--------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Income from
operations...... (1,961) 11 1,109 534 (315) 187 351 1,522 527 4,779 511 457
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) (25) (43) --
Other, net...... -- (143) (417) (26) 14 126 (486) 82 (95) -- 22 50
--------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Income before
income taxes..... (1,961) (335) 1,339 571 (390) -- 282 1,485 523 4,804 460 277
Provision
(benefit) for
income taxes..... -- (109) 688 213 165 -- 176 25 232 -- 113 --
--------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Net income
(loss)........... $ (1,961) $ (226) $ 651 $ 358 $ (555) $ -- $ 106 $ 1,460 $ 291 $4,804 $ 347 $ 277
========= ======= ======= ======= ======= ======= ======= ======= ====== ====== ====== ======
Net income per
share, basic and
diluted.......... $ (0.58)
=========
Shares used in
computing pro
forma net income
per share
(see Note 5)..... 3,370,666
=========
<CAPTION>
Pro Forma
Adjustments
(See Note Pro Forma
4) Combined
---------------- -----------
<S> <C> <C>
Revenues:
Professional
services........ $(66,040)(A) $ 86,311
Service
agreements...... 63,785 (A) 63,785
---------------- -----------
Total
professional
services........ (2,255) 150,096
Business and
financial
services........ -- 53,128
---------------- -----------
Total revenues.. (2,255) 203,224
Expenses:
Professional
services
compensation and
related costs... (20,440)(B) 95,367
Business and
financial
services
compensation and
related costs... (1,540)(B) 35,358
Other operating
expenses........ (1,858)(C) 37,611
Depreciation and
amortization.... 5,277 (A,D) 10,870
---------------- -----------
Income from
operations...... 16,306 24,018
Other (income)
expense:
Interest
expense......... (2,220)(E) 837
Interest
income.......... 156 (F) (1,371)
Other, net...... -- (873)
---------------- -----------
Income before
income taxes..... 18,370 25,425
Provision
(benefit) for
income taxes..... 11,044 (G) 12,547
---------------- -----------
Net income
(loss)........... $ 7,326 $ 12,878
================ ===========
Net income per
share, basic and
diluted.......... $ 0.50
===========
Shares used in
computing pro
forma net income
per share
(see Note 5)..... 25,662,791
===========
</TABLE>
F-6
<PAGE>
CENTERPOINT ADVISORS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the three months ended March 31, 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Center Mann Berry
Point Reznick Driver Frankfort Follmer Dunn Urbach IDA Grace Holthouse Reppond Simione
------ ------- ------ --------- ------- ------ ------ ------ ------ --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Professional
services........ $ -- $18,549 $ -- $5,889 $5,518 $6,972 $3,678 $ -- $3,380 $2,848 $ -- $1,933
Service
agreements...... -- -- -- -- -- -- -- -- -- -- -- --
----- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
professional
services........ -- 18,549 -- 5,889 5,518 6,972 3,678 -- 3,380 2,848 -- 1,933
Business and
financial
services........ -- -- 6,624 -- -- -- -- 2,902 -- -- 1,909 --
----- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenues.. -- 18,549 6,624 5,889 5,518 6,972 3,678 2,902 3,380 2,848 1,909 1,933
Expenses:
Professional
services
compensation and
related costs... -- 16,359 -- 3,586 4,210 5,674 2,426 -- 2,156 745 -- 1,108
Business and
financial
services
compensation and
related costs... -- -- 5,241 -- -- -- -- 1,394 -- -- 1,221 --
Other operating
expenses........ -- 1,867 1,210 960 979 1,064 1,147 1,020 338 398 402 319
Depreciation and
amortization.... -- 317 154 51 87 130 60 53 47 18 76 8
----- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
operations...... -- 6 19 1,292 242 104 45 435 839 1,687 210 498
Other (income)
expense: --
Interest
expense......... -- 116 11 18 18 116 127 9 38 -- 23 30
Interest
income.......... -- (5) (189) (3) (6) (18) (12) (17) (3) (9) -- --
Other, net...... -- (22) 37 9 (21) 6 (73) -- (5) -- 7 --
----- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income before
income taxes..... -- (83) 160 1,268 251 -- 3 443 809 1,696 180 468
Provision
(benefit) for
income taxes..... -- (28) 83 469 118 -- 12 11 356 -- 45 --
----- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net income
(loss)........... $ -- $ (55) $ 77 $ 799 $ 133 $ -- $ (9) $ 432 $ 453 $1,696 $ 135 $ 468
===== ======= ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Net income per
share, basic and
diluted..........
Shares used in
computing pro
forma net income
per share
(see Note 5).....
<CAPTION>
Pro Forma
Adjustments
(See Note Pro Forma
4) Combined
----------------- -----------
<S> <C> <C>
Revenues:
Professional
services........ $(24,694)(A) $ 24,073
Service
agreements...... 23,912 (A) 23,912
----------------- -----------
Total
professional
services........ (782) 47,985
Business and
financial
services........ -- 11,435
----------------- -----------
Total revenues.. (782) 59,420
Expenses:
Professional
services
compensation and
related costs... (8,642)(B) 27,622
Business and
financial
services
compensation and
related costs... (796)(B) 7,060
Other operating
expenses........ (429)(C) 9,275
Depreciation and
amortization.... 1,430 (A)(D) 2,431
----------------- -----------
Income from
operations...... 7,655 13,032
Other (income)
expense:
Interest
expense......... (392)(E) 114
Interest
income.......... -- (F) (262)
Other, net...... -- (62)
----------------- -----------
Income before
income taxes..... 8,047 13,242
Provision
(benefit) for
income taxes..... 4,825 (F) 5,891
----------------- -----------
Net income
(loss)........... $ 3,222 $ 7,351
================= ===========
Net income per
share, basic and
diluted.......... $ 0.29
===========
Shares used in
computing pro
forma net income
per share
(see Note 5)..... 25,662,791
===========
</TABLE>
F-7
<PAGE>
CENTERPOINT ADVISORS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the three months ended March 31, 1999
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Center Mann Berry
Point Reznick Driver Frankfort Follmer Dunn Urbach IDA Grace Holthouse Reppond Simione
---------- ------- ------ --------- ------- ------ ------ ------ ------ --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Professional
services........ $ -- $21,704 $ -- $8,324 $6,420 $6,717 $4,346 $ -- $3,687 $3,234 $ -- $2,478
Services
agreements...... -- -- -- -- -- -- -- -- -- -- -- --
---------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
professional
services........ -- 21,704 -- 8,324 6,420 6,717 4,346 -- 3,687 3,234 -- 2,478
Business and
financial
services........ -- -- 8,241 -- -- -- -- 2,978 -- -- 2,191 --
---------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenues.. -- 21,704 8,241 8,324 6,420 6,717 4,346 2,978 3,687 3,234 2,191 2,478
Expenses:
Professional
services
compensation and
related costs... 19,235 -- 4,538 4,808 5,492 3,038 -- 2,275 839 -- 1,201
Business and
financial
services
compensation and
related costs... -- -- 6,773 -- -- -- -- 1,557 -- -- 1,320 --
Other operating
expenses........ 2,852 2,168 1,511 1,186 1,089 836 1,058 952 378 275 636 327
Depreciation and
amortization.... -- 298 531 68 117 295 79 50 52 14 76 8
---------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
operations...... (2,852) 3 (574) 2,532 406 94 171 419 982 2,106 159 942
Other (income)
expense:
Interest
expense......... -- 88 386 21 16 72 148 6 46 -- 10 35
Interest
income.......... -- (46) (186) (6) (6) (59) (13) (15) (2) (5) (1) --
Other, net...... -- 46 (226) (2) -- 81 (124) -- -- 6 -- 28
---------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income before
income taxes..... (2,852) (85) (548) 2,519 396 -- 160 428 938 2,105 150 879
Provision
(benefit) for
income taxes..... -- (26) (227) 932 137 -- 83 6 376 -- 60 --
---------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net income
(loss)........... $ (2,852) $ (59) $ (321) $1,587 $ 259 $ -- $ 77 $ 422 $ 562 $2,105 $ 90 $ 879
========== ======= ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Net income per
share, basic and
diluted.......... $ (0.83)
==========
Shares used in
computing pro
forma net income
per share
(see Note 5)..... 3,436,779
==========
<CAPTION>
Pro Forma
Adjustments
(See Note Pro Forma
4) Combined
------------------ ------------
<S> <C> <C>
Revenues:
Professional
services........ $(27,347) $ 29,563
Services
agreements...... 26,469 (A) 26,469
------------------ ------------
Total
professional
services........ (848) 56,032
Business and
financial
services........ -- 13,410
------------------ ------------
Total revenues.. (848) 69,442
Expenses:
Professional
services
compensation and
related costs... (6,176)(B) 35,250
Business and
financial
services
compensation and
related costs... (796)(B) 8,854
Other operating
expenses........ (3,108)(C) 10,160
Depreciation and
amortization.... 1,135 (A),(D) 2,723
------------------ ------------
Income from
operations...... 8,067 12,455
Other (income)
expense:
Interest
expense......... (734)(E) 94
Interest
income.......... -- (F) (339)
Other, net...... -- (191)
------------------ ------------
Income before
income taxes..... 8,801 12,891
Provision
(benefit) for
income taxes..... 4,410 (G) 5,751
------------------ ------------
Net income
(loss)........... $ 4,391 $ 7,140
================== ============
Net income per
share, basic and
diluted.......... $ 0.28
============
Shares used in
computing pro
forma net income
per share
(see Note 5)..... 25,662,791
============
</TABLE>
F-8
<PAGE>
CENTERPOINT ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
Note 1--General
CenterPoint Advisors, Inc. ("CenterPoint") was founded in 1998 to acquire
eleven professional, business and financial services firms ("CenterPoint
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 CenterPoint and the CenterPoint Companies and were
derived from the respective CenterPoint Companies' financial statements. The
periods included in these financial statements for all of the individual
CenterPoint 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 January 31, 1999 and for the year ended January 31,
1999 and the three month periods ended January 31, 1998 and 1999. The financial
statements for Follmer are as of February 28, 1999 and for the year ended
November 30, 1998 and the three month periods ended February 28, 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 CenterPoint Companies
Concurrently with and as a condition to the closing of this offering,
CenterPoint will acquire all of the outstanding common stock or partnership or
membership interests of the CenterPoint Companies. The Mergers will be
accounted for using the purchase method of accounting with CenterPoint being
treated as the accounting acquiror in accordance with Staff Accounting Bulletin
No. 97 and APB 16. The carrying value of intangible assets is periodically
reviewed by CenterPoint based on the expected future undiscounted operating
cash flows of the related business unit. In the event CenterPoint determines
that the balance of such intangible assets is not recoverable, CenterPoint 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 (a) cash and
(b) shares of common stock to the stockholders of each of the CenterPoint
Companies.
<TABLE>
<CAPTION>
Shares of
Common Value of Total
Cash Stock Shares (1) Consideration (2)
------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
Reznick.................... $16,899 1,810,553 $ 19,011 $ 35,910
Driver..................... 500 2,944,445 30,917 31,417
Mann Frankfort............. 16,503 1,768,200 18,566 35,069
Follmer.................... 13,600 1,457,143 15,300 28,900
Berry Dunn................. 6,821 931,357 9,779 16,600
Urbach..................... 9,190 1,023,943 10,751 19,941
IDA........................ 8,154 873,669 9,173 17,327
Grace...................... 2,840 304,286 3,195 6,035
Holthouse.................. 5,603 600,343 6,304 11,907
Reppond.................... -- 447,428 4,698 4,698
Simione.................... 3,808 408,000 4,284 8,092
------- ---------- -------- --------
$83,918 12,569,367 $131,978 $215,896
======= ========== ======== ========
</TABLE>
- --------
(1) 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 $14.00, less a 25% discount from the assumed offering
price due to restrictions on the transferability of the common stock to be
issued to owners and employees
F-9
<PAGE>
CENTERPOINT ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
of CenterPoint and the CenterPoint Companies. Under the terms of the Merger
Agreements and a Stockholders' Agreement, the former owners of the
CenterPoint Companies and the initial investors and management of
CenterPoint have agreed, 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 CenterPoint shares will not be
entitled to registration rights until two years following the offering;
thereafter the former owners of the CenterPoint 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
CenterPoint Companies equate, economically, to the value of a put option on
those shares. The 25% discount was determined using the Black Scholes option
pricing methodology and the put/call parity relationship using a term of 2.5
years (weighted average period of restriction), a volatility factor based on
comparable public company transactions and an appropriate risk-free interest
rate.
(2) 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
$3,290. 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 CenterPoint'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 CenterPoint 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 CenterPoint as the accounting acquiror. 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. CenterPoint 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.................................. $ 35,910 $ (2,012) $ 37,922
Driver................................... 31,417 (16,358) 47,775
Mann Frankfort........................... 35,069 (419) 35,488
Follmer.................................. 28,900 1,136 27,764
Berry Dunn............................... 16,600 152 16,448
Urbach................................... 19,941 (685) 20,626
IDA...................................... 17,327 457 16,870
Grace.................................... 6,035 (1,313) 7,348
Holthouse................................ 11,907 421 11,486
Reppond.................................. 4,698 (3,234) 7,932
Simione.................................. 8,092 37 8,055
-------- -------- --------
$215,896 $(21,818) $237,714
======== ======== ========
</TABLE>
F-10
<PAGE>
CENTERPOINT 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............ $ (6,380) $ -- $ -- $ (6,380) $132,365 $(122,305) $ 10,060
Investments............. -- (1,579) -- (1,579) -- -- --
Receivables, net........ (49,227) (1,056) -- (50,283) -- -- --
Unbilled fees at net
realizable value....... (6,179) -- -- (6,179) -- -- --
Notes receivable........ -- (12) -- (12) -- -- --
Due from related
parties................ -- (817) -- (817) -- -- --
Prepaid expenses and
other current assets... -- (115) -- (115) -- -- --
Deferred offering
costs.................. -- -- -- -- (4,286) -- (4,286)
Deferred income taxes... -- (1,260) -- (1,260) -- -- --
-------- -------- -------- -------- -------- --------- ---------
Total current
assets.............. (61,786) (4,839) -- (66,625) 128,079 (122,305) 5,774
Property and equipment,
net.................... -- (938) -- (938) -- -- --
Goodwill, net........... -- (23,022) 237,714 214,692 -- -- --
Long-term investments... -- (970) -- (970) -- -- --
Deferred income taxes... -- (4,481) -- (4,481) -- -- --
Other assets............ -- (5,345) -- (5,345) -- -- --
-------- -------- -------- -------- -------- --------- ---------
Total assets......... $(61,786) $(39,595) $237,714 $136,333 $128,079 $(122,305) $ 5,774
======== ======== ======== ======== ======== ========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Short-term debt,
including current
maturities of long-term
debt................... $ -- $ (1,171) $ -- $ (1,171) $ -- $ (8,203) $ (8,203)
Accrued compensation and
related costs.......... -- (28,975) -- (28,975) -- -- --
Deferred compensation... -- (91) -- (91) -- -- --
Deferred income taxes... -- (6,510) -- (6,510) -- -- --
Due to related parties.. -- (6,101) 83,918 77,817 -- (85,063) (85,063)
Other accrued
liabilities............ -- 250 -- 250 -- (4,864) (4,864)
-------- -------- -------- -------- -------- --------- ---------
Total current
liabilities......... -- (42,598) 83,918 41,320 -- (98,130) (98,130)
Long-term debt, net..... -- 3,599 -- 3,599 -- (20,175) (20,175)
Deferred compensation... -- (9,696) -- (9,696) -- -- --
Deferred income taxes... -- 138 -- 138 -- -- --
Other long-term
liabilities............ -- (2,474) -- (2,474) -- -- --
-------- -------- -------- -------- -------- --------- ---------
Total liabilities.... -- (51,031) 83,918 32,887 -- (118,305) (118,305)
-------- -------- -------- -------- -------- --------- ---------
Redeemable preferred
stock.................. -- -- -- -- -- (4,000) (4,000)
-------- -------- -------- -------- -------- --------- ---------
Stockholders' equity:
Members' equity........ (6,368) 1,021 (471) (5,818) -- -- --
Common stock........... -- -- (1,271) (1,271) 105 -- 105
Additional paid-in
capital................ -- (840) 115,000 114,160 127,974 -- 127,974
Retained earnings
(deficit).............. (55,418) 10,619 39,711 (5,088) -- -- --
Notes receivable from
shareholder............ -- 868 230 1,098 -- -- --
Accumulated other
comprehensive income... -- (232) -- (232) -- -- --
Treasury stock......... -- -- 597 597 -- -- --
-------- -------- -------- -------- -------- --------- ---------
Total stockholders'
equity.............. (61,786) 11,436 153,796 103,446 128,079 -- 128,079
-------- -------- -------- -------- -------- --------- ---------
Total liabilities and
stockholders'
equity.............. $(61,786) $(39,595) $237,714 $136,333 $128,079 $(122,305) $ 5,774
======== ======== ======== ======== ======== ========= =========
</TABLE>
F-11
<PAGE>
CENTERPOINT ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
- --------
(A) Reflects the contractual distributions to the owners of the CenterPoint
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 CenterPoint Companies in connection with the mergers and
the establishment of deferred tax balances to be established upon the
conversion of IDA, Holthouse, and Simione from S Corporation or partnership
status to C Corporation status.
(C) Reflects purchase accounting for the acquisitions of the CenterPoint
Companies for consideration consisting of $83,918 in cash and 12,569,367
shares of common stock valued at $14.00 per share (or a total of $131,978)
for a total estimated purchase price of $215,896, resulting in an excess
purchase price over the fair value of assets acquired of $237,848. See Note
2 for discussion of valuation of stock.
(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 $14.00 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 CenterPoint 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 $28,378 of indebtedness of certain of the CenterPoint
Companies; and (iv) pay $250 for settlement of a consulting agreement of
Driver.
F-12
<PAGE>
CENTERPOINT ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
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 CenterPoint 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 CenterPoint Companies.
CenterPoint 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
CenterPoint 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
CenterPoint 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 CenterPoint with a twelve month
advance notice of its intention to obtain one or more of the services
previously provided by CenterPoint from another source.
Under the billing mechanisms provided for in the services agreements,
materially all attest services revenues earned by the Attest Firms would have
been payable to CenterPoint under the services agreements. 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 selling, general and
administrative expenses that would have been borne directly by the Attest
Firms, all as if the Mergers had been consummated on January 1, 1998.
<TABLE>
<CAPTION>
Year Ended Three Months Ended Three Months Ended
December 31, 1998 March 31, 1998 March 31, 1999
------------------- ------------------ ------------------
Increase/(Decrease) Increase/(Decrease) Increase/(Decrease)
------------------- ------------------ ------------------
<S> <C> <C> <C>
Professional services
revenues(1)............ $(66,040) $(24,694) $(27,347)
-------- -------- --------
Services agreement
fees................... 63,785 23,912 26,469
-------- -------- --------
Other operating
expenses............... (1,800) (639) (713)
-------- -------- --------
</TABLE>
- --------
(1) Some estimates were used by the CenterPoint Companies in developing attest
services revenues. Additionally, because the legal definition of "attest
services" varies from state to state, the CenterPoint 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 CenterPoint, the relatively immaterial
reduction to CenterPoint 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 CenterPoint'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 "Service agreements" fees
are based on estimates and are not necessarily representative of CenterPoint's
results of operations for any future period. Failure by one or more Attest
Firms to use CenterPoint's services could have a material adverse effect on
CenterPoint's revenue production capabilities.
F-13
<PAGE>
CENTERPOINT 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
CenterPoint 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 CenterPoint as follows:
<TABLE>
<CAPTION>
Three Months
Ended March
Year Ended 31,
December 31, --------------
1998 1998 1999
------------ ------ ------
<S> <C> <C> <C>
Professional Services:
Reznick..................................... $ 6,110 $4,356 $4,388
Mann Frankfort.............................. 5,566 729 (536)
Follmer..................................... 4,816 1,875 1,681
Berry Dunn.................................. 2,079 1,439 1,314
Urbach...................................... 3,082 1,435 1,462
Grace....................................... 576 (256) (415)
Holthouse................................... (2,729) (955) (1,362)
Simione..................................... 940 19 (356)
------- ------ ------
$20,440 $8,642 $6,176
======= ====== ======
Business and Financial Services:
Driver...................................... $ (100) (25) (25)
IDA......................................... 1,092 273 273
Reppond..................................... 548 548 548
------- ------ ------
$ 1,540 $ 796 $ 796
======= ====== ======
</TABLE>
The senior professionals of each professional services firm will enter firm-
specific incentive compensation agreements with CenterPoint. 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 "CenterPoint Base Earnings" which is a fixed dollar amount negotiated with
each professional services firm, and (y) the compensation and related costs of
any senior professional recorded in the historical accounts.
(C) Reflects the reduction in stock compensation to consultants of
CenterPoint which will not be ongoing activities of the Company in accordance
with the Employee Incentive Compensation Plan and employment agreements to be
effective upon completion of the offering, net of prospective salaries of
management of CenterPoint, pursuant to employment agreements.
(D) Reflects the amortization of $237,714 of goodwill to be recorded as a
result of the Mergers over a 40 year estimated life, net of amortization
expense already recorded in the accounts of the CenterPoint Companies of $666
in the year ended December 31, 1998, resulting in a net adjustment of $5,277.
Elimination of amortization expense already recorded in the accounts of the
CenterPoint Companies of $56 and $351 for the three months ended March 31, 1998
and 1999 resulted in net adjustments of $1,430 and $1,135, respectively.
F-14
<PAGE>
CENTERPOINT ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(E) Reflects the net reduction in interest expense associated with debt to
be paid in conjunction with the closing of this transaction, as follows:
<TABLE>
<CAPTION>
Three
Months
Ended
Year Ended March 31,
December 31, ---------
1998 1998 1999
------------ ---- ----
<S> <C> <C> <C>
Reznick.................................................. $ 207 $ 53 $ 45
Driver................................................... 939 11 381
Mann Frankfort........................................... 58 18 21
Follmer.................................................. -- 18 16
Berry Dunn............................................... 299 116 72
Urbach................................................... 600 127 144
IDA...................................................... 32 9 6
Grace.................................................... 17 19 29
Holthouse................................................ -- -- --
Reppond.................................................. 39 12 6
Simione.................................................. 29 9 14
------ ---- ----
$2,220 $392 $734
====== ==== ====
</TABLE>
(F) 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.
(G) 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) 3,681,309
shares issued to the initial investors in and management of CenterPoint; (ii)
12,569,367 shares to be issued to the owners of the CenterPoint Companies in
connection with the Mergers; and (iii) 10,500,000 shares representing the
number of shares sold in this offering, net of the underwriting discount
necessary to pay the $83,918 cash portion of the consideration for the Mergers
(excluding certain contingent payments described in Note 2), to repay certain
indebtedness of $28,378 of the CenterPoint Companies, to repay other
obligations of $4,250 and to pay estimated expenses of the offering.
Note 6--Attest Services
CenterPoint 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 CenterPoint will have no ownership
interest. Pursuant to non-exclusive services agreements, CenterPoint 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. Following the Mergers, CenterPoint's consolidated financial
statements will not include the Attest Firms because the services agreements
will not provide CenterPoint with a controlling financial interest in the
Attest Firms.
F-15
<PAGE>
CenterPoint 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
CenterPoint under the services agreements:
. Charges for professional staff performing work on attest
engagements. Time spent by CenterPoint's employees on attest
engagements will be recorded in the time and billing system and
billed at hourly rates negotiated by CenterPoint and the Attest
Firm.
. Charges for administrative and other support staff, premises
occupancy, equipment, utilities and similar items provided by
CenterPoint 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 CenterPoint 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 CenterPoint recovers the costs of
administering its relationship with the Attest Firm. Time incurred
by CenterPoint management to administer the client relationship
will be recorded in the time and billing system and billed at
hourly rates negotiated by CenterPoint and the Attest Firm.
CenterPoint 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. CenterPoint 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. Bills
will be generated based on the time and expenses charged to the engagement by
the partners who own the Attest Firms and CenterPoint's staff. CenterPoint'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 CenterPoint's funds.
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.
CenterPoint'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 CenterPoint'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,
CenterPoint 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
CenterPoint Advisors, Inc.
The stock split described in Note 1 to the financial statements has not been
consummated at April 5, 1999. When it has been consummated, we will be in
position to furnish the following report:
In our opinion, the accompanying balance sheet and the related statement of
operations present fairly, in all material respects, the financial position of
CenterPoint 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
April 5, 1999
F-17
<PAGE>
CENTERPOINT ADVISORS, INC.
BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash.................................................. $ -- $ 30
Deferred offering costs............................... 800 4,286
------- -------
Total assets...................................... $ 800 $ 4,316
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities................................... $ 1,107 $ 4,614
Payable to related parties............................ 892 1,145
------- -------
Total liabilities................................. 1,999 5,759
------- -------
Stockholders' equity:
Common stock, $.01 par value, 50,000,000 shares
authorized, 3,439,394 and 3,681,309 (unaudited)
shares issued and outstanding...................... 34 37
Additional paid-in capital.......................... 842 3,333
Retained deficit.................................... (1,961) (4,813)
Stock subscriptions receivable...................... (114) --
------- -------
Total stockholders' equity........................ (1,199) (1,443)
------- -------
Total liabilities and stockholders' equity........ $ 800 $ 4,316
======= =======
</TABLE>
F-18
<PAGE>
CENTERPOINT ADVISORS, INC.
STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Period from
November 9, 1998 Three Months
(inception date) Ended
through December March 31,
31, 1998 1999
---------------- ------------
(Unaudited)
<S> <C> <C> <C>
Total revenues.............................. $ -- $ --
--------- ---------
Operating expenses.......................... 1,961 2,852
--------- ---------
Loss before income taxes.................... (1,961) (2,852)
Provision for income taxes.................. -- --
--------- ---------
Net loss.................................... $ (1,961) $ (2,852)
========= =========
Net loss per share, basic and diluted....... $ (0.58) $ (0.83)
========= =========
Shares used in computing net loss per share
(see Note 2)............................... 3,370,666 3,436,779
========= =========
</TABLE>
F-19
<PAGE>
CENTERPOINT ADVISORS, INC.
STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Period from
November 30, 1998
(inception date) Three Months
through Ended
December 31, March 31,
1998 1999
----------------- ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................... $(1,961) $(2,852)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash compensation charge on stock
issuance................................... 729 2,448
Increase in deferred offering costs......... (800) (3,486)
Accrued expenses............................ 1,107 3,507
------- -------
Net cash used in operating activities....... (925) (383)
Cash flows from financing activities:
Proceeds from issuance of common stock........ -- 114
Proceeds from notes payable................... 925 299
------- -------
Net cash provided by financing activities... 925 413
------- -------
Net change in cash.......................... 0 30
Cash, beginning of period................... -- --
------- -------
Cash, end of period......................... $ 0 $ 30
======= =======
</TABLE>
F-20
<PAGE>
CENTERPOINT ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
Note 1--Business and Organization
CenterPoint Advisors, Inc. ("CenterPoint" or the "Company") was founded in
1998 to create a leading provider of professional, business and financial
services and products to middle-market clients. CenterPoint intends to acquire
eleven companies (the "Mergers") upon consummation of an initial public
offering of its common stock (the "Offering").
CenterPoint has not conducted any operations, and all activities to date
have related to the Offering and the Mergers. CenterPoint is dependent upon the
Offering to execute the pending Mergers. There is no assurance that the pending
Mergers discussed will be completed or that CenterPoint will be able to
generate future operating revenues.
In connection with the organization and initial capitalization of
CenterPoint, 3,369,344 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 , the Board of Directors approved several actions in
connection with the Offering. These actions included a 210.3605 stock split
which will occur prior to the effectiveness of the Company's Registration
Statement. All common stock related information included in the financial
statements has been adjusted to reflect this split.
Note 2--Significant Accounting Policies
Stock-Based Compensation:
CenterPoint 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:
Following the Offering, the Company will adopt Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). 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.
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-21
<PAGE>
CENTERPOINT ADVISORS, INC.
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. 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 March 31, 1999 and the results of
its operations and its cash flows for the three months ended March 31, 1999 as
presented in the accompanying unaudited interim financial statements.
Note 3--Stockholders' Equity
Issuance of Common Stock to Management Personnel:
During the period from November 9, 1998 (inception date) to December 31,
1998, 70,050 shares were issued to Rondol E. Eagle, Chief Integration Officer,
for $3 of consideration. During the quarter ended March 31, 1999, 31,554 shares
(unaudited) were issued to Dennis Bikun, chief accounting officer for $6
(unaudited) consideration, and 210,361 shares (unaudited) were issued to DeAnn
Brunts, chief financial officer. For accounting purposes, compensation expense
of $729 and $2,448 (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 quarter ended March 31, 1999, respectively.
Employee Incentive Compensation Plan:
Prior to the offering, the Company's Board of Directors and stockholders
will adopt 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. CenterPoint'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, CenterPoint 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 an
aggregate number of shares up to 7.5 percent of the total shares then
outstanding (less 75,000 shares issuable to non-employee directors as described
below) will be granted. Such options will be allocated among management of
CenterPoint and the employees of the CenterPoint 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
F-22
<PAGE>
CENTERPOINT ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
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
Prior to the closing of the Offering, CenterPoint plans to adopt 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 APB 25.
Note 4--Related Party Transactions
As of December 31, 1998 and March 31, 1999, CenterPoint has outstanding
payables to related parties of $892 and $1,060 (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 $42 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
three months ended March 31, 1999. Of these payables, $547 and $715 (unaudited)
were funded by BGL Capital as of December 31, 1998 and March 31, 1999,
respectively.
Note 5--Subsequent Events
CenterPoint has signed definitive agreements to acquire all of the
outstanding common stock of eleven companies ("CenterPoint Companies") to be
consummated contemporaneously with this Offering. The CenterPoint 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"); Holthouse Carlin & Van Trigt LLP ("Holthouse"); the Reppond
Companies ("Reppond"); and Simione, Scillia, Larrow & Dowling LLC ("Simione").
Concurrently with and as a condition to closing of the Offering, CenterPoint
will acquire all of the outstanding common stock of the CenterPoint Companies.
The Mergers will be accounted for using the purchase method of accounting with
CenterPoint being treated as the accounting acquiror in accordance with Staff
Accounting Bulletin No. 97 and APB 16.
F-23
<PAGE>
CENTERPOINT ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
The following table reflects the consideration to be paid in cash and shares
of Common Stock:
<TABLE>
<CAPTION>
Shares of
Cash(1) Common Stock
------- ------------
<S> <C> <C>
Reznick............................................... $16,899 1,810,553
Driver................................................ 500 2,944,445
Mann Frankfort........................................ 16,503 1,768,200
Follmer............................................... 13,600 1,457,143
Berry Dunn............................................ 6,821 931,357
Urbach Kahn........................................... 9,190 1,023,943
IDA................................................... 8,154 873,669
Grace................................................. 2,840 304,286
Holthouse............................................. 5,603 600,343
Reppond............................................... -- 447,428
Simione............................................... 3,808 408,000
------- ----------
Total............................................. $83,918 12,569,367
======= ==========
</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
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
$3,290. 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 CenterPoint'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, CenterPoint is requiring
that the CenterPoint Companies cease providing attest services prior to the
closing of the acquisition, if applicable. Following the closing, all attest
services formerly provided by the CenterPoint Companies will be provided by
newly created separate legal entities (the Attest Firms) which will be owned by
former owners of the CenterPoint Companies who are certified public
accountants. Pursuant to services agreements, CenterPoint will provide
professional and other personnel, equipment, office space and business and
administrative services necessary to operate the Attest Firms.
On April 7, 1999, CenterPoint filed a registration statement on Form S-1 for
this Offering.
F-24
<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-25
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 30,
--------------- March 31,
1997 1998 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 3,962 $ 5,774 $ 1,804
Fees receivable, net of allowance for doubtful
accounts of $3,036, $3,526 and $5,726 (unau-
dited), respectively............................ 11,934 14,528 24,207
Unbilled fees, at net realizable value........... 1,932 2,542 3,749
Deferred income taxes............................ 2,035 1,752 1,648
Prepaid expenses and other current assets........ 242 244 185
------- ------- -------
Total current assets........................... 20,105 24,840 31,593
Property and equipment, net........................ 2,389 2,863 2,534
Cash surrender value of life insurance............. 580 558 558
Intangible assets, net............................. 414 403 395
Deferred income taxes.............................. 1,147 1,327 1,379
------- ------- -------
Total assets................................... $24,635 $29,991 $36,459
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt.................................. $ -- $ -- $ 1,400
Current portion of long-term debt................ 1,201 1,063 1,380
Accounts payable and accrued expenses............ 1,347 1,217 1,026
Accrued compensation and related costs to
employees....................................... 1,384 2,274 1,635
Accrued compensation and related costs to
shareholders.................................... 13,252 18,214 22,446
Deferred compensation due to former shareholders
and shareholder................................. 106 91 91
------- ------- -------
Total current liabilities...................... 17,290 22,859 27,978
Long-term debt..................................... 1,150 999 2,439
Deferred compensation due to former shareholders... 963 865 765
Accrued bonus...................................... 2,090 2,347 2,474
------- ------- -------
Total liabilities.............................. 21,493 27,070 33,656
------- ------- -------
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 1,381
------- ------- -------
Total shareholders' equity..................... 3,142 2,921 2,803
------- ------- -------
Total liabilities and shareholders' equity..... $24,635 $29,991 $36,459
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-26
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
CONSOLIDATED STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Six Months
Ended September 30, Ended March 31,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Professional services........... $31,483 $35,103 $47,877 $27,887 $31,552
------- ------- ------- ------- -------
Expenses:
Shareholder and officer
compensation and related
costs.......................... 7,784 8,170 13,516 10,782 11,528
Employee compensation and
related costs.................. 17,477 19,617 25,792 12,766 15,413
Occupancy costs................. 1,977 2,363 2,746 1,355 1,427
Office operating expenses....... 669 958 1,020 555 612
Depreciation and amortization... 732 869 984 571 544
Other selling, general and
administrative expenses........ 2,853 3,340 3,752 1,875 2,104
------- ------- ------- ------- -------
31,492 35,317 47,810 27,904 31,628
------- ------- ------- ------- -------
Operating income (loss)....... (9) (214) 67 (17) (76)
------- ------- ------- ------- -------
Other (income) expense:
Interest expense................ 399 430 543 185 146
Interest income................. (53) (242) (40) (18) (62)
Other........................... (125) (122) (112) (27) 10
------- ------- ------- ------- -------
221 66 391 140 94
------- ------- ------- ------- -------
Loss before benefit for income
taxes............................ (230) (280) (324) (157) (170)
Benefit for income taxes.......... (74) (81) (103) (48) (52)
------- ------- ------- ------- -------
Net loss.......................... $ (156) $ (199) $ (221) $ (109) $ (118)
======= ======= ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-27
<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)......... -- -- -- (118) (118)
----- ----- ------ ------ ------
Balance at March 31, 1999
(unaudited)................... 2,900 $ -- $1,422 $1,381 $2,803
===== ===== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-28
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Six Months
Ended September 30, Ended March 31,
------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activi-
ties:
Net loss....................... $ (156) $ (199) $ (221) $ (109) $ (118)
Adjustments to reconcile net
income to net cash
provided by (used in) operat-
ing activities:
Depreciation and amortiza-
tion........................ 732 869 984 571 544
Changes in deferred income
taxes....................... 74 81 103 48 52
Changes in operating assets
and liabilities:
Fees receivable............ (1,273) (163) (2,594) 1,078 (9,679)
Unbilled fees.............. (234) 64 (610) (10,378) (1,207)
Prepaid expenses and other
assets.................... 81 (215) 20 168 59
Accounts payable and ac-
crued expenses............ (119) 219 (130) (8) (191)
Accrued compensation and
related costs............. 552 (138) 890 (106) (639)
Accrued compensation and
related costs to
shareholders.............. 1,572 929 4,962 5,606 4,232
Accrued bonus.............. 183 203 257 105 127
------- ------- ------- -------- -------
Net cash provided by
(used in) operating
activities.............. 1,412 1,650 3,661 (3,025) (6,820)
------- ------- ------- -------- -------
Cash flows from investing activi-
ties:
Purchase of property and equip-
ment.......................... (684) (1,317) (1,447) (1,029) (207)
Business acquisition (net of
cash acquired)................ -- 9 -- -- --
------- ------- ------- -------- -------
Net cash used in invest-
ing activities.......... (684) (1,308) (1,447) (1,029) (207)
------- ------- ------- -------- -------
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) (718) (568)
Borrowings under short-term
agreements.................... -- -- -- 1,000 1,400
Payments to former sharehold-
ers........................... (84) (111) (113) (119) (100)
Loan from shareholders......... 643 641 647 647 897
Payments to shareholders....... (643) (641) (647) (12) (2)
------- ------- ------- -------- -------
Net cash (used in) pro-
vided by financing
activities.............. (162) 509 (402) 1,882 3,057
------- ------- ------- -------- -------
Net increase (decrease) in cash
and cash equivalents............ 566 851 1,812 (2,172) (3,970)
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 $ 1,790 $ 1,804
======= ======= ======= ======== =======
Supplemental disclosure of cash
flow information:
Cash paid during the period
for:
Interest..................... $ 268 $ 264 $ 209 $ 185 $ 146
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 li-
ability....................... $ -- $ 871 $ -- $ -- $ --
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-29
<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. Any anticipated losses expected to be incurred
in connection with the completion of a project are recognized when 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.
F-30
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
NOTES TO CONSOLIDATED 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 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 March 31, 1999, and
the results of its operations and its cash flows for the six months ended March
31, 1998 and 1999, as presented in the accompanying unaudited interim
financial statements.
F-31
<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-32
<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,
---------------- March 31,
1997 1998 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Property and equipment, net:
Leasehold improvements................... $ 506 $ 589 $ 553
Furniture and fixtures................... 1,941 2,307 2,493
Land..................................... 67 67 67
Buildings................................ 460 445 445
Equipment................................ 2,712 3,322 2,590
------- ------- -------
5,686 6,730 6,148
Less accumulated depreciation and
amortization.............................. (3,297) (3,867) (3,614)
------- ------- -------
$ 2,389 $ 2,863 $ 2,534
======= ======= =======
Intangible assets, net:
Goodwill................................. $ 414 $ 414 $ 414
Less accumulated amortization............ -- (11) (19)
------- ------- -------
$ 414 $ 403 $ 395
======= ======= =======
Accounts payable and accrued liabilities:
Accrued insurance........................ $ 253 $ 353 $ 510
Accrued rent............................. 389 296 246
Accrued legal............................ 250 250 --
Other.................................... 455 318 270
------- ------- -------
$ 1,347 $ 1,217 $ 1,026
======= ======= =======
</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 31, Six Months
------------------------- Ended March
1996 1997 1998 31, 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 3,225
Write-offs............................... (4,723) (5,885) (8,127) (1,025)
------- ------- ------- -------
Balance at end of period................. $ 2,116 $ 3,036 $ 3,526 $ 5,726
======= ======= ======= =======
</TABLE>
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:
F-33
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
(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.
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
F-34
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
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 annually on May 31. Upon expiration, the Short-Term Credit Agreement
may be renewed, with the consent of the bank, annually. No cash borrowings were
outstanding under this agreement at September 30, 1997 or 1998. At March 31,
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,
---------------- March 31,
1997 1998 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Loans from bank.............................. $ 1,687 $ 1,719 $2,643
Mortgage loans............................... 289 281 281
Note payable................................. 125 62 --
Note payable to bank......................... 250 -- --
Loan from shareholders....................... -- -- 895
------- ------- ------
2,351 2,062 3,819
Less current portion......................... (1,201) (1,063) (1,380)
------- ------- ------
Total...................................... $ 1,150 $ 999 $2,439
======= ======= ======
</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.
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.
F-35
<PAGE>
REZNICK FEDDER & SILVERMAN, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
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, $146 (unaudited) and $185 (unaudited)
for the fiscal years ended September 30, 1996, 1997 and 1998 and the six months
ended March 31, 1998 and 1999, respectively.
NOTE 8--INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
Fiscal Year Six Months
Ended September Ended March
30, 31,
----------------- ------------
1996 1997 1998 1998 1999
---- ---- ----- ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Deferred tax expense:
Federal................................ $(64) $(71) $ (90) $ (42) $ (45)
State.................................. (10) (10) (13) (6) (7)
---- ---- ----- ----- -----
Total benefit for income taxes....... $(74) $(81) $(103) $ (48) $ (52)
==== ==== ===== ===== =====
</TABLE>
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
September 30,
------------- March 31,
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Accrual to cash adjustment..................... $2,035 $1,752 $1,648
Accrued bonuses................................ 836 939 991
Depreciation................................... 280 367 367
Net operating loss carryforwards............... 31 21 21
------ ------ ------
Net deferred tax assets.......................... $3,182 $3,079 $3,027
====== ====== ======
Net current deferred tax asset................... $2,035 $1,752 $1,648
Net long-term deferred tax asset................. 1,147 1,327 1,379
------ ------ ------
Net deferred tax asset........................... $3,182 $3,079 $3,027
====== ====== ======
</TABLE>
F-36
<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>
Fiscal Year Six Months
Ended Ended March
September 30, 31,
------------------ --------------
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 9 9
--- --- --- ----- -----
Total provision..................... (32)% (29)% (32)% (31)% (31)%
=== === === ===== =====
</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 six months ended March 31, 1998 and 1999 was
approximately $1,977, $2,363, $2,745, $1,355 (unaudited) and $1,427
(unaudited), respectively.
F-37
<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 six months ended March
31, 1998 and 1999 totaled $179, $254, $317, $184 (unaudited) and $288
(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 CenterPoint Advisors, Inc. (CenterPoint) pursuant to which,
following the conversion of the Company from a professional corporation to a
business corporation, a wholly-owned subsidiary of CenterPoint will merge with
and into the Company. All of the Company's outstanding shares will be exchanged
for cash and common stock of CenterPoint concurrently with the consummation of
the initial public offering of the common stock of CenterPoint.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, CenterPoint 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, CenterPoint
will provide professional and other personnel, equipment, office space and
business and administrative services necessary to operate the Attest Firm.
F-38
<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 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, 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 10, 1999
F-39
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Robert F. Driver Co., Inc.:
We have audited the accompanying consolidated balance sheet of Robert F. Driver
Co., Inc. and subsidiaries (the Company) as of July 31, 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the two-year period 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Robert F. Driver
Co., Inc. and subsidiaries as of July 31, 1997 and the results of their
operations and their cash flows for each of the years in the two-year period
ended July 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
KPMG LLP
San Diego, California
September 10, 1997
F-40
<PAGE>
ROBERT F. DRIVER CO., INC.
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
July 31,
-------------------- January 31,
1997 1998 1999
------------ ------- -----------
(Predecessor (Unaudited)
Company) (Successor Company)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 798 $ 2,356 $ 2,989
Premium trust cash......................... 22,053 22,855 12,155
Insurance premiums receivable.............. 8,689 11,665 11,005
Other current assets....................... 230 1,935 719
------- ------- -------
Total current assets..................... 31,770 38,811 26,868
Property and equipment, net.................. 1,214 1,151 1,275
Goodwill, net................................ -- 17,895 20,626
Customer lists acquired, net................. 938 826 770
Deferred income taxes........................ 433 889 905
Other assets................................. 92 800 786
------- ------- -------
Total assets............................. $34,447 $60,372 $51,230
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt............................ $ -- $ 253 $ 253
Current portion of long-term debt.......... 219 1,267 1,789
Accounts payable and accrued expenses...... 4,903 6,005 3,883
Insurance premiums payable................. 23,670 26,250 18,639
Income taxes payable....................... 256 616 --
------- ------- -------
Total current liabilities................ 29,048 34,391 24,564
Long-term debt, net of current portion....... 356 14,263 15,083
Deferred compensation........................ 590 1,331 1,325
------- ------- -------
Total liabilities........................ 29,994 49,985 40,972
------- ------- -------
Class A redeemable preferred stock, $.01 par
value: authorized, issued and outstanding
4,000 shares at July 31, 1998 and January
31, 1999 (unaudited); 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
January 31, 1999 (unaudited).............. -- 7 9
Common stock, $1 par value: authorized
1,650,000 shares; issued and outstanding
1,031,568 shares at July 31, 1997......... 1,032 -- --
Additional paid-in capital................. 418 6,711 8,334
Retained earnings (deficit)................ 3,368 509 (380)
Unearned compensation...................... -- -- (865)
Unearned ESOP contribution................. (365) -- --
------- ------- -------
4,453 7,227 7,098
Stockholder notes receivable............... -- (840) (840)
------- ------- -------
Total stockholders' equity............... 4,453 6,387 6,258
------- ------- -------
Total liabilities and stockholders' equi-
ty...................................... $34,447 $60,372 $51,230
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-41
<PAGE>
ROBERT F. DRIVER CO., INC.
CONSOLIDATED STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Six Months Ended
Ended July 31, Period From January 31,
---------------- ---------------------------- -----------------------
August 1, 1997 June 1, 1998
Through Through
1996 1997 May 31, 1998 July 31, 1998 1998 1999
------- ------- -------------- ------------- ------------ ----------
(Unaudited)
(Predecessor Company) (Successor (Predecessor (Successor
Company) Company) Company)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Commissions and fees.. $26,939 $28,170 $24,446 $8,440 $13,474 $14,891
------- ------- ------- ------ ------- -------
Expenses:
Producer
compensation......... 13,074 12,965 11,630 3,792 6,553 6,626
Employee compensation
and related costs.... 7,261 7,433 6,760 1,715 4,011 5,511
Occupancy costs....... 1,453 1,378 1,144 230 667 714
Office operating
expenses............. 716 759 650 230 355 449
Depreciation and
amortization......... 329 463 656 337 305 976
Other selling, general
and administrative
expenses............. 3,716 3,948 2,162 1,222 1,334 1,615
------- ------- ------- ------ ------- -------
26,549 26,946 23,002 7,526 13,225 15,891
------- ------- ------- ------ ------- -------
Operating income
(loss)............. 390 1,224 1,444 914 249 (1,000)
------- ------- ------- ------ ------- -------
Other (income) expense:
Interest expense...... 70 42 36 220 18 801
Interest income....... (580) (654) (599) (193) (399) (459)
Other................. (109) (213) (161) (6) (5) (255)
------- ------- ------- ------ ------- -------
(619) (825) (724) 21 (386) 87
------- ------- ------- ------ ------- -------
Income (loss) before
provision for income
taxes.................. 1,009 2,049 2,168 893 635 (1,087)
Provision (benefit) for
income taxes........... 354 933 970 384 290 (376)
------- ------- ------- ------ ------- -------
Net income (loss)....... $ 655 $ 1,116 $ 1,198 $ 509 $ 345 $ (711)
======= ======= ======= ====== ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-42
<PAGE>
ROBERT F. DRIVER CO., INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Class A Total
Common Stock Common Stock Additional Retained Stockholder Unearned Stockholders'
-------------- ------------------- Paid-In Earnings Notes Unearned ESOP -------------
Shares Amount Shares Amount Capital (Deficit) Receivable Compensation Contributions Equity
------- ------ ---------- ------- ---------- -------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July
31, 1995........ -- $ -- 1,018,697 $ 1,019 $ 10 $ 1,750 $ -- $ -- $ (389) $ 2,390
Net income...... -- -- -- -- -- 655 -- -- -- 655
Stock
repurchased and
retired........ -- -- (25) -- (1) -- -- -- -- (1)
Advances and
unearned
contributions
to ESOP........ -- -- -- -- -- -- -- -- (1,340) (1,340)
Allocation of
contributions
to ESOP........ -- -- -- -- -- -- -- -- 900 900
Repayment by
ESOP of
unearned
compensation... -- -- -- -- -- -- -- -- 64 64
------- ----- ---------- ------- ------ ------- ------- ----- ------ -------
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
Unaudited data:
Net income...... -- -- -- -- -- (711) -- -- -- (711)
Issuance of
Class A
Common Stock... 135,000 2 -- -- 1,348 -- -- (865) -- 485
Issuance of
warrants....... -- -- -- -- 275 -- -- -- -- 275
Dividends paid.. -- -- -- -- -- (178) -- -- -- (178)
------- ----- ---------- ------- ------ ------- ------- ----- ------ -------
Balance at
January 31, 1999
(unaudited)..... 873,540 $ 9 -- $ -- $8,334 $ (380) $ (840) $(865) $ -- $ 6,258
======= ===== ========== ======= ====== ======= ======= ===== ====== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-43
<PAGE>
ROBERT F. DRIVER CO., INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Period From
----------------------------
Fiscal Year Six Months
Ended July 31, August 1, 1997 June 1, 1998 Ended January 31,
--------------- Through Through -----------------------
1996 1997 May 31, 1998 July 31, 1998 1998 1999
------- ------ -------------- ------------- ------------ ----------
(Unaudited)
(Predecessor Company) (Successor (Predecessor (Successor
Company) Company) Company)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income (loss)...... $ 655 $1,116 $ 1,198 $ 509 $ 345 $ (711)
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Stock based
compensation........ -- -- -- -- -- 85
Depreciation and
amortization........ 329 463 656 337 305 976
Change in deferred
income taxes........ 46 (342) (217) (239) (106) (16)
Changes in operating
assets and
liabilities:
Premium trust
cash.............. 332 (4,788) 7,348 (8,150) 11,440 10,700
Insurance premiums
receivable........ 352 801 (3,636) 659 738 660
Other assets....... (173) 301 (579) (157) (144) (841)
Accounts payable
and accrued
expenses.......... 567 17 (870) 1,972 (1,502) (2,122)
Insurance premiums
payable........... (1,658) 2,129 (2,797) 5,377 (9,576) (7,611)
Income taxes
payable........... 65 139 249 111 (611) (616)
Deferred
compensation...... -- 590 500 241 260 (6)
------- ------ -------- ------- ------- -------
Net cash provided
by operating
activities....... 515 426 1,852 660 1,149 498
------- ------ -------- ------- ------- -------
Cash flows from
investing activities:
Purchase of predecessor
company............... -- -- (17,064) -- -- --
Purchase of Sedgwick of
California............ -- -- -- -- -- (2,750)
Purchase of Ochinero... -- -- -- -- -- (250)
Purchases of equipment
and leasehold
improvements.......... (382) (351) (479) (51) (208) (468)
Collections on notes
receivable............ 55 49 -- -- -- --
Purchase of customer
lists................. -- (193) -- -- -- --
Cash received in
acquisition of Cal-
Central............... -- 4 -- -- -- --
------- ------ -------- ------- ------- -------
Net cash used in
investing
activities....... (327) (491) (17,543) (51) (208) (3,468)
------- ------ -------- ------- ------- -------
Cash flows from
financing activities:
Proceeds from debt
issuance.............. -- -- 16,178 -- -- 1,924
Proceeds from revolving
line of credit........ 500 -- 253 -- -- --
Principal payments on
debt.................. (669) (294) (1,027) (202) (11) (582)
Repurchase of common
stock................. (1) (170) -- -- (102) --
Proceeds from issuance
of common stock
warrants.............. -- -- 730 -- -- 275
Proceeds from issuance
of common stock....... -- -- -- -- -- 400
Payments received on
stockholder notes..... -- -- -- 343 -- 1,764
Dividends paid......... -- -- -- -- -- (178)
Contributions
(advances) to ESOP.... (440) 400 (542) -- -- --
Repayment received from
ESOP.................. 64 -- 907 -- -- --
------- ------ -------- ------- ------- -------
Net cash (used in)
provided by
financing
activities....... (546) (64) 16,499 141 (113) 3,603
------- ------ -------- ------- ------- -------
Net (decrease) increase
in cash and cash
equivalents............ (358) (129) 808 750 828 633
Cash and cash
equivalents at
beginning of period.... 1,285 927 798 1,606 798 2,356
------- ------ -------- ------- ------- -------
Cash and cash
equivalents at end of
period................. $ 927 $ 798 $ 1,606 $ 2,356 $ 1,626 $ 2,989
======= ====== ======== ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-44
<PAGE>
ROBERT F. DRIVER CO., INC.
CONSOLIDATED STATEMENT OF CASH FLOWS--(Continued)
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year
Ended
July 31, Period From
------------ ----------------------------
August 1, 1997 June 1, 1998
Through Through
1996 1997 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........................ $ 66 $ 42 $ 220 $ 36
Income taxes.................... $244 $ 1,135 $ 512 $ 938
Supplementary disclosure of noncash
investing activities:
The Company's 1997 business
acquisitions involved the
following:
Fair value of assets acquired
other than cash and cash
equivalents.................... $-- $ 1,166 $ 30,230 $ --
Liabilities assumed............. -- (1,184) (26,957) --
---- ------- -------- -----
Net liabilities assumed, other
than cash and cash
equivalents.................. $-- $ (18) $ 3,273 $ --
==== ======= ======== =====
Supplementary disclosure of noncash
financing activities:
Issuance of common stock for
acquisitions..................... $-- $ 439 $ 3,776 $ --
Debt assumed in acquisitions...... $-- $ 219 $ 455 $ --
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-45
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except 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 three wholly-owned subsidiaries, FHI Benefit Plans, Inc., Robert F.
Driver of Nevada, Inc. and Cal-Central Insurance and Management Services, Inc.
(Cal-Central).
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-46
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except 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 5 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 related to the Transaction 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
are being 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 as events or circumstances indicate a
possibility to recover their carrying amount.
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.
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 1998, 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-47
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except 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 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.
New Accounting Standards:
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income." The
Company plans to adopt this Statement in fiscal year 1999. The Company believes
that this Statement will not require any significant information beyond that
already provided in the Company's consolidated financial statements.
Reclassifications:
Certain reclassifications have been made to 1996 and 1997 financial
statements to conform to current year presentation. The reclassifications have
no impact on previously reported net income or stockholders' equity.
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 January 31, 1999 and
the results of its operations and its cash flows for the six months ended
January 31, 1998 and 1999, as presented in the accompanying unaudited interim
financial statements.
F-48
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Per Share)
NOTE 4--BUSINESS COMBINATIONS
On July 31, 1997 at the close of business, the Company acquired all of the
outstanding shares of common stock of Cal-Central in exchange for 21,081 shares
of the Company's common stock. Cal-Central is a general insurance agency in
Fresno, California.
The acquisition was accounted for as a purchase. The purchase price has been
allocated to tangible and intangible assets acquired and liabilities assumed
based on the fair market values on the date of the acquisition. The allocation
of purchase price is summarized as follows:
<TABLE>
<S> <C>
Cash............................................................... $ 4
Premium trust cash................................................. 903
Insurance premiums receivable...................................... 215
Equipment.......................................................... 48
Notes payable...................................................... (48)
Insurance premiums payable......................................... (1,084)
Accounts payable and accrued expenses.............................. (52)
Customer list...................................................... 453
------
Cash value of shares issued...................................... $ 439
======
</TABLE>
F-49
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Per Share)
NOTE 5--SELECTED FINANCIAL STATEMENT INFORMATION
<TABLE>
<CAPTION>
July 31,
-----------------------
1997 1998
------------ ----------
(Predecessor (Successor
Company) Company)
<S> <C> <C>
Other current assets:
Current portion of
employee receivable.... $ 41 $ 18
Stockholder notes
receivable............. -- 1,759
Prepaid expenses and
other.................. 189 158
------- -------
$ 230 $ 1,935
======= =======
Property and equipment,
net:
Furniture and fixtures.. $ 1,418 $ 184
Computer equipment...... 2,290 1,062
Leasehold improvements.. 588 50
------- -------
4,296 1,296
Less accumulated
depreciation and
amortization........... (3,082) (145)
------- -------
$ 1,214 $ 1,151
======= =======
Intangible assets, net:
Goodwill................ $ -- $17,969
Customer lists.......... 1,121 1,121
------- -------
1,121 19,090
Less accumulated
amortization............. (183) (369)
------- -------
$ 938 $18,721
======= =======
Other assets:
Cash surrender value of
life insurance......... $ 12 $ 13
Employee receivable, net
of current portion..... 52 6
Deferred financing
costs.................. -- 329
Other................... 28 452
------- -------
$ 92 $ 800
======= =======
Accounts payable and
accrued expenses:
Producers' commissions.. $ 3,148 $ 4,080
Accrued personnel costs,
vacation and bonuses... 700 953
Other................... 1,055 972
------- -------
$ 4,903 $ 6,005
======= =======
</TABLE>
F-50
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Per Share)
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 (8.75
percent at July 31, 1998). Under this agreement, $253 was outstanding at July
31, 1998.
In 1996 and 1997, the Company had a revolving credit agreement with a bank
which provides a line of credit up to $2,000 through February 23, 1998 at the
prime rate plus .25 percent. Under this agreement, no borrowings were
outstanding at July 31, 1997. There were no borrowings under this agreement
during the year ended July 31, 1997.
Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
July 31,
-----------------------
1997 1998
------------ ----------
(Predecessor (Successor
Company) 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 8.75% at July 31, 1998), with a
balloon payment of $4,470 due on May 15, 2003......... $-- $11,840
$4,000 unsecured senior subordinated debt. Interest
payable quarterly at rate of 12%. Principal due May
28, 2005.............................................. -- 3,295
$510 note payable, secured by various assets. Principal
and interest of $11 payable monthly at prime plus .25%
(effective rate of 8.75% at July 31, 1998), maturing
July 26, 1999......................................... 227 120
$219 unsecured note payable, principal and interest of
$16 payable quarterly at a rate of 8% through April
30, 2001.............................................. 207 158
$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.................................. 75 39
$59 unsecured note payable to related party, principal
and interest of $1 payable monthly at a rate of 12%
through April 13, 2001................................ 48 37
$80 unsecured note payable to related party, principal
of $20 and interest payable
annually at an imputed rate of 8% through February 1,
1998................................................. 18 --
---- -------
575 15,530
Less current portion of long-term debt................. (219) (1,267)
---- -------
Long-term debt, net of current portion................. $356 $14,263
==== =======
</TABLE>
F-51
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Per Share)
Maturities of long-term debt as of July 31, 1998, are as follows:
<TABLE>
<CAPTION>
Fiscal Year:
------------
<S> <C>
1999.............................................................. $ 1,267
2000.............................................................. 1,475
2001.............................................................. 1,873
2002.............................................................. 1,800
2003.............................................................. 5,820
Thereafter........................................................ 3,295
-------
Total maturities of long-term debt.............................. $15,530
=======
</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 in compliance with these requirements at July
31, 1998 and January 31, 1999 (unaudited).
Note 7--INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
Fiscal Year Six Months
Ended July 31, Period From Ended January 31,
--------------- ---------------------------- -----------------------
August 1, 1997 June 1, 1998
Through Through
1996 1997 May 31, 1998 July 31, 1998 1998 1999
--------------- -------------- ------------- ------------ ----------
(Unaudited)
(Predecessor Company) (Successor (Predecessor (Successor
Company) Company) Company)
<S> <C> <C> <C> <C> <C> <C>
Income taxes, currently
payable:
Federal............... $ 231 $ 991 $ 923 $ 495 $ 311 $(283)
State................. 78 283 264 128 85 (77)
------ -------- ------ ----- ----- -----
309 1,274 1,187 623 396 (360)
------ -------- ------ ----- ----- -----
Deferred:
Federal............... 31 (282) (172) (199) (88) (1)
State................. 14 (59) (45) (40) (18) (15)
------ -------- ------ ----- ----- -----
45 (341) (217) (239) (106) (16)
------ -------- ------ ----- ----- -----
$ 354 $ 933 $ 970 $ 384 $ 290 $(376)
====== ======== ====== ===== ===== =====
</TABLE>
F-52
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Per Share)
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,
---------------------- January 31,
1997 1998 1999
------------ --------- -------------
(Predecessor (Unaudited)
Company) (Successor Company)
<S> <C> <C> <C>
Deferred tax assets:
Deferred compensation.................. $ 259 $ 530 $ 574
State taxes............................ 94 134 --
Errors and omissions liability......... 113 120 120
Compensated absences and bonuses,
principally due to accrual for
financial reporting purposes.......... 100 130 130
Amortization of agency acquisitions.... 12 41 39
Allowance for bad debt................. -- 10 6
Deferred financing costs............... -- -- 64
----- --------- ---------
Total deferred tax assets............ 578 965 933
----- --------- ---------
Deferred tax liabilities:
Equipment and leasehold improvements,
principally due to differences in
depreciation.......................... (145) (76) (23)
State taxes............................ -- -- (5)
----- --------- ---------
Total deferred tax liabilities....... (145) (76) (28)
----- --------- ---------
Net deferred tax assets.................. $ 433 $ 889 $ 905
===== ========= =========
</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.
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
Fiscal
Year
Ended Six Months Ended
July 31, Period From January 31,
---------- ---------------------------- -----------------------
August 1, 1997 June 1, 1998
Through Through
1996 1997 May 31, 1998 July 31, 1998 1998 1999
---- ---- -------------- ------------- ------------ ----------
(Unaudited)
(Successor (Predecessor (Successor
(Predecessor Company) Company) Company) Company)
<S> <C> <C> <C> <C> <C> <C>
Computed expected income
taxes.................. 34% 34% 34% 34% 34% (34)%
State income taxes, net
of federal income tax
benefit................ 7 7 7 6 7 (5)
Other, net.............. (6) 4 3 5 5 4
--- --- --- --- --- ---
35% 45% 44% 45% 46% (35)%
=== === === === === ===
</TABLE>
F-53
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Per Share)
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 $849 and $781 in 1996 and 1997 and $968 for the period from August
1, 1997 to May 31, 1998 and $199 for the period from June 1, 1998 to July 31,
1998.
Future minimum rental payments at July 31, 1998, under agreements classified
as operating leases with noncancelable terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
Fiscal Year:
------------
<S> <C>
1999................................................................ $1,213
2000................................................................ 1,081
2001................................................................ 1,086
2002................................................................ 992
2003................................................................ 962
Thereafter.......................................................... 3,550
------
$8,884
======
</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 no matching employer contributions.
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 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 and $241 for the
period from June 1, 1998 through July 31, 1998.
F-54
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Per Share)
Employee Stock Option Plan (ESOP):
In 1996 and 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, 1996 and 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 years ended July 31, 1996 and 1997, the Company
contributed $900 and $800, respectively, 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 (Unaudited):
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 45,000 shares of its Class A Common
Stock during February 1999. These rights were all exercised during February
1999.
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 1998,
and at 10 percent annually thereafter. Payment of dividends or 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. Payments
made in August 1998, totaling $1,759, have been classified as an other current
asset on the balance sheet.
F-55
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except Per Share)
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 as of July 31, 1998) is
included in additional paid-in capital.
The Company also 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 deferred financing costs.
Class B and Class C Common:
On November 12, 1997, the Company authorized 10,000,000 shares of Class B
Common Stock and 5,000,000 shares of Class C Common Stock. Both Class B and
Class C have a par value of $.01 per share, and no shares of either were
outstanding as of July 31, 1998 or January 31, 1999 (unaudited).
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 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
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 included 65,000 shares which were
unrestricted, but are subject to the aforementioned stock repurchase option.
The remaining 30,000 shares were 20 percent vested upon issuance, with the
remainder subject to a four year vesting period. 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 instalments 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 January 31, 1999, these amounts totalling $191 are
included in other current assets.
F-56
<PAGE>
ROBERT F. DRIVER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands, Except 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--SUBSEQUENT EVENTS (Unaudited)
During November 1998, the Company acquired all of the assets of Sedgwick of
California and Ochinero/Barlocken for a purchase price of $2,583 and $227,
respectively. During March 1999, the Company acquired all the assets of
Averbeck and Sher Insurance Services for a purchase price of $4,989 and $2,648,
respectively.
Immediately following the acquisition of Sedgwick, the Company issued to
certain key executives of Sedgwick 8,500 shares of Class A Common Stock. The
shares are unrestricted, but are subject to the stock repurchase option
described in Note 10.
In March 1999, the Company and its stockholders entered into a definitive
agreement with CenterPoint Advisors, Inc. (CenterPoint) pursuant to which the
Company will merge with a wholly-owned subsidiary of CenterPoint. All of the
Company's outstanding shares of common stock will be exchanged for cash and
common stock of CenterPoint concurrently with the consummation of the initial
public offering of the common stock of CenterPoint.
F-57
<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
January 29, 1999
F-58
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 288 $ 606 $ 1,604
Fees receivable, less allowance for doubtful
accounts of $1,124, $1,356 and $1,596 (unaudited),
respectively...................................... 3,475 4,077 6,532
Unbilled fees, at net realizable value............. 628 431 1,186
Due from principals................................ 119 14 18
Prepaid expenses and other current assets.......... 75 81 143
------ ------ -------
Total current assets............................. 4,585 5,209 9,483
Property and equipment, net.......................... 874 1,142 1,174
Other assets......................................... 6 6 6
------ ------ -------
Total assets..................................... $5,465 $6,357 $10,663
====== ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................. $ 160 $ 879 $ 851
Accounts payable................................... 68 23 374
Accrued compensation and related costs............. 133 126 1,292
Income taxes payable............................... 2 27 (4)
Deferred income taxes.............................. 1,420 1,569 2,491
------ ------ -------
Total current liabilities........................ 1,783 2,624 5,004
Long-term debt....................................... 794 473 799
Deferred income taxes................................ 71 85 95
------ ------ -------
Total liabilities................................ 2,648 3,182 5,898
------ ------ -------
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 4,702
------ ------ -------
Total shareholders' equity....................... 2,817 3,175 4,765
------ ------ -------
Total liabilities and shareholders' equity....... $5,465 $6,357 $10,663
====== ====== =======
</TABLE>
See accompanying Notes to Financial Statements.
F-59
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
------------------------ ----------------------
1996 1997 1998 1998 1999
------ ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Professional services...... $9,921 $17,475 $21,631 $ 5,889 $ 8,324
------ ------- ------- ------- -------
Expenses:
Member compensation and
related costs............. 4,412 6,636 8,921 1,317 1,572
Employee compensation and
related costs............. 3,608 6,405 8,829 2,269 2,966
Occupancy costs............ 317 527 659 139 198
Office operating expenses.. 776 1,398 1,670 400 616
Other selling, general and
administrative expenses... 670 1,071 1,018 472 440
------ ------- ------- ------- -------
9,783 16,037 21,097 4,597 5,792
------ ------- ------- ------- -------
Operating income......... 138 1,438 534 1,292 2,532
------ ------- ------- ------- -------
Other (income) expense:
Interest expense........... 32 32 58 18 21
Interest income............ (20) (31) (69) (3) (6)
Other...................... (6) (2) (26) 9 (2)
------ ------- ------- ------- -------
6 (1) (37) 24 13
------ ------- ------- ------- -------
Income before provision for
income taxes................ 132 1,439 571 1,268 2,519
Provision for income taxes... 58 557 213 469 932
------ ------- ------- ------- -------
Net income................... $ 74 $ 882 $ 358 $ 799 $ 1,587
====== ======= ======= ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-60
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
STATEMENT OF SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------- Paid-in- Treasury Retained Shareholders'
Shares Amount Capital Stock Earnings Equity
------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 1,180 $ 1 $108 $(85) $1,221 $1,245
Issuances of common
stock................ -- -- 35 -- -- 35
Net income............ -- -- -- -- 74 74
----- --- ---- ---- ------ ------
Balance at December 31,
1996................... 1,180 1 143 (85) 1,295 1,354
Cancellation of
treasury stock....... -- -- (85) 85 -- --
Issuances of common
stock for pooling of
interests business
combination.......... 393 1 -- -- 580 581
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............ -- -- -- -- 1,587 1,587
----- --- ---- ---- ------ ------
Balance at March 31,
1999 (unaudited)....... 1,574 $ 2 $ 61 $-- $4,702 $4,765
===== === ==== ==== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-61
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
--------------------- ----------------
1996 1997 1998 1998 1999
----- ------- ----- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $ 74 $ 882 $ 358 $ 799 $ 1,587
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization..... 139 132 266 51 68
Change in deferred income taxes... 37 758 163 932 932
Changes in operating assets and
liabilities:
Fees receivable................. (90) (1,856) (602) (1,108) (2,455)
Unbilled fees................... (37) (246) 197 (617) (755)
Prepaid expenses and other
current assets................. (21) 45 99 (85) (66)
Accounts payable................ 14 6 (45) 107 351
Accrued compensation and related
costs.......................... (194) 70 (7) 849 1,166
Other........................... (25) 13 25 1 (31)
----- ------- ----- ------- -------
Net cash provided by (used in)
operating activities......... (103) (196) 454 466 797
----- ------- ----- ------- -------
Cash flows from investing activities:
Purchase of property and equipment.. (77) (714) (534) (58) (100)
----- ------- ----- ------- -------
Net cash used in investing
activities................... (77) (714) (534) (58) (100)
----- ------- ----- ------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt............................... 300 1,200 750 -- 319
Payments of long-term debt.......... (467) (679) (352) (263) (21)
Proceeds from issuance of common
stock.............................. 35 581 -- -- 3
----- ------- ----- ------- -------
Net cash provided by (used in)
financing activities......... (132) 1,102 398 (263) 301
----- ------- ----- ------- -------
Net increase (decrease) in cash and
cash equivalents..................... (312) 192 318 145 998
Cash and cash equivalents at beginning
of period............................ 408 96 288 288 606
----- ------- ----- ------- -------
Cash and cash equivalents at end of
period............................... $ 96 $ 288 $ 606 $ 433 $ 1,604
===== ======= ===== ======= =======
Supplemental disclosures of cash flow
information:
Interest paid....................... $ 32 $ 32 $ 58 $ 18 $ 21
Income taxes paid................... $ 33 $ 13 $ 19 $ -- $ 30
</TABLE>
See accompanying Notes to Financial Statements.
F-62
<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. Any anticipated losses expected to be incurred
in connection with the completion of a project are recognized when 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.
F-63
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
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.
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 March 31, 1999, and
the results of its operations and its cash flows for the three months ended
March 31, 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 were not significant.
Accordingly, the Company's 1996 financial statements were not retroactively
restated to reflect SHRCO's results of operations.
F-64
<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,
---------------- March 31,
1997 1998 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Property and equipment, net:
Furniture and fixtures................... $ 877 $ 1,036 $ 1,047
Computer equipment....................... 1,132 1,459 1,548
Leasehold improvements................... 27 75 75
------- ------- -------
2,036 2,570 2,670
Less accumulated depreciation and
amortization............................ (1,162) (1,428) (1,496)
------- ------- -------
$ 874 $ 1,142 $ 1,174
======= ======= =======
</TABLE>
NOTE 5--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a rollforward of activity within the allowance for doubtful
accounts:
<TABLE>
<CAPTION>
Three Months
Year Ended December Ended
31, March 31,
--------------------- ------------
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........ 489 755 687 330
Write-offs............................. (518) (183) (455) (90)
----- ------ ------ ------
Balance at end of period............... $ 552 $1,124 $1,356 $1,596
===== ====== ====== ======
</TABLE>
NOTE 6--CREDIT FACILITIES
Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------- March 31,
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 $1,650
Less current maturities of long-term debt.... (160) (879) (851)
----- ------ ------
Total long-term debt....................... $ 794 $ 473 $ 799
===== ====== ======
</TABLE>
Maturities on long-term debt, including capital lease obligations, 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-65
<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>
Three
Months
Year Ended Ended
December 31, March 31,
-------------- -----------
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...................................... 37 532 163 469 932
--- ---- ---- ----- -----
Total provision for income taxes........... $58 $557 $213 $ 469 $ 932
=== ==== ==== ===== =====
</TABLE>
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts............... $ 467 $ 512 $ 591
Accrued liabilities........................... 40 34 389
------ ------ ------
Total current deferred tax assets........... 507 546 980
Current deferred tax liabilities:
Accounts receivable and unbilled fees......... 1,903 2,090 3,446
Other......................................... 24 25 25
------ ------ ------
Total current deferred tax liabilities...... 1,927 2,115 3,471
------ ------ ------
Net current deferred tax liabilities........ 1,420 1,569 2,491
Non-current deferred tax liabilities:
Property and equipment........................ 71 85 95
------ ------ ------
Net deferred tax liability...................... $1,491 $1,654 $2,586
====== ====== ======
</TABLE>
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended March
December 31, 31,
---------------- ---------------
1996 1997 1998 1998 1999
---- ---- ---- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
U.S. federal statutory rate............... 35% 35% 35% 35% 35%
Other..................................... (2) 2 2 2 2
--- --- --- ------ ------
Effective income tax rate................. 33% 37% 37% 37% 37%
=== === === ====== ======
</TABLE>
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
F-66
<PAGE>
MANN FRANKFORT STEIN & LIPP, P.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
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 three months ended March 31, 1998 and 1999 was
$257, $429, $530, $112 (unaudited) and $164 (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 three months ended March 31,
1998 and 1999 were $33, $61, $67, $15 (unaudited) and $20 (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 CenterPoint Advisors, Inc. (CenterPoint) 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 CenterPoint will
merge with and into MFSL Company. All of the MFSL Company's outstanding shares
will be exchanged for cash and common stock of CenterPoint concurrently with
the consummation of the initial public offering of the common stock of
CenterPoint.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, CenterPoint 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,
CenterPoint will provide professional and other personnel, equipment, office
space and business and administrative services necessary to operate the Attest
Firm.
F-67
<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, 1997 and 1998 and the results
of their operations and their cash flows for each of the three years in the
period ended May 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 4, 1999
F-68
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
May 31,
---------------- February 28,
1997 1998 1999
------- ------- ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 253 $ 771 $ 277
Funds held in trust for clients............... 8 10 70
Fees receivable, less allowance for doubtful
accounts of $885, $693 and $793 (unaudited),
respectively................................. 4,988 5,553 4,954
Unbilled fees, at net realizable value........ 3,062 2,334 3,970
Prepaid expenses and other current assets..... 846 294 131
------- ------- -------
Total current assets........................ 9,157 8,962 9,402
Property and equipment, net..................... 1,418 1,234 1,306
Cash surrender value, life insurance............ 2,188 2,832 3,153
Deferred income taxes........................... 622 1,066 1,424
Other assets.................................... 126 106 76
------- ------- -------
Total assets................................ $13,511 $14,200 $15,361
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt............................... $ 643 $ 345 $ 350
Notes payable to shareholders................. 1,316 1,693 293
Accounts payable and other accrued expenses... 139 55 178
Accrued compensation and related costs to
shareholders................................. 4,535 4,080 6,529
Accrued compensation and related costs to
employees.................................... 1,060 1,239 1,051
Income taxes payable.......................... -- -- 575
Deferred income taxes......................... 1,230 1,245 561
------- ------- -------
Total current liabilities................... 8,923 8,657 9,537
Long-term debt.................................. 414 371 --
Retirement plan................................. 1,770 2,978 3,953
------- ------- -------
Total liabilities........................... 11,107 12,006 13,490
------- ------- -------
Commitments and contingencies
Shareholders' equity:
Common stock, $1 par value; 50,000 shares
authorized, 10,000, 10,400 and 10,400
(unaudited) shares issued and outstanding at
May 31, 1997 and 1998 and February 28, 1999,
respectively................................. 10 10 10
Additional paid-in-capital.................... 1,082 1,210 1,210
Treasury stock, 90, 250 and 250 (unaudited)
shares at May 31, 1997 and 1998 and February
28, 1999, respectively....................... (230) (140) (140)
Retained earnings............................. 1,542 1,114 791
------- ------- -------
Total shareholders' equity.................. 2,404 2,194 1,871
------- ------- -------
Total liabilities and shareholders' equity.. $13,511 $14,200 $15,361
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-69
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Nine Months
Fiscal Year Ended Ended February
May 31, 28,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Professional services........... $15,528 $17,954 $19,417 $13,308 $15,357
------- ------- ------- ------- -------
Expenses:
Shareholder compensation and
related costs.................. 4,833 6,646 7,339 4,290 5,095
Employee compensation and
related costs.................. 6,649 7,567 8,225 5,858 6,710
Occupancy costs................. 908 1,045 990 694 828
Office operating expenses....... 790 861 870 645 759
Depreciation and amortization... 362 394 475 305 353
Other selling, general and
administrative expenses........ 1,721 1,742 1,556 1,375 1,584
------- ------- ------- ------- -------
15,263 18,255 19,455 13,167 15,329
------- ------- ------- ------- -------
Operating (loss) income....... 265 (301) (38) 141 28
------- ------- ------- ------- -------
Other (income) expense:
Interest expense................ 105 79 101 85 91
Interest income................. (19) (51) (22) 12 (14)
Other........................... 34 (156) (192) (41) 186
------- ------- ------- ------- -------
120 (128) (113) 56 263
------- ------- ------- ------- -------
Income (loss) before provision for
income taxes..................... 145 (173) 75 85 (235)
Provision (benefit) for income
taxes............................ 316 191 286 190 88
------- ------- ------- ------- -------
Net loss.......................... $ (171) $ (364) $ (211) $ (105) $ (323)
======= ======= ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-70
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In Thousands)
<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 May 31,
1995................... 10 $10 $ 862 90 $ (230) $2,077 $2,719
Capital contribution.. -- -- 220 -- -- -- 220
Purchases of treasury
stock................ -- -- -- 2,900 (959) -- (959)
Net loss.............. -- -- -- -- -- (171) (171)
--- --- ------ ------ ------ ------ ------
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
Net loss (unaudited).. -- -- -- -- -- (323) (323)
--- --- ------ ------ ------ ------ ------
Balance at February 28,
1999
(unaudited)............ 10 $10 $1,210 250 $ (140) $ 791 $1,871
=== === ====== ====== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-71
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Nine Months
Fiscal Year Ended February
Ended May 31, 28,
---------------------- ----------------
1996 1997 1998 1998 1999
----- ------- ------ ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................... $(171) $ (364) $ (211) $ (105) $ (323)
Adjustments to reconcile income to
net cash provided by operating
activities:
Depreciation and amortization.... 362 394 466 305 353
Change in deferred taxes......... (154) (85) (429) (1,043) (1,042)
Loss on disposal of property and
equipment....................... 25 5 1 1 8
Changes in operating assets and
liabilities:
Funds held in trust............ 8 9 (2) (53) (60)
Fees receivable................ (316) (154) (565) 292 599
Unbilled fees.................. (222) (1,059) 728 (551) (1,636)
Prepaid expenses and other
current assets................ (85) (654) 552 631 163
Account payable................ 24 25 (87) (1) 123
Accrued compensation and
related costs................. 420 1,118 (276) 1,475 2,261
Income taxes payable........... (5) (256) -- 971 575
Retirement plans............... 658 1,015 1,208 906 975
Other.......................... (258) 232 23 6 30
----- ------- ------ ------- -------
Net cash provided by
operating activities........ 286 226 1,408 2,834 2,026
----- ------- ------ ------- -------
Cash flows from investing activities:
Purchase of property and
equipment......................... (632) (646) (307) (296) (433)
Proceeds from sale of property and
equipment......................... -- 36 24 27 --
Increase in cash surrender value... (326) (612) (644) (319) (321)
----- ------- ------ ------- -------
Net cash used in investing
activities.................. (958) (1,222) (927) (588) (754)
----- ------- ------ ------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt.............................. 750 -- 500 500 200
Payments of long-term debt......... (88) (139) (481) (889) (566)
Proceeds from (payments of) short-
term debt, net.................... -- 500 (500) --
Advances (repayments) to
shareholders...................... (941) 857 377 (1,323) (1,400)
Acquisition of treasury stock...... -- -- -- --
Proceeds from issuance of stock.... 220 -- 141 141 --
----- ------- ------ ------- -------
Net cash provided by (used
in) financing activities.... (59) 1,218 37 (1,571) (1,766)
----- ------- ------ ------- -------
Net increase (decrease) in cash and
cash equivalents.................... (731) 222 518 675 (494)
Cash and cash equivalents at
beginning of period................. 762 31 253 253 771
----- ------- ------ ------- -------
Cash and cash equivalents at end of
period.............................. $ 31 $ 253 $ 771 $ 928 $ 277
===== ======= ====== ======= =======
Supplemental disclosures of cash flow
information:
Interest paid...................... $ 57 $ 75 $ 101 $ 84 $ 91
Income taxes paid.................. $ 168 $ 347 $ 841 $ -- $ 188
</TABLE>
Noncash transactions:
During 1998, the Company reacquired 200 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.
During 1996, the Company reacquired 2,900 shares of treasury stock in the
amount of $959 through issuance of a note payable to the shareholder.
See accompanying Notes to Consolidated Financial Statements.
F-72
<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. Any anticipated losses expected to be incurred
in connection with the completion of a project are recognized when 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 39 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-73
<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 November 30, 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.
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 February 28, 1999, and
the results of its operations and its cash flows for the nine months ended
February 28, 1998 and 1999, as presented in the accompanying unaudited interim
financial statements.
F-74
<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,
---------------- February 28,
1997 1998 1999
------- ------- ------------
(Unaudited)
<S> <C> <C> <C>
Property and equipment, net
Furniture and fixtures................. $ 663 $ 729 $ 725
Computer equipment...................... 1,538 1,729 2,015
Automobiles............................. 31 -- 41
Leasehold improvements.................. 249 261 269
------- ------- -------
2,481 2,719 3,050
Less accumulated depreciation and
amortization........................... (1,063) (1,485) (1,744)
------- ------- -------
$ 1,418 $ 1,234 $ 1,306
======= ======= =======
</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 Nine Months
Ended May 31, Ended February 28,
------------------- ------------------
1996 1997 1998 1998 1999
----- ----- ----- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of peri-
od............................ $ 474 $ 598 $ 885 $ 885 $ 693
Additions to costs and ex-
penses........................ 619 579 375 471 477
Less write-offs................ (495) (292) (567) (288) (377)
----- ----- ----- --------- --------
Balance at end of period....... $ 598 $ 885 $ 693 $ 1,068 $ 793
===== ===== ===== ========= ========
</TABLE>
NOTE 5--CREDIT FACILITIES
Short-Term Debt:
Short-term debt consists of the following:
<TABLE>
<CAPTION>
May 31,
--------- February 28,
1997 1998 1999
---- ---- ------------
(Unaudited)
<S> <C> <C> <C>
Line of credit...................................... $500 $-- $ --
Current maturities of long-term debt................ 143 345 350
---- ---- ----
Total short-term debt........................... $643 $345 $350
==== ==== ====
</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.
F-75
<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,
------------ February 28,
1997 1998 1999
----- ----- ------------
(Unaudited)
<S> <C> <C> <C>
Notes payable, secured by certain assets of the
Company, interest rates ranging from 8% to
10%, maturities from August 2000 through
December 2002................................. $ 557 $ 716 $ 350
Less current maturities of long-term debt...... (143) (345) (350)
----- ----- -----
Total long-term debt....................... $ 414 $ 371 $ --
===== ===== =====
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal Year:
------------
<S> <C>
1999................................................................. $345
2000................................................................. 201
2001................................................................. 123
2002................................................................. 32
2003................................................................. 15
----
Total maturities of long-term debt............................... $716
====
</TABLE>
NOTE 6--INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
Fiscal Year Nine Months
Ended Ended
May 31, February 28,
------------------ --------------
1996 1997 1998 1998 1999
----- ---- ----- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income taxes currently payable
Federal............................. $ 272 $ 90 $ 493 $1,026 $ 897
State................................ 198 186 222 207 233
----- ---- ----- ------ ------
470 276 715 1,233 1,130
Deferred income tax benefit:
Federal.............................. (146) (80) (406) (989) (986)
State................................ (8) (5) (23) (54) (56)
----- ---- ----- ------ ------
Total provision for taxes.......... $ 316 $191 $ 286 $ 190 $ 88
===== ==== ===== ====== ======
</TABLE>
F-76
<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,
---------------- February 28,
1997 1998 1999
------- ------- ------------
(Unaudited)
<S> <C> <C> <C>
Current deferred tax liabilities:
Accrual to cash adjustment............... $(1,230) $(1,245) $ (561)
Long-term deferred tax liabilities:
Property and equipment................... (33) (36) (39)
Supplemental Executive Retirement Plan... 655 1,102 1,463
------- ------- ------
Total long-term deferred tax asset..... 622 1,066 1,424
------- ------- ------
Net deferred tax (liability) asset......... $ (608) $ (179) $ 863
======= ======= ======
</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>
Nine Months
Fiscal Year Ended
Ended May 31, February 28,
---------------- -------------
1996 1997 1998 1998 1999
---- ---- ---- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Tax provision (benefit) at U.S. federal
statutory rate........................ $ 51 $(61) $ 26 $ (23) $ (144)
Net increase in life insurance cash
surrender value....................... (14) (15) (14) (12) (11)
Nondeductible expenses................. 89 90 83 72 66
State tax rate......................... 3 (3) 2 (2) (5)
State permanent differences............ 187 180 189 155 182
---- ---- ---- ----- ------
Total provision for taxes.............. $316 $191 $286 $ 190 $ 88
==== ==== ==== ===== ======
</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>
1999............................................................... $1,042
2000............................................................... 1,073
2001............................................................... 1,090
2002............................................................... 1,065
2003............................................................... 1,091
Thereafter......................................................... 1,276
------
Total minimum lease payments....................................... $6,637
======
</TABLE>
F-77
<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,
1996, 1997 and 1998 and the nine months ended February 28, 1998 and 1999 was
$993, $1,077, $1,129, $766 (unaudited) and $865 (unaudited), 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, $150, $115, $108 (unaudited) and $131 (unaudited) for the fiscal years
ended May 31, 1996, 1997 and 1998 and the nine months ended February 28, 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,
------------------
1996 1997 1998
---- ------ ------
<S> <C> <C> <C>
Service cost........................................... $203 $ 344 $ 384
Interest cost.......................................... 236 420 476
Amortization of prior service cost..................... 219 348 348
---- ------ ------
Net deferred compensation cost......................... $658 $1,112 $1,208
==== ====== ======
</TABLE>
F-78
<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,
---------------------
1996 1997 1998
----- ----- -----
<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,
------------------------
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Projected benefit obligation:
Active plan participants...................... $5,655 $ 6,419 $ 7,291
Retirees...................................... -- -- --
------ ------- -------
Funded status................................... (5,655) (6,419) (7,291)
Unrecognized prior service cost................. 4,997 4,649 4,301
Unrecognized gain............................... -- -- 12
------ ------- -------
Accrued SERP cost............................... $ (658) $(1,770) $(2,978)
====== ======= =======
</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. (Report Systems) (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 Report Systems. Additionally, Report Systems provides certain bookkeeping
services to the Company. The cost of these services were negotiated on an arms
length basis and amounted to $130, $64, $10, $9 (unaudited) and $5 (unaudited)
for the years ended May 31, 1996, 1997 and 1998 and the nine months ended
February 28, 1998 and 1999, respectively.
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. The notes accrue
interest at 8.25 percent.
There are notes receivable from certain shareholders in the aggregate amount
of $15, $10 and $19 (unaudited) at May 31, 1997 and 1998 and February 28, 1999,
respectively, which are included with other assets.
F-79
<PAGE>
FOLLMER, RUDZEWICZ & COMPANY, P.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
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--SUBSEQUENT EVENTS (UNAUDITED)
In March 1999, the Company and its stockholders entered into a definitive
agreement with CenterPoint Advisors, Inc. (CenterPoint) 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 CenterPoint
will merge with and into the Company. All of the Company's outstanding shares
will be exchanged for cash and common stock of CenterPoint concurrently with
the consummation of the initial public offering of the common stock of
CenterPoint.
In connection with the merger described in the previous paragraph, the
shareholders have tentatively agreed to rescind all shareholders' benefits
related to the SERP Plan described in Note 8.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, CenterPoint 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, CenterPoint
will provide professional and other personnel, equipment, office space and
business and administrative services necessary to operate the Attest Firm.
F-80
<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, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended June 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 9, 1999
F-81
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30,
--------------- March 31,
1997 1998 1999
------ ------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $1,167 $ 2,013 $ 36
Fees receivable, less allowance for doubtful
accounts of $814, $924 and $935 (unaudited),
respectively................................... 3,829 4,349 3,964
Unbilled fees, at net realizable value.......... 1,240 1,341 2,943
Prepaid expenses and other current assets....... 353 183 129
------ ------- -------
Total current assets.......................... 6,589 7,886 7,072
Property and equipment, net....................... 1,672 1,763 2,023
Intangible assets, net............................ 708 1,058 1,231
Deferred income taxes............................. 460 423 423
Other assets...................................... 43 15 25
------ ------- -------
Total assets.................................. $9,472 $11,145 $10,774
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt................................. $2,268 $ 2,612 $ 1,561
Due to principals............................... 3,721 4,906 5,127
Accounts payable................................ 204 99 817
Accrued employee compensation and related
costs.......................................... 635 785 597
Deferred compensation........................... 380 619 541
Deferred income taxes........................... 690 653 653
Other accrued liabilities....................... 222 208 197
------ ------- -------
Total current liabilities..................... 8,120 9,882 9,493
Deferred compensation............................. 628 542 517
Other long-term liabilities....................... -- 4 56
------ ------- -------
Total liabilities............................. 8,748 10,428 10,066
------ ------- -------
Commitments and contingencies
Shareholders' equity:
Common stock and contributed capital, no par
value; 10,000 shares authorized, 31, 32 and 31
(unaudited) common shares issued and
outstanding at June 30, 1997 and 1998 and March
31, 1999, (unaudited) respectively............. 1,167 1,222 1,358
Accumulated deficit............................. (216) (216) (216)
Treasury stock, at cost: one share at March 31,
1999 (unaudited)............................... -- -- (204)
Related party advances.......................... (227) (289) (230)
------ ------- -------
Total shareholders' equity.................... 724 717 708
------ ------- -------
Total liabilities and shareholders' equity.... $9,472 $11,145 $10,774
====== ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-82
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
CONSOLIDATED STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Nine Months
Ended June 30, Ended March 31,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Professional services........... $14,844 $16,812 $17,916 $14,201 $14,692
------- ------- ------- ------- -------
Expenses:
Shareholder compensation and
related costs.................. 5,024 6,214 7,113 5,986 5,611
Employee compensation and
related costs.................. 6,037 6,441 6,318 4,712 5,196
Occupancy costs................. 1,188 1,248 1,256 873 982
Office operating expenses....... 1,434 1,690 1,811 1,175 1,225
Other selling, general and
administrative expenses........ 1,105 1,175 1,338 1,323 1,449
------- ------- ------- ------- -------
14,788 16,768 17,836 14,069 14,463
------- ------- ------- ------- -------
Operating income.............. 56 44 80 132 229
------- ------- ------- ------- -------
Other (income) expense:
Interest expense................ 275 291 326 310 239
Interest income................. (215) (254) (261) (185) (203)
Other........................... (4) 7 15 7 193
------- ------- ------- ------- -------
56 44 80 132 229
------- ------- ------- ------- -------
Net income........................ $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-83
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Common Stock Related Total
------------- Accumulated Treasury Party Shareholders'
Shares Amount Deficit Stock Advances Equity
------ ------ ----------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1995................... 21 $ 857 $(216) -- $(513) $128
Capital contributed by
principals........... 6 166 -- -- -- 166
Net decrease in
related party
advances............. -- -- -- 88 88
--- ------ ----- ----- ----- ----
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
Unaudited data:
Capital contributed by
principals........... -- 211 -- -- -- 211
Redemption of capital
contributed by
principals........... (1) (75) -- -- -- (75)
Payment to acquire
treasury stock....... -- -- -- (204) -- (204)
Net decrease in
related party
advances............. -- -- -- -- 59 59
--- ------ ----- ----- ----- ----
Balance at March 31,
1999 (unaudited)....... 31 $1,358 $(216) $(204) $(230) $708
=== ====== ===== ===== ===== ====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-84
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Nine Months
Fiscal Year Ended March
Ended June 30, 31,
------------------------- --------------
1996 1997 1998 1998 1999
------- ------- ------- ------ ------
(Unaudited)
<S> <C> <C> <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... 599 810 908 606 863
Provision for uncollectible fees
receivable..................... 233 210 278 210 148
Loss on disposal of property and
equipment...................... -- -- -- -- 127
Changes in operating assets and
liabilities:
Fees receivable............... (1,254) (735) (798) (575) 237
Unbilled fees................. (12) (233) (101) (2,020) (1,602)
Prepaid expenses and other
current assets............... (26) (238) (87) 203 54
Due to principals............. 541 1,232 1,185 1,293 221
Accounts payable.............. 115 (26) (105) 27 718
Other accrued liabilities..... 5 154 (15) 49 (11)
Accrued compensation and
related costs................ (181) 121 150 (29) (188)
Other......................... 9 (239) 157 201 (51)
------- ------- ------- ------ ------
Net cash provided by (used
in) operating activities... 29 1,056 1,572 (35) 516
------- ------- ------- ------ ------
Cash flows from investing
activities:
Business acquisitions............. (300) (453) (390) (157) (244)
Purchase of property and
equipment........................ (954) (665) (702) (792) (1,179)
Other............................. (19) (15) 29 11 (10)
------- ------- ------- ------ ------
Net cash used in investing
activities................. (1,273) (1,133) (1,063) (938) (1,433)
------- ------- ------- ------ ------
Cash flows from financing
activities:
Repayments (advances) to related
parties.......................... 88 198 (62) (3) 59
Proceeds from (payments of) short-
term debt, net................... 247 776 344 258 (1,051)
Redemption of capital contributed
by principals.................... -- -- (37) (37) (75)
Capital contributed by
principals....................... 166 144 92 92 211
Payment to acquire treasury
stock............................ -- -- -- -- (204)
------- ------- ------- ------ ------
Net cash provided by (used
in) financing activities... 501 1,118 337 310 (1,060)
------- ------- ------- ------ ------
Net increase (decrease) in cash and
cash equivalents................... (743) 1,041 846 (663) (1,977)
Cash and cash equivalents at
beginning of period................ 869 126 1,167 1,167 2,013
------- ------- ------- ------ ------
Cash and cash equivalents at end of
period............................. $ 126 $ 1,167 $ 2,013 $ 504 $ 36
======= ======= ======= ====== ======
Supplemental disclosures of cash
flow information:
Interest paid..................... $ 275 $ 291 $ 326 $ 310 $ 349
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-85
<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 majority-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. Any anticipated losses expected to be incurred
in connection with the completion of a project are recognized when 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-86
<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-87
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
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 March 31, 1999, and
the results of its operations and its cash flows for the nine months ended
March 31, 1998 and 1999, as presented in the accompanying unaudited interim
financial statements.
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, 1996, 1997 and 1998, and the nine months ended March 31, 1999
were approximately $19, $30, $34 and $21 (unaudited), 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, 1996, 1997 and 1998, and the
nine months ended March 31, 1999 , were approximately $134, $245, $270 and $134
(unaudited), 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, 1996, 1997 and 1998, and the nine months ended March 31,
1999 were approximately $103, $178, $86 and $89 (unaudited), respectively.
These amounts are being amortized over the remaining portion of a forty-year
period from the date of acquisition.
F-88
<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,
---------------- March 31,
1997 1998 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Property and equipment, net:
Furniture and fixtures................... $ 3,001 $ 2,942 $ 1,574
Computer equipment....................... 450 828 1,423
Automobiles.............................. 579 839 798
Leasehold improvements................... 463 652 777
------- ------- -------
4,493 5,261 4,572
Less accumulated depreciation and
amortization............................ (2,821) (3,498) (2,549)
------- ------- -------
$ 1,672 $ 1,763 $ 2,023
======= ======= =======
Intangible assets, net:
Goodwill................................. $ 744 $ 1,134 $ 1,378
Less accumulated amortization............ (36) (76) (147)
------- ------- -------
$ 708 $ 1,058 $ 1,231
======= ======= =======
</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
June 30, Ended March 31,
-------------------- -----------------
1996 1997 1998 1998 1999
----- ------ ------ ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period................. $ 536 $ 789 $ 814 $ 814 $ 924
Additions to costs and
expenses............... 233 210 278 210 148
Less (write-offs)
recoveries............. 20 (185) (168) (92) (137)
----- ------ ------ ----- -----
Balance at end of
period................. $ 789 $ 814 $ 924 $ 932 $ 935
===== ====== ====== ===== =====
</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 7.75 percent at June 30, 1997, 1998 and December 31,
1998, respectively.
F-89
<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, 1997 and 1998, there were no borrowings
outstanding under the line of credit. At March 31, 1999, there was $44
(unaudited) 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,
--------- March 31,
1997 1998 1999
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
Long-term deferred tax assets:
Deferred compensation.............................. $252 $225 $225
Net operating loss carryforward.................... 159 141 141
Property and equipment............................. 49 57 57
---- ---- ----
Total long-term deferred tax assets.............. 460 423 423
Current deferred tax liabilities:
Intangible assets.................................. 166 119 119
Accrual to cash adjustment......................... 524 534 534
---- ---- ----
Total current deferred tax liabilities........... 690 653 653
---- ---- ----
Net deferred tax liability........................... $230 $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>
1999............................................................... $ 707
2000............................................................... 707
2001............................................................... 735
2002............................................................... 681
2003............................................................... 608
Thereafter......................................................... 3,353
------
Total minimum lease payments....................................... $6,791
======
</TABLE>
Rent expense for all operating leases for the fiscal years ended June 30,
1996, 1997 and 1998, and the nine months ended March 31, 1998 and 1999 was
$717, $603, $806, $598 (unaudited) and $652 (unaudited), respectively.
F-90
<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, 1996, 1997 and 1998, and the nine months ended
March 31, 1998 and 1999 was $504, $493, $503, $429 (unaudited) and $417
(unaudited), 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) is 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.
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.
NOTE 12--RELATED PARTY TRANSACTIONS
Prior to June 30, 1996, the Company loaned $438 to BDMP Realty LLC (BDMP), a
related party owned by the Company's principals, for the purchase of certain
real property. 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.
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 7, the Company periodically receives loans from the
Company's Shareholders and Shareholders' families.
F-91
<PAGE>
BERRY, DUNN, MCNEIL & PARKER, CHARTERED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
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 CenterPoint Advisors, Inc. (CenterPoint) 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 CenterPoint will merge with and into the Company. All of the
Company's outstanding shares will be exchanged for cash and common stock of
CenterPoint concurrently with the consummation of the initial public offering
of the common stock of CenterPoint.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, CenterPoint 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, CenterPoint
will provide professional and other personnel, equipment, office space and
business and administrative services necessary to operate the Attest Firm.
F-92
<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, 1997 and 1998, and the results of its operations and its cash flows for
each of the two years in the period ended October 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 9, 1999
F-93
<PAGE>
URBACH KAHN & WERLIN PC
BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
October 31,
---------------- January 31,
1997 1998 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 18 $ 189 $ 25
Marketable securities.......................... 1,028 1,152 1,292
Fees receivable, less allowance for doubtful
accounts of $1,070,
$1,177 and $1,294 (unaudited), respectively... 6,905 7,741 7,656
Unbilled fees, at net realizable value......... 138 299 836
Due from shareholders.......................... 394 570 799
Prepaid expenses and other current assets...... 821 829 709
------- ------- -------
Total current assets......................... 9,304 10,780 11,317
Property and equipment, net...................... 778 699 982
Investments...................................... 667 927 1,048
Deferred income taxes............................ 2,075 2,188 2,248
Other assets..................................... 239 319 347
------- ------- -------
Total assets................................. $13,063 $14,913 $15,942
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt................................ $ 429 $ 946 $ 721
Accounts payable............................... 407 340 1,593
Accrued compensation and related costs to
employees..................................... 265 249 261
Accrued compensation and related costs to
shareholders.................................. 882 1,337 1,076
Deferred compensation.......................... 294 262 257
Deferred income taxes.......................... 2,353 2,603 2,805
Other accrued liabilities...................... 159 564 464
------- ------- -------
Total current liabilities.................... 4,789 6,301 7,177
Long-term debt................................... 2,068 1,622 1,513
Deferred compensation............................ 4,475 4,805 4,896
Other............................................ -- 149 149
------- ------- -------
Total liabilities............................ 11,332 12,877 13,735
------- ------- -------
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value; 100,000 shares
authorized,
17,690, 18,425 and 18,425 (unaudited) common
shares issued
and outstanding at October 31, 1997 and 1998
and January 31,
1999, respectively............................ -- -- --
Additional paid-in-capital..................... 2,958 3,186 3,199
Accumulated other comprehensive income......... 91 151 232
Accumulated deficit............................ (1,318) (1,301) (1,224)
------- ------- -------
Total shareholders' equity................... 1,731 2,036 2,207
------- ------- -------
Total liabilities and shareholders' equity... $13,063 $14,913 $15,942
======= ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-94
<PAGE>
URBACH KAHN & WERLIN PC
STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Three Months
Ended October 31, Ended January 31,
------------------ ------------------
1997 1998 1998 1999
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Professional services................ $ 16,012 $ 17,085 $ 3,678 $ 4,346
-------- -------- -------- --------
Expenses:
Shareholder compensation and related
costs............................... 4,798 4,853 752 1,221
Employee compensation and related
costs............................... 6,590 7,147 1,674 1,817
Occupancy costs...................... 1,036 1,136 280 282
Office operating expenses............ 674 736 188 171
Depreciation and amortization........ 222 261 60 79
Other selling, general and
administrative expenses............. 2,385 2,727 679 605
-------- -------- -------- --------
15,705 16,860 3,633 4,175
-------- -------- -------- --------
Operating income................... 307 225 45 171
-------- -------- -------- --------
Other (income) expense:
Interest expense..................... 594 643 127 148
Interest income...................... (78) (108) (12) (13)
Other................................ (489) (435) (73) (124)
-------- -------- -------- --------
27 100 42 11
-------- -------- -------- --------
Income before provision for income
taxes................................. 280 125 3 160
Provision for income taxes............. 172 105 12 83
-------- -------- -------- --------
Net income (loss)...................... $ 108 $ 20 $ (9) $ 77
======== ======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-95
<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
------ ------ ---------- ----------- ------------- ------------- -------------
<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
Unaudited data:
Issuances of common
stock/ payments of
subscriptions........ -- -- 13 -- -- 13
Unrealized gain on
available for sale
securities........... -- -- -- -- 81 81 $ 81
Net income............ -- -- -- 77 -- 77 77
------ ---- ------ ------- ---- ------ ----
Total comprehensive
income.............. -- -- -- -- -- -- $158
====
Balance at January 31,
1999 (unaudited)....... 18,425 $-- $3,199 $(1,224) $232 $2,207
====== ==== ====== ======= ==== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-96
<PAGE>
URBACH KAHN & WERLIN PC
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three
Fiscal Year Months
Ended Ended
October 31, January 31,
-------------- ------------
1997 1998 1998 1999
------- ----- ----- -----
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 108 $ 20 $ (9) $ 77
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 222 261 60 79
Change in deferred income taxes.............. 148 105 11 83
Increase in related entities' and investment
equity...................................... (367) (346) (84) (121)
Changes in current assets and liabilities:
Fees receivable............................ 126 (836) (11) 85
Unbilled fees.............................. 92 (161) (626) (537)
Prepaid expenses and other current assets.. (253) (8) 225 120
Accounts payable........................... (607) (67) 178 1,253
Accrued liabilities........................ (74) 405 245 (101)
Accrued compensation and related costs to
employees................................. (173) (16) (39) 12
Accrued compensation and related costs to
shareholders.............................. 45 455 (2) (261)
Deferred compensation...................... 602 298 117 86
Other...................................... 140 47 2 1
------- ----- ----- -----
Net cash provided by operating
activities.............................. 9 157 67 776
------- ----- ----- -----
Cash flows from investing activities:
Due from shareholders.......................... 41 (176) (153) (229)
Purchase of property and equipment............. (283) (187) (48) (362)
Dividends from corporate joint venture equity
investment.................................... 176 85 -- --
Purchase of investments........................ (37) (31) -- --
Other.......................................... (75) (40) -- (28)
------- ----- ----- -----
Net cash used in investing activities.... (178) (349) (201) (619)
------- ----- ----- -----
Cash flows from financing activities:
Proceeds from issuance of long-term debt....... 1,700 -- -- --
Payments of long-term debt..................... (296) (429) (106) (109)
Proceeds from (payments of) short-term debt,
net........................................... (1,100) 500 351 (225)
Payments of dividends.......................... (3) (3) -- --
Proceeds from issuance of common stock/payments
of subscriptions.............................. 333 228 15 13
Payments to retire common stock................ (443) -- -- --
Other.......................................... (10) 67 -- --
------- ----- ----- -----
Net cash provided by (used in) financing
activities.............................. 181 363 260 (321)
------- ----- ----- -----
Net increase (decrease) in cash and cash
equivalents..................................... 12 171 126 (164)
Cash and cash equivalents at beginning of
period.......................................... 6 18 18 189
------- ----- ----- -----
Cash and cash equivalents at end of period....... $ 18 $ 189 $ 144 $ 25
======= ===== ===== =====
Supplemental disclosures of cash flow
information:
Interest paid.................................. $ 238 $ 254 $ 46 $ 48
Income taxes paid.............................. $ 11 $ 34 $ 9 $ 6
</TABLE>
See accompanying Notes to Financial Statements.
F-97
<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. Any anticipated losses expected to be incurred
in connection with the completion of a project are recognized when 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-98
<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, 1997 and 1998 and
January 31, 1999, the fair market value of the marketable securities exceeds
the adjusted cost. The unrealized gains, net of deferred income taxes, are
reported as an increase to shareholders' equity.
Marketable securities consisted of:
<TABLE>
<CAPTION>
October 31,
------------- January 31,
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
Adjusted cost.................................... $ 889 $ 920 $ 920
Unrealized holding gains......................... 139 232 372
------ ------ ------
Fair market value................................ $1,028 $1,152 $1,292
====== ====== ======
</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 October 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.
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-99
<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 financial position of the Company at January 31, 1999, and
the results of its operations and its cash flows for the three months ended
January 31, 1998 and 1999, as presented in the accompanying unaudited interim
financial statements.
F-100
<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>
October 31,
-------------- January 31,
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
Property and equipment, net:
Furniture and fixtures..................... $3,656 $3,795 $4,153
Leasehold improvements..................... 648 696 700
------ ------ ------
4,304 4,491 4,853
Less accumulated depreciation and
amortization.............................. (3,526) (3,792) (3,871)
------ ------ ------
$ 778 $ 699 $ 982
====== ====== ======
Prepaid expenses and other current assets:
Prepaid insurance.......................... $ 299 $ 306 $ 169
Prepaid taxes.............................. 81 65 106
Prepaid rent............................... 150 166 --
Other receivables.......................... 128 138 121
Notes receivables.......................... 75 83 60
Other...................................... 88 71 253
------ ------ ------
$ 821 $ 829 $ 709
====== ====== ======
Other accrued liabilities:
401K employer matching contribution........ $ 60 $ 245 $ 259
Other...................................... 99 319 205
------ ------ ------
$ 159 $ 564 $ 464
====== ====== ======
</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 Three Months
October 31, Ended
------------------ January 31,
1997 1998 1999
-------- -------- ------------
(Unaudited)
<S> <C> <C> <C>
Balance at beginning of period............ $ 1,385 $ 1,070 $1,177
Additions to costs and expenses........... 174 420 117
Less write-offs........................... (489) (313) --
-------- -------- ------
Balance at end of period.................. $ 1,070 $ 1,177 $1,294
======== ======== ======
</TABLE>
F-101
<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,
--------- January 31,
1997 1998 1999
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
Lines of credit...................................... $-- $500 $275
Current maturities of long-term debt................. 429 446 446
---- ---- ----
Total short-term debt.............................. $429 $946 $721
==== ==== ====
</TABLE>
The Company has several bank lines of credit with borrowing capacity of
$6,000. 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.
Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
October 31,
-------------- January 31,
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
Note payable, unsecured, interest rates
ranging from 8% to 8.5%. Maturities from
April 2001 through July 2004................. $2,497 $2,068 $1,959
Less current maturities of long-term debt..... (429) (446) (446)
------ ------ ------
Total long-term debt........................ $2,068 $1,622 $1,513
====== ====== ======
</TABLE>
Maturities on long-term debt as of October 31, 1998, including capital
lease obligations, are as follows:
<TABLE>
<CAPTION>
Fiscal Year:
------------
<S> <C>
1999............................................................... $ 446
2000............................................................... 467
2001............................................................... 364
2002............................................................... 264
2003............................................................... 287
Thereafter......................................................... 240
------
Total maturities of long-term debt............................... $2,068
======
</TABLE>
F-102
<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 Three Months
Ended Ended January
October 31, 31,
----------- -------------
1997 1998 1998 1999
----- ----- ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Income taxes currently payable:
State......................................... $ 24 $ -- $ 1 $ --
----- ----- ----- ------
24 -- 1 --
Deferred income tax expense (benefit):
Federal....................................... 128 81 9 67
State......................................... 20 24 2 16
----- ----- ----- ------
Total provision for income taxes............ $ 172 $ 105 $ 12 $ 83
===== ===== ===== ======
</TABLE>
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
October 31,
------------- January 31,
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
Long-term deferred tax assets:
Deferred compensation........................ $1,880 $2,018 $2,078
Fixed assets................................. 112 120 120
Net operating loss and tax credit
carryforwards............................... 83 50 50
------ ------ ------
Total long-term deferred tax assets........ 2,075 2,188 2,248
------ ------ ------
Current deferred tax liabilities:
Accrual to cash adjustments.................. 2,305 2,522 2,665
Unrealized gains on investments.............. 48 81 140
------ ------ ------
Total current deferred tax liabilities..... 2,353 2,603 2,805
------ ------ ------
Net deferred tax liability..................... $ 278 $ 415 $ 557
====== ====== ======
</TABLE>
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
Fiscal Year
Ended Three Months
October 31, Ended
----------- January 31,
1997 1998 1999
----- ----- ------------
(Unaudited)
<S> <C> <C> <C>
Income taxes currently payable:
U.S. federal statutory rate................... $ 98 $ 44 $55
State income taxes, net of federal income tax
benefit...................................... 44 24 16
Non-deductible expenses....................... 30 37 12
----- ----- ---
Actual income tax provision..................... $ 172 $ 105 $83
===== ===== ===
</TABLE>
F-103
<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 October 31, 1998:
<TABLE>
<CAPTION>
Fiscal Year:
------------
<S> <C>
1999............................................................... $ 827
2000............................................................... 682
2001............................................................... 682
2002............................................................... 635
2003............................................................... 535
Thereafter......................................................... 871
------
Total minimum lease payments..................................... $4,232
======
</TABLE>
Rent expense for all operating leases for the fiscal years ended October 31,
1997 and 1998 and the three months ended January 31, 1998 and 1999 was $915,
$1,043, $253 (unaudited) and $264 (unaudited), 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
October 31,
-----------
1997 1998
----- -----
<S> <C> <C>
Service cost.................................................. $ 141 $ 144
Interest cost................................................. 355 389
Amortization of prior service cost............................ 58 58
----- -----
Net deferred compensation cost................................ $ 554 $ 591
===== =====
</TABLE>
F-104
<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
October 31,
-----------
1997 1998
----- -----
<S> <C> <C>
Discount rate.................................................. 7.5% 7.5%
Rates of increase in compensation levels....................... 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>
October 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Projected benefit obligation:
Retirees.............................................. $ 1,393 $ 1,223
Active participants................................... 3,387 3,796
------- -------
Funded status........................................... (4,780) (5,019)
Unrecognized prior service cost......................... 234 175
Unrecognized gain....................................... (223) (223)
------- -------
Accrued deferred compensation cost...................... $(4,769) $(5,067)
======= =======
</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.
Dividends were declared and paid in both 1997 and 1998 in the amounts of $3.
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-105
<PAGE>
URBACH KAHN & WERLIN PC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 12--SUBSEQUENT EVENTS (UNAUDITED)
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, CenterPoint will merge with and into UKW LLC. All of the UKW
LLC interests will be exchanged for cash and common stock of CenterPoint
concurrently with the consummation of the initial public offering of the common
stock of CenterPoint.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, CenterPoint 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, CenterPoint
will provide professional and other personnel, equipment, office space and
business and administrative services necessary to operate the Attest Firm.
F-106
<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-107
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 194 $ 857 $1,006
Restricted cash.................................... 190 -- --
Administration fees and commissions receivable..... 708 675 969
Funds held for customers........................... 612 660 499
Prepaid expenses and other current assets.......... 28 160 67
Due from principal................................. -- 164 --
------ ------ ------
Total current assets............................. 1,732 2,516 2,541
Property and equipment, net.......................... 966 747 747
Due from principal................................... 155 -- --
Other assets-security deposits....................... 43 38 38
------ ------ ------
Total assets..................................... $2,896 $3,301 $3,326
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................. $ 200 $ 153 $ 138
Accounts payable................................... 53 123 129
Accrued liabilities................................ 266 185 305
Accrued compensation and related costs............. 62 91 70
Deferred income.................................... 69 -- 67
Current portion of customer deposits............... 526 660 499
------ ------ ------
Total current liabilities........................ 1,176 1,212 1,208
Long-term debt, less current portion................. 309 154 125
Customer deposits, less current portion.............. 86 -- --
------ ------ ------
Total liabilities................................ 1,571 1,366 1,333
------ ------ ------
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........................ -- -- --
Common stock--Class A (voting common stock), no par
value; 150 shares authorized, 150 shares issued
and 149 outstanding at March 31, 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 March 31, 1999
(unaudited). No shares authorized, issued or
outstanding at December 31, 1997 and 1998......... -- -- --
Treasury stock..................................... -- -- (164)
Additional paid-in-capital......................... 208 208 208
Retained earnings.................................. 1,117 1,727 1,949
------ ------ ------
Total shareholders' equity....................... 1,325 1,935 1,993
------ ------ ------
Total liabilities and shareholders' equity....... $2,896 $3,301 $3,326
====== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-108
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
--------------- --------------
1997 1998 1998 1999
------ ------- ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Administration fees......................... $6,583 $ 6,703 $1,881 $1,921
Reinsurance commissions..................... 1,960 1,343 409 291
Other....................................... 1,213 2,887 612 766
------ ------- ------ ------
9,756 10,933 2,902 2,978
------ ------- ------ ------
Expenses:
Employee compensation and related costs..... 6,047 6,361 1,394 1,557
Occupancy costs............................. 296 299 64 69
Other operating expenses.................... 1,121 1,132 437 461
Depreciation and amortization............... 206 242 53 50
Other selling, general and administrative
expenses................................... 1,045 1,377 519 422
------ ------- ------ ------
8,715 9,411 2,467 2,559
------ ------- ------ ------
Operating income.......................... 1,041 1,522 435 419
------ ------- ------ ------
Other (income) expense:
Interest expense............................ 28 32 9 6
Interest income............................. (80) (77) (17) (15)
Other....................................... 132 82 -- --
------ ------- ------ ------
80 37 (8) (9)
------ ------- ------ ------
Income before provision for income taxes...... 961 1,485 443 428
Provision for income taxes.................... 31 25 11 6
------ ------- ------ ------
Net income.................................... $ 930 $ 1,460 $ 432 $ 422
====== ======= ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-109
<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
------------- ------------- -------------- Treasury Paid-in- Retained Shareholders'
Shares Amount Shares Amount Shares Amount Stock Capital Earnings Equity
------ ------ ------ ------ ------ ------ -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 150 $-- -- $-- -- $-- $ -- $208 $1,167 $1,375
Cash dividends, $6,533
per share............. -- -- -- -- -- -- -- -- (980) (980)
Net income............. -- -- -- 930 930
---- ---- --- ---- ------ ---- ----- ---- ------ ------
Balance at December 31,
1997................... 150 -- -- -- -- -- -- 208 1,117 1,325
Cash dividends, $5,666
per share............. -- -- -- -- -- -- -- -- (850) (850)
Net income............. -- -- -- -- -- -- -- -- 1,460 1,460
---- ---- --- ---- ------ ---- ----- ---- ------ ------
Balance at December 31,
1998................... 150 -- -- -- -- -- -- 208 1,727 1,935
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, $1,333
per share............. -- -- -- -- -- -- -- -- (200) (200)
Net income............. -- -- -- -- -- -- -- -- 422 422
---- ---- --- ---- ------ ---- ----- ---- ------ ------
Balance at March 31,
1999 (unaudited)....... -- $-- 149 $-- 14,660 $-- $(164) $208 $1,949 $1,993
==== ==== === ==== ====== ==== ===== ==== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-110
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
-------------- -------------
1997 1998 1998 1999
----- ------- ----- ------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 930 $ 1,460 $ 432 $ 422
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............... 206 242 53 50
Loss on disposal of property and equipment.. 49 82 -- --
Changes in current assets and liabilities:
Administration fees and commissions
receivable............................... (215) 33 (104) (294)
Funds held for customers.................. 190 (48) 54 161
Restricted cash........................... (6) 190 -- --
Prepaid expenses and other current
assets................................... (11) (132) 3 93
Accounts payable.......................... 19 70 36 6
Accrued liabilities....................... 216 (81) (46) 120
Accrued compensation and related costs.... 26 29 (20) (21)
Deferred income........................... (47) (69) 8 67
Customer deposits......................... (275) 48 (54) (161)
Other..................................... (86) (4) -- --
----- ------- ----- ------
Net cash provided by operating
activities............................. 996 1,820 362 443
----- ------- ----- ------
Cash flows from investing activities:
Purchase of property and equipment............ (451) (105) (2) (50)
----- ------- ----- ------
Net cash used in investing activities... (451) (105) (2) (50)
----- ------- ----- ------
Cash flows from financing activities:
Proceeds from issuance of long-term debt...... 400 -- -- --
Payments of long-term debt.................... (150) (202) (57) (44)
Payments of dividends......................... (980) (850) (150) (200)
----- ------- ----- ------
Net cash used in financing activities... (730) (1,052) (207) (244)
----- ------- ----- ------
Net increase (decrease) in cash and cash
equivalents.................................... (185) 663 153 149
Cash and cash equivalents at beginning of year.. 379 194 194 857
----- ------- ----- ------
Cash and cash equivalents at end of year........ $ 194 $ 857 $ 347 $1,006
===== ======= ===== ======
Supplemental disclosures of cash flow
information:
Interest paid................................. $ 28 $ 32 $ 9 $ 6
Income taxes paid............................. $ 29 $ 27 $ 11 $ 6
Non-cash transaction:
Retirement of an amount due from principal for
treasury stock............................... $ -- $ -- $ -- $ 164
</TABLE>
See accompanying Notes to Financial Statements.
F-111
<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 March 31,
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-112
<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-113
<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 March 31, 1999, and
the results of its operations and its cash flows for the three months ended
March 31, 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,
--------------- March 31,
1997 1998 1999
------ ------- -----------
(Unaudited)
<S> <C> <C> <C>
Property and equipment, net:
Furniture and fixtures.................... $ 349 $ 284 $ 287
Computer equipment and software........... 1,444 1,626 1,218
Automobiles............................... 14 14 14
Leasehold improvements.................... 74 70 70
------ ------- ------
1,881 1,994 1,589
Less accumulated depreciation and
amortization............................. (915) (1,247) (842)
------ ------- ------
$ 966 $ 747 $ 747
====== ======= ======
</TABLE>
NOTE 4--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December
31,
--------- March 31,
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 $263
Other.......................................... 3 -- --
---- ---- ----
509 307 263
Less current maturities of long-term debt...... 200 153 138
---- ---- ----
Total long-term debt......................... $309 $154 $125
==== ==== ====
Maturities on long-term debt are as follows:
1999..................................................... $153
2000..................................................... 106
2001..................................................... 34
2002..................................................... 14
----
Total maturities of long-term debt....................... $307
====
</TABLE>
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
F-114
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
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 three months ended March 31, 1998 and 1999 was $253,
$269, $54 (unaudited) and $65 (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 three months ended March 31,
1998 and 1999 was $39, $37, $11 (unaudited) and $12 (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-115
<PAGE>
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE DESIGN ADMINISTRATORS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
1998 and the three months ended March 31, 1998 and 1999, these expenditures
totaled $74, $14, $1 (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 CenterPoint Advisors, Inc. (CenterPoint) pursuant to which a
wholly-owned subsidiary of CenterPoint will merge with and into the Company.
All of the Company's outstanding shares will be exchanged for cash and common
stock of CenterPoint concurrently with the consummation of the initial public
offering of the common stock of CenterPoint.
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 CenterPoint transaction, as described above,
does not occur, the shareholders will revert to their prior position.
F-116
<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-117
<PAGE>
GRACE & COMPANY, P.C.
BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 6 $ 191
Fees receivable, less allowance for doubtful
accounts of $761 and $796 (unaudited),
respectively....................................... 1,531 2,003
Unbilled fees, at net realizable value.............. 815 2,085
Prepaid expenses and other current assets........... 204 264
------ ------
Total current assets.............................. 2,556 4,543
Property and equipment, net........................... 515 501
Cash surrender value of life insurance................ 993 995
Deferred income taxes................................. 11 11
Other assets.......................................... 30 34
------ ------
Total assets...................................... $4,105 $6,084
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt..................................... $ 742 $1,497
Due to shareholders................................. 601 473
Accounts payable.................................... 160 163
Accrued compensation and related costs.............. 530 949
Deferred income taxes............................... 766 1,142
Other accrued liabilities........................... 93 91
------ ------
Total current liabilities......................... 2,892 4,315
Long-term debt........................................ 419 413
------ ------
Total liabilities................................. 3,311 4,728
------ ------
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 March 31, 1999
(unaudited), respectively.......................... 17 17
Additional paid-in-capital.......................... 350 350
Treasury stock, 1,500 shares at December 31, 1998
and March 31, 1999 (unaudited), respectively....... (89) (89)
Retained earnings................................... 516 1,078
------ ------
Total shareholders' equity........................ 794 1,356
------ ------
Total liabilities and shareholders' equity........ $4,105 $6,084
====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-118
<PAGE>
GRACE & COMPANY, P.C.
STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended March 31,
December 31, --------------
1998 1998 1999
------------ ------ ------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Professional services........................... $9,691 $3,380 $3,687
Expenses:
Member compensation and related costs........... 2,709 711 733
Employee compensation and related costs......... 5,075 1,445 1,542
Occupancy costs................................. 406 96 119
Office operating expenses....................... 95 27 47
Depreciation and amortization................... 190 47 52
Other selling, general and administrative
expenses....................................... 689 215 212
------ ------ ------
9,164 2,541 2,705
------ ------ ------
Operating income.............................. 527 839 982
------ ------ ------
Other (income) expense:
Interest expense................................ 122 38 46
Interest income................................. (23) (3) (2)
Other........................................... (135) (5) --
Loss on equity investment....................... 40 -- --
------ ------ ------
4 30 44
------ ------ ------
Income before provision for income taxes.......... 523 809 938
Provision for income taxes........................ 232 356 376
------ ------ ------
Net income........................................ $ 291 $ 453 $ 562
====== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-119
<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).......... -- -- -- -- -- 562 562
------ --- ---- ----- ---- ------ ------
Balance at March 31,
1999 (unaudited)....... 16,500 $17 $350 1,500 $(89) $1,078 $1,356
====== === ==== ===== ==== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-120
<PAGE>
GRACE & COMPANY, P.C.
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended March 31,
December 31, --------------
1998 1998 1999
------------ ----- -------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 291 $ 453 $ 562
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 190 47 52
Change in deferred income taxes............... 127 356 376
Changes in operating assets and liabilities:
Fees receivable............................. (581) (420) (472)
Unbilled fees............................... 113 (846) (1,270)
Prepaid expenses and other current assets... 44 (5) (60)
Other assets................................ (15) (4) (4)
Accounts payable............................ (3) 15 3
Accrued compensation and related costs...... (13) 366 419
Other accrued liabilities................... 84 (1) (2)
----- ----- -------
Net cash provided by (used in) operating
activities............................... 237 (39) (396)
----- ----- -------
Cash flows from investing activities:
Purchase of property and equipment.............. (328) (12) (38)
Proceeds from sale of property and equipment.... 6 -- --
Increase in cash surrender value................ (171) (15) (2)
----- ----- -------
Net cash used in investing activities..... (493) (27) (40)
----- ----- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........ 450 -- 50
Payments of long-term debt...................... (77) (49) (56)
Payments (decrease) of short-term debt, net..... (292) 106 627
Issuance of common stock........................ 171 -- --
----- ----- -------
Net cash provided by financing
activities............................... 252 57 621
----- ----- -------
Net decrease in cash.............................. (4) (9) 185
Cash at beginning of period....................... 10 10 6
----- ----- -------
Cash at end of period............................. $ 6 $ 1 $ 191
===== ===== =======
Supplemental disclosures of cash flow information:
Interest paid................................... $ 134 $ 38 $ 46
Income taxes paid............................... $ 20 $ 1 $ 34
</TABLE>
See accompanying Notes to Financial Statements.
F-121
<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. Any anticipated losses expected to be incurred
in connection with the completion of a project are recognized when 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.
F-122
<PAGE>
GRACE & COMPANY, 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 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 March 31, 1999 and
the results of its operations and its cash flows for the three months ended
March 31, 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, March 31,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Property and equipment, net:
Furniture and fixtures............................... $ 663 $ 626
Computer equipment................................... 1,079 1,087
Automobiles.......................................... 47 47
Leasehold improvements............................... 56 56
------- -------
1,845 1,816
Less accumulated depreciation and amortization....... (1,330) (1,315)
------- -------
$ 515 $ 501
======= =======
</TABLE>
F-123
<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>
Three Months
Year Ended Ended
December 31, March 31,
1998 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Balance at beginning of period................... $903 $761
Additions to costs and expenses.................. 96 43
Recoveries of previously reserved amounts........ (105) --
Less write-offs.................................. (133) (8)
---- ----
Balance at end of period......................... $761 $796
==== ====
</TABLE>
NOTE 5--CREDIT FACILITIES
Short-Term Debt:
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Line of credit.................................... $595 $1,350
Current maturities of long-term debt.............. 147 147
---- ------
Total short-term debt........................... $742 $1,497
==== ======
</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, 1999. The line of credit is collateralized by accounts receivable,
unbilled fees and all fixed assets. The line of credit is also partially
guaranteed by nine 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-124
<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, March 31,
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 $ 560
Less current maturities of long-term debt........ (147) (147)
----- -----
Total long-term debt........................... $ 419 $ 413
===== =====
The notes payable include $118 at December 31, 1998 and $107
(unaudited) at March 31, 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>
Three
Months
Ended
Year Ended March 31,
December 31, -----------
1998 1998 1999
------------ ----- -----
(Unaudited)
<S> <C> <C> <C>
Income taxes currently payable:
Federal........................................ $ 94 $ -- $ --
State.......................................... 11 -- --
---- ----- -----
Deferred income tax expense:
Federal........................................ 114 322 337
State.......................................... 13 34 39
---- ----- -----
Total provision for income taxes............. $232 $ 356 $ 376
==== ===== =====
</TABLE>
F-125
<PAGE>
GRACE & COMPANY, P.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
December 31, March 31,
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) (1,142)
----- -------
Total current deferred tax liabilities........ (766) (1,142)
----- -------
Net deferred tax liability........................ $(755) $(1,131)
===== =======
</TABLE>
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
Three
Months
Ended
Year Ended March 31,
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 5 1
--- ----- -----
Effective income tax rate................... 44% 44% 40%
=== ===== =====
</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 three months ended March 31, 1998 and 1999 was $96
(unaudited) and $119 (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-126
<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 three
months ended March 31, 1998 and 1999 was $34 (unaudited) and $27 (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 March 31, 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 March 31,
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 $2 (unaudited) at March 31, 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 CenterPoint Advisors, Inc. (CenterPoint) 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 CenterPoint will merge with and into
the Company. All of the Company's outstanding shares will be exchanged for cash
and common stock of CenterPoint concurrently with the consummation of the
initial public offering of the common stock of CenterPoint.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, CenterPoint 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, CenterPoint
will provide professional and other personnel, equipment, office space and
business and administrative services necessary to operate the Attest Firm.
F-127
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Holthouse Carlin & Van Trigt LLP
In our opinion, the accompanying balance sheet and the related statements of
income, of partners' capital equity and of cash flows present fairly, in all
material respects, the financial position of Holthouse Carlin & Van Trigt LLP
at December 31, 1997 and 1998, 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
January 31, 1999
F-128
<PAGE>
HOLTHOUSE CARLIN & VAN TRIGT LLP
BALANCE SHEET
(In Thousands)
<TABLE>
<CAPTION>
December 31, March 31,
------------- -----------
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 524 $ 644 $ 129
Marketable securities.............................. 273 285 287
Fees receivable, less allowance for doubtful
accounts of $443, $655 and $529 (unaudited),
respectively...................................... 1,394 1,816 2,469
Unbilled fees, at net realizable value............. 493 610 1,365
Prepaid expenses and other current assets.......... 63 15 78
------ ------ ------
Total current assets............................. 2,747 3,370 4,328
Property and equipment, net.......................... 219 276 318
Other assets......................................... 28 44 44
------ ------ ------
Total assets..................................... $2,994 $3,690 $4,690
====== ====== ======
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable................................... $ 63 $ 71 $ 36
Accrued compensation and related costs............. 26 72 56
Accrued vacation................................... 58 104 112
------ ------ ------
Total current liabilities........................ 147 247 204
------ ------ ------
Commitments and contingencies
Partners' equity
Total partners' capital accounts................. 2,847 3,443 4,486
------ ------ ------
Total liabilities and partners' equity........... $2,994 $3,690 $4,690
====== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-129
<PAGE>
HOLTHOUSE CARLIN & VAN TRIGT LLP
STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
-------------- --------------
1997 1998 1998 1999
------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Professional services........................ $7,720 $9,446 $2,848 $3,234
------ ------ ------ ------
Expenses:
Employee compensation and related costs...... 2,617 3,089 745 839
Occupancy costs.............................. 286 360 75 84
Office operating expenses.................... 306 326 220 250
Depreciation and amortization................ 55 73 18 14
Other selling, general and administrative
expenses.................................... 801 819 103 (59)
------ ------ ------ ------
4,065 4,667 1,161 1,128
------ ------ ------ ------
Operating income........................... 3,655 4,779 1,687 2,106
------ ------ ------ ------
Other (income) expense:
Interest income.............................. (31) (25) (9) (5)
Other........................................ 5 -- -- 6
------ ------ ------ ------
(26) (25) (9) 1
------ ------ ------ ------
Net income..................................... $3,681 $4,804 $1,696 $2,105
====== ====== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-130
<PAGE>
HOLTHOUSE CARLIN & VAN TRIGT LLP
STATEMENT OF PARTNERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Total
Partners'
Equity
---------
<S> <C>
Balance at December 31, 1996.......................................... $2,696
Net income.......................................................... 3,681
Partners' withdrawals............................................... (3,530)
------
Balance at December 31, 1997.......................................... 2,847
Net income.......................................................... 4,804
Partners' withdrawals............................................... (4,238)
Capital contribution................................................ 30
------
Balance at December 31, 1998.......................................... 3,443
Unaudited data:
Net income.......................................................... 2,105
Partners' withdrawals............................................... (1,062)
------
Balance at March 31, 1999 (Unaudited)................................. $4,486
======
</TABLE>
See accompanying Notes to Financial Statements.
F-131
<PAGE>
HOLTHOUSE CARLIN & VAN TRIGT LLP
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
---------------- ---------------
1997 1998 1998 1999
------- ------- ------ -------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 3,681 $ 4,804 $1,696 $ 2,105
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 55 73 18 14
Bad debt expense........................ 281 340 205 (124)
Changes in current assets and
liabilities:
Fees receivable....................... (309) (762) (606) (527)
Unbilled fees......................... (77) (117) (720) (755)
Prepaid expenses and other assets..... 9 31 43 (63)
Accounts payable...................... 11 8 (8) (35)
Accrued compensation and related
costs................................ (18) 46 95 (16)
Accrued vacation...................... 58 46 26 8
------- ------- ------ -------
Net cash provided by operating
activities......................... 3,691 4,469 749 607
------- ------- ------ -------
Cash flows from investing activities:
Purchase of property and equipment........ (104) (130) (15) (57)
Purchase of investments................... (178) (148) (6) (3)
Proceeds from sale of investments......... 167 136 -- --
------- ------- ------ -------
Net cash used in investing
activities......................... (115) (142) (21) (60)
------- ------- ------ -------
Cash flows from financing activities:
Payments of partner capital............... (3,531) (4,237) (990) (1,062)
Capital contributed by principals......... -- 30 -- --
------- ------- ------ -------
Net cash used in financing
activities......................... (3,531) (4,207) (990) (1,062)
------- ------- ------ -------
Net increase in cash and cash equivalents... 45 120 (262) (515)
Cash and cash equivalents at beginning of
period..................................... 479 524 524 644
------- ------- ------ -------
Cash and cash equivalents at end of period.. $ 524 $ 644 $ 262 $ 129
======= ======= ====== =======
</TABLE>
See accompanying Notes to Financial Statements.
F-132
<PAGE>
HOLTHOUSE CARLIN & VAN TRIGT LLP
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
NOTE 1--BACKGROUND AND BUSINESS DESCRIPTION
Holthouse Carlin & Van Trigt LLP (the Company) was formed in 1991 as a
general partnership pursuant to the provisions of the California Uniform
Partnership Act and provides tax, accounting and consulting services for
closely-held businesses and the related individuals primarily in the southern
California region. In 1996, the Company elected to convert from a general
partnership to a registered limited liability partnership pursuant to the
California Corporations Code.
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. Any anticipated losses expected to be incurred
in connection with the completion of a project are recognized when 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."
Marketable securities consisted of investments in various state and local
city debt securities and are classified as available for sale. At December 31,
1997 and 1998, the fair market value of the securities approximated their
original cost.
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
generally ranging from 5 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.
F-133
<PAGE>
HOLTHOUSE CARLIN & VAN TRIGT LLP
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
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 and accrued liabilities
approximate fair value.
Income Taxes:
The Company is a limited liability partnership. As such, the Company has no
current or deferred income tax assets or liabilities outstanding at December
31, 1997 and 1998 as the taxes associated with net income of the Company is
borne by the individual partners.
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 allowance for doubtful
accounts, unbilled fees, depreciation and amortization and the valuation of
investments.
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 March 31, 1999, and
the results of its operations and its cash flows for the three months ended
March 31, 1998 and 1999, as presented in the accompanying unaudited interim
financial statements.
F-134
<PAGE>
HOLTHOUSE CARLIN & VAN TRIGT LLP
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 3--SELECTED FINANCIAL STATEMENT INFORMATION
Additional information concerning financial statement accounts include
the following:
<TABLE>
<CAPTION>
December 31, March 31,
-------------- -----------
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
Property and equipment, net:
Furniture and fixtures..................... $ 206 $ 268 $ 280
Computer equipment......................... 173 241 286
------ ------ -----
379 509 566
Less accumulated depreciation and
amortization.............................. (160) (233) (248)
------ ------ -----
$ 219 $ 276 $ 318
====== ====== =====
Prepaid expenses and other current assets:
Prepaid expenses........................... $ 35 $ 2 $ 68
Employee receivables....................... 28 13 10
------ ------ -----
$ 63 $ 15 $ 78
====== ====== =====
</TABLE>
NOTE 4--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a rollforward of activity within the allowance for
doubtful accounts:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
-------------- ------------
1997 1998 1999
------ ------ ------------
(Unaudited)
<S> <C> <C> <C>
Balance at beginning of period.............. $ 309 $ 443 $655
Additions (reductions) to costs and
expenses, net.............................. 282 343 (73)
Write-offs.................................. (148) (131) (53)
------ ------ ----
Balance at end of period.................... $ 443 $ 655 $529
====== ====== ====
</TABLE>
NOTE 5--LEASE COMMITMENTS
The Company leases various 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 at the end of the original
lease term, generally at fair market rates. Future minimum lease payments under
noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 347
2000............................................................... 357
2001............................................................... 316
2002............................................................... 233
2003............................................................... 175
------
Total minimum lease payments.................................... $1,428
======
</TABLE>
F-135
<PAGE>
HOLTHOUSE CARLIN & VAN TRIGT LLP
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
Rent expense for all operating leases for the fiscal years ended December
31, 1997 and 1998, and the three months ended March 31, 1998 and 1999 was $242,
$291, $75 (unaudited) and $84 (unaudited), respectively,
NOTE 6--LINE OF CREDIT
The Company has a line of credit available with Union Bank of California at
December 31, 1997 and 1998 in the amount of $250. There were no balances
outstanding on this line at December 31, 1997 or 1998.
NOTE 7--EMPLOYEE BENEFIT PLAN
401(K):
The Company sponsors the Holthouse Carlin & Van Trigt 401(K) Plan which is
available to all of its employees. The employees are eligible to participate in
the plan after 90 days of employment. The plan is contributory by the employee
only as the Company makes no matching contribution.
NOTE 8--PARTNERS' EQUITY
The Company is a California Registered limited liability partnership with
seven common partners, one of which is the managing partner. In accordance with
the Partnership agreement each partner contributed $30 to the partners'
applicable capital account upon acceptance. One new partner was accepted during
1998 increasing the total number of partners from six partners in 1997 to seven
partners in 1998.
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
The Company has loans outstanding to certain of its employees, excluding
partners, during 1997 and 1998. These loans are for the employees' personal
uses and are collected via monthly payroll deductions since inception. The
Company decided to eliminate the issuance of such loans during 1998. Employee
loans totaled $28, $13 and $10 (unaudited) at December 31, 1997 and 1998 and
March 31, 1999, respectively.
One of the Company's partners is a partial owner of a legal service firm
located in Orange County, California. This legal service firm is a client of
the Company during 1997 and 1998. There were no material transactions with this
legal service firm during 1997 or 1998.
Certain partners of the Company are investors in business ventures conducted
by certain of the Company's clients. All of these clients receive only tax
consultation services from the Company. The respective partners' investments
are made and held individually rather than by the Company at December 31, 1997
and 1998.
F-136
<PAGE>
HOLTHOUSE CARLIN & VAN TRIGT LLP
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
NOTE 11--SUBSEQUENT EVENTS
Effective January 1, 1999, the Company admitted William L. Warburton as a
probationary partner bringing the total number of partners to eight. As a
probationary partner, Mr. Warburton does not have voting privileges for a
period of two years, other than the right to vote on any prospective partner.
Cornerstone Transaction (Unaudited):
In March 1999, the Company and its stockholders entered into a definitive
agreement with CenterPoint Advisors, Inc. (CenterPoint) pursuant to which the
Company will transfer all of its assets to a newly formed Delaware limited
liability company ("HCVT Company") followed by a dissolution of the Company.
Thereafter, seven wholly-owned subsidiaries and one wholly-owned limited
liability company of CenterPoint will merge with and into the seven corporate
members of HCVT Company and the sole limited liability company member of HCVT
Company, respectively. All of the Company's outstanding partnership interests
will be exchanged for cash and common stock of CenterPoint concurrently with
the consummation of the initial public offering of the common stock of
CenterPoint.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, CenterPoint is requiring
that the Company divest its attest functions 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, CenterPoint
will provide professional and other personnel, equipment, office space and
business and administrative services necessary to operate the Attest Firm.
F-137
<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-138
<PAGE>
THE REPPOND COMPANIES
COMBINED BALANCE SHEET
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 148 $ 174
Accounts receivable................................. 842 885
Prepaid expenses.................................... 77 94
------ ------
Total current assets.............................. 1,067 1,153
Property and equipment, net........................... 792 837
Deferred income taxes................................. 7 7
Other assets.......................................... 27 30
------ ------
Total assets...................................... $1,893 $2,027
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt..................................... $ 368 $ 673
Accounts payable.................................... 248 229
Accrued compensation and related costs.............. 243 148
Income taxes payable................................ 103 20
Deferred income taxes............................... 120 107
Other accrued liabilities........................... 5 --
------ ------
Total current liabilities......................... 1,087 1,177
Long-term debt........................................ 130 84
------ ------
Total liabilities................................. 1,217 1,261
------ ------
Commitments
Shareholders' equity:
Members' equity of the Reppond Administrators
L.L.C.............................................. (26) 13
Common stock of The Reppond Company, $1 par value;
50,000 shares authorized; 500 shares issued and
outstanding at December 31, 1998 and March 31, 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 March 31,
1999 (unaudited)................................... -- --
Additional paid-in capital.......................... 56 56
Note receivable from shareholder.................... (28) (28)
Retained earnings................................... 673 724
------ ------
Total shareholders' equity........................ 676 766
------ ------
Total liabilities and shareholders' equity........ $1,893 $2,027
====== ======
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-139
<PAGE>
THE REPPOND COMPANIES
COMBINED STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended March 31,
December 31, -------------
1998 1998 1999
------------ ------ ------
(Unaudited)
<S> <C> <C> <C>
Revenue:
Commission....................................... $6,423 $1,562 $1,788
Fee for service.................................. 1,469 347 403
------ ------ ------
7,892 1,909 2,191
------ ------ ------
Expenses:
Producer compensation and related costs.......... 2,359 635 674
Employee compensation and related costs.......... 2,708 586 646
Occupancy costs.................................. 391 98 111
Office operating expenses........................ 501 77 124
Depreciation and amortization.................... 332 76 76
Other selling, general and administrative
expenses........................................ 1,090 227 401
------ ------ ------
7,381 1,699 2,032
------ ------ ------
Operating income............................... 511 210 159
------ ------ ------
Other (income) expense:
Interest expense................................. 72 23 10
Interest income.................................. (43) -- (1)
Other............................................ 22 7 --
------ ------ ------
51 30 9
------ ------ ------
Income before provision for income taxes........... 460 180 150
Provision for income taxes......................... 113 45 60
------ ------ ------
Net income......................................... $ 347 $ 135 $ 90
====== ====== ======
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-140
<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:
Net income........ -- -- 39 -- -- -- 51 -- -- 90
--- --- ----- --- ---- --- ---- ---- ---- ----
Total
comprehensive
income...........
Balance at March
31, 1999
(unaudited)....... 500 $ 1 $ 13 250 $-- $56 $724 $(28) $-- $766
=== === ===== === ==== === ==== ==== ==== ====
<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:
Net income........ 90
-------------
Total
comprehensive
income........... $ 90
=============
Balance at March
31, 1999
(unaudited).......
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-141
<PAGE>
THE REPPOND COMPANIES
COMBINED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended March 31,
December 31, -------------
1998 1998 1999
------------ ------------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 347 $ 135 $ 90
Adjustments to reconcile net income to net
cash provided by (used in ) operating
activities:
Depreciation and amortization............... 332 76 76
Changes in current operating assets and
liabilities:
Accounts receivable...................... 41 29 (43)
Prepaid expenses......................... (38) (35) (17)
Accounts payable......................... 102 (7) (19)
Accrued compensation and related costs... 78 (7) (95)
Income taxes payable..................... 184 (5) (83)
Deferred income taxes.................... (67) (19) (13)
Other assets and liabilities............. (20) 15 (8)
----- ----- ------
Net cash provided by (used in)
operating activities.................. 959 182 (112)
----- ----- ------
Cash flows from investing activities:
Purchase of property and equipment........... (301) (48) (121)
----- ----- ------
Net cash used in investing activities.. (301) (48) (121)
----- ----- ------
Cash flows from financing activities:
Payments of long-term debt................... (346) (46) (46)
Repurchase of common stock................... (17) (17) --
Proceeds from (payments of) short-term debt,
net......................................... (185) (18) 305
----- ----- ------
Net cash (used in) provided by
financing activities.................. (548) (81) 259
----- ----- ------
Net increase in cash and cash equivalents...... 110 53 26
Cash and cash equivalents at beginning of
period........................................ 38 38 148
----- ----- ------
Cash and cash equivalents at end of year....... $ 148 $ 91 $ 174
===== ===== ======
Supplemental disclosures of cash flow
information:
Interest paid................................ $ 72 $ 23 $ 10
Income taxes paid............................ $ 111 $ 51 $ 160
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-142
<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-143
<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 March 31, 1999 and the
results of its operations and its cash flow for the three months ended March
31, 1999 and 1998, as presented in the accompanying unaudited interim financial
statements.
F-144
<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, March 31,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Property and equipment:
Furniture and fixtures......................... $ 438 $ 446
Computer equipment............................. 823 931
Leasehold improvements......................... 103 103
Office equipment............................... 302 307
Vehicles....................................... 19 19
Computer software.............................. 286 286
------- -------
1,971 2,092
Less accumulated depreciation and amortization... (1,179) (1,255)
------- -------
$ 792 $ 837
======= =======
</TABLE>
NOTE 5--CREDIT FACILITIES
Short-Term Debt:
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Line of credit.................................... $183 $488
Current maturities of long-term debt.............. 185 185
---- ----
Total short-term debt........................... $368 $673
==== ====
</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-145
<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, March 31,
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 $269
Less current maturities of long-term debt....... 185 185
---- ----
Total long-term debt........................ $130 $ 84
==== ====
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>
Three Months
Year Ended Ended
December 31, March 31,
1998 1998 1999
------------ ------ ------
(Unaudited)
<S> <C> <C> <C>
Income taxes currently payable:
Federal..................................... $180 $ 64 $ 73
---- ------ ------
Deferred income tax expense (benefit):
Federal..................................... (67) (19) (13)
---- ------ ------
Total provision for income taxes.......... $113 $ 45 $ 60
==== ====== ======
</TABLE>
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
Three Months
Ended
December 31, March 31,
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 $103
Unrealized losses.............................. 4 4
---- ----
$120 $107
==== ====
</TABLE>
F-146
<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>
Three Months
Ended
Year Ended March 31,
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) (9)
Meals and entertainment.................... 4 4 3
Merger costs............................... -- -- 10
Other...................................... 1 1 1
--- ------ ------
25% 25% 39%
=== ====== ======
</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 March 31, 1998 and 1999 was $386, $97
(unaudited), and $110 (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-147
<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 CenterPoint Advisors, Inc. (CenterPoint) pursuant to which three
wholly owned subsidiaries of CenterPoint 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 cash and common stock of CenterPoint concurrently with
the consummation of the initial public offering of the common stock of
CenterPoint.
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 May 17, 1999.
F-148
<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-149
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
BALANCE SHEET
(In Thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 169 $ 235
Fees receivable, less allowance for doubtful
accounts of $177 and $177 (unaudited).............. 1,562 2,265
Notes receivable.................................... 12 12
Unbilled fees, at net realizable value.............. 254 487
Prepaid expenses and other current assets........... 23 75
------ ------
Total current assets.............................. 2,020 3,074
Property and equipment, net........................... 133 125
Fees receivable....................................... 43 43
Notes receivable...................................... 46 46
------ ------
Total assets...................................... $2,242 $3,288
====== ======
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Short-term debt..................................... $1,101 $1,171
Loans from members.................................. 26 22
Due to managers..................................... 152 186
Accounts payable.................................... 115 216
Accrued expenses.................................... 142 139
------ ------
Total current liabilities......................... 1,536 1,734
Long-term debt........................................ 153 120
Deferred rent......................................... 113 115
------ ------
Total liabilities................................. 1,802 1,969
------ ------
Commitments and contingencies
Members' equity:
Members............................................. -- --
Managers............................................ 440 1,319
------ ------
Total members' equity............................. 440 1,319
------ ------
Total liabilities and members' equity............. $2,242 $3,288
====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-150
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31,
December 31, ------------------
1998 1998 1999
------------ --------- ---------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Professional services....................... $6,217 $ 1,983 $ 2,478
------ --------- ---------
Expenses:
Members' and managers' compensation and
related costs.............................. 2,306 570 627
Employee compensation and related costs..... 2,090 588 574
Occupancy costs............................. 372 86 86
Office operating expenses................... 494 129 131
Depreciation and amortization............... 31 8 8
Other selling, general and administrative
expenses................................... 467 104 108
------ --------- ---------
5,760 1,485 1,534
------ --------- ---------
Operating income.......................... 457 498 944
------ --------- ---------
Other expense:
Interest expense............................ 130 30 35
Other....................................... 50 -- 30
------ --------- ---------
180 30 65
------ --------- ---------
Net income.................................... $ 277 $ 468 $ 879
====== ========= =========
</TABLE>
See accompanying Notes to Financial Statements.
F-151
<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).............................. -- 879 879
---- ------ ------
Balance at March 31, 1999 (unaudited)............... $-- $1,319 $1,319
==== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-152
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31,
December 31, ------------------
1998 1998 1999
------------ --------- ---------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 277 $ 468 $ 879
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 31 8 8
Provision for losses on accounts
receivable............................. 56 4 15
Changes in deferred rent expense........ 17 -- 2
Changes in current assets and
liabilities:
Fees receivable....................... (266) (197) (718)
Unbilled fees......................... (159) (287) (233)
Prepaid expenses and other current
assets............................... (2) (69) (52)
Due to managers....................... 152 -- 34
Accounts payable...................... (10) 87 101
Accrued expenses...................... 33 43 (3)
----- --------- ---------
Net cash provided by operating
activities......................... 129 57 33
----- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment........ (11) (6) --
----- --------- ---------
Net cash used in investing
activities......................... (11) (6) --
----- --------- ---------
Cash flows from financing activities:
Payments of long-term debt................ (133) (33) (33)
Proceeds from short-term debt............. 197 10 70
Payments of loans from members............ (16) (4) (4)
----- --------- ---------
Net cash provided by (used in)
financing activities............... 48 (27) 33
----- --------- ---------
Net increase in cash........................ 166 24 66
Cash and cash equivalents at beginning of
year....................................... 3 3 169
----- --------- ---------
Cash and cash equivalents at end of year.... $ 169 $ 27 $ 235
===== ========= =========
Supplemental disclosure of cash flow
information:
Interest paid............................. $ 130 $ 30 $ 35
</TABLE>
See accompanying Notes to Financial Statements.
F-153
<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. Any anticipated losses expected to be incurred
in connection with the completion of a project are recognized when 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.
F-154
<PAGE>
SIMIONE, SCILLIA, LARROW & DOWLING LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars In Thousands)
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 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 March 31, 1999, and
the results of its operations and its cash flows for the three months ended
March 31, 1998 and 1999, as presented in the accompanying unaudited interim
financial statements.
F-155
<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, March 31,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Property and equipment, net:
Furniture and fixtures........................ $197 $197
Computer equipment............................ 19 19
---- ----
216 216
Less accumulated depreciation and
amortization................................. (83) (91)
---- ----
$133 $125
==== ====
</TABLE>
NOTE 4--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a rollforward of activity within the allowance for doubtful
accounts:
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
1998 1999
------------ ---------------
(Unaudited)
<S> <C> <C>
Balance at beginning of period................ $255 $177
Additions to costs and expenses............... 56 15
Less write-offs............................... (134) (15)
---- ----
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, March 31,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Line of credit borrowings......................... $ 969 $1,039
Current maturities of long-term debt.............. 132 132
------ ------
Total short-term debt........................... $1,101 $1,171
====== ======
</TABLE>
Line of credit borrowings consist of amounts outstanding under the Company's
$1,500 commercial note and revolving loan agreement with a bank. That note and
loan agreement 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. To the extent the line of credit borrowings exceed $1,000, such
borrowings cannot exceed 85 percent of the Company's eligible accounts
receivable (as defined). The revolving line of credit matures on April 30,
1999.
F-156
<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, March 31,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <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 $252
Less current maturities of long-term debt........ (132) (132)
---- ----
Total long-term debt......................... $153 $120
==== ====
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, $83 (unaudited) and $125 (unaudited) for the fiscal year
ended December 31, 1998 and for the three months ended March 31, 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-157
<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, $8
(unaudited) and $7 (unaudited) for the fiscal year ended December 31, 1998 and
the three months ended March 31, 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.
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 CenterPoint Advisors, Inc. (CenterPoint) 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 CenterPoint. All of the
members' equity in SSLD LLC will be exchanged for cash and common stock of
CenterPoint concurrently with the consummation of the initial public offering
of the common stock of CenterPoint.
In order to comply with standards of the accounting profession and
applicable state regulations governing the profession, CenterPoint 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, CenterPoint
will provide professional and other personnel, equipment, office space and
business and administrative services necessary to operate the Attest Firm.
F-158
<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.
A-2
<PAGE>
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
B-1
<PAGE>
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
B-2
<PAGE>
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
B-3
<PAGE>
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.
B-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
CenterPoint's certificate of incorporation provides that CenterPoint 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.
CenterPoint's certificate of incorporation provides that CenterPoint's
directors will not be personally liable to CenterPoint 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 CenterPoint 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 CenterPoint, Reznick Fedder & Silverman,
Certified Public Accountants, A Professional Corporation, 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 CenterPoint, Robert F. Driver Co., Inc., RFD
Mergersub Inc. and the stockholders of Robert F. Driver Co., Inc., dated
as of March 31, 1999.
2.3* Merger Agreement between CenterPoint, Follmer, Rudzewicz & Company,
P.C., FRF Holding LLC, FRC Mergersub Inc. and the stockholders of
Follmer Rudzewicz & Company, P.C., dated as of March 31, 1999.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
2.4* Merger Agreement between CenterPoint, Mann Frankfort Stein & Lipp,
P.C., MFSL Mergersub Inc. and the stockholders of Mann Frankfort &
Stein & Lipp, P.C., dated as of March 31, 1999.
2.5* Merger Agreement between CenterPoint, Berry, Dunn, McNeil & Parker,
Chartered, 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 CenterPoint, Urbach Kahn & Werlin, PC, 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 CenterPoint, Self Funded Benefits, Inc.
(d/b/a Insurance Design Administrators), IDA Mergersub Inc. and the
stockholders of Self Funded Benefits, Inc. (d/b/a Insurance Design
Administrators), dated as of March 31, 1999.
2.8* Merger Agreement between CenterPoint, Holthouse Carlin & Van Trigt
LLP, certain merger subsidiaries of CenterPoint, the partners of
Holthouse Carlin & Van Trigt LLP, the members of the LLC Partner and
the stockholders of the Corporate Partners, dated as of March 31,
1999.
2.9* Merger Agreement between CenterPoint, Grace & Company, P.C., Grace
Capital, LLP, Grace Mergersub Inc. and the partners of Grace Capital,
LLP, dated as of March 31, 1999.
2.10* Merger Agreement between CenterPoint, 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 CenterPoint, Simione, Scillia, Larrow &
Dowling LLC, SSLD Mergersub LLC and the members of Simione, Scillia,
Larrow & Dowling LLC, dated as of March 31, 1999.
2.12* Voting Agreement by and among CenterPoint 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 CenterPoint and named stockholders of
Robert F. Driver Co., Inc., dated March 31, 1999.
2.14* Voting Agreement by and among CenterPoint and named stockholders of
Follmer, Rudzewicz & Company, P.C., dated March 31, 1999.
2.15* Voting Agreement by and among CenterPoint and named stockholders of
Mann Frankfort Stein & Lipp, P.C., dated March 31, 1999.
2.16* Voting Agreement by and among CenterPoint and named stockholders of
Berry, Dunn, McNeil & Parker, Chartered, dated March 31, 1999.
2.17* Voting Agreement by and among CenterPoint and named stockholders of
Urbach, Kahn & Werlin, P.C., dated March 31, 1999.
2.18* Voting Agreement by and among CenterPoint and named stockholders of
Self Funded Benefits, Inc. (d/b/a Insurance Design Administrators),
dated March 31, 1999.
2.19* Voting Agreement by and among CenterPoint and the partners of
Holthouse Carlin & Van Trigt LLP, dated March 31, 1999.
2.20* Voting Agreement by and among CenterPoint and named partners of Grace
& Company, P.C., dated March 31, 1999.
2.21* Voting Agreement by and among CenterPoint and the stockholders of The
Reppond Company, Inc., dated March 31, 1999.
2.22* Voting Agreement by and among CenterPoint and the members of Reppond
Administrators, L.L.C., dated March 31, 1999.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
2.23* Voting Agreement by and among CenterPoint and the stockholders of
VeraSource Excess Risk Ltd., dated March 31, 1999.
2.24* Voting Agreement by and among CenterPoint, Simione, Scillia, Larrow &
Dowling LLC, and the managers of Simione, Scillia, Larrow & Dowling
LLC, dated March 31, 1999.
3.1* Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
4.1** Specimen stock certificate representing common stock.
5 Opinion of Katten Muchin & Zavis as to the legality of the securities
being registered (including consent).
8.1* Opinion of Katten Muchin & Zavis as to tax matters.
10.1** Form of Employment Agreement between CenterPoint and Robert C.
Basten.
10.2** Form of Employment Agreement between CenterPoint and DeAnn L. Brunts.
10.3** Form of Employment Agreement between CenterPoint and Rondol E. Eagle.
10.4** Form of Employment Agreement between CenterPoint and Dennis W. Bikun.
10.5* Form of Employment Agreement between CenterPoint, Robert F. Driver
Co., Inc. and Thomas W. Corbett.
10.6* Form of Employment Agreement between Self Funded Benefits, Inc.
(d/b/a Insurance Design Administrators) and Robert F. Gallo.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of Katten Muchin & Zavis (contained in its opinion to be
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)
23.12* Consent of Proposed Director (Philip J. Holthouse)
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)
24*** Power of Attorney (see signature page).
</TABLE>
- --------
* Incorporated by reference to the corresponding exhibit to the Registrant's
registration statement on Form S-1 (file no. 333-75863).
** To be filed by amendment.
*** Prevously filed with the Securities and Exchange Commission as an Exhibit
to this Registration Statement filed on April 7, 1999.
II-3
<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.
II-4
<PAGE>
(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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the registrant
has duly caused this 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 21st day of May, 1999.
CenterPoint 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 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, May 21, 1999
______________________________________ President and Chief
Robert C. Basten Executive Officer
* Executive Vice President, May 21, 1999
______________________________________ Chief Financial Officer
DeAnn L. Brunts and a Director
* Vice President and Chief May 21, 1999
______________________________________ Accounting Officer
Dennis W. Bikun
* Director May 21, 1999
______________________________________
Scott H. Lang
</TABLE>
/s/ Robert C. Basten
<TABLE>
<S> <C> <C>
May 21, 1999
</TABLE>
*By: _______________________
Robert C. Basten
Attorney-in-fact
II-6
<PAGE>
[KATTEN MUCHIN & ZAVIS LETTERHEAD]
Exhibit 5
May 21, 1999
CenterPoint Advisors, Inc.
225 West Washington Street, 16/th/ Floor
Chicago, IL 60606
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for CenterPoint 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 3,074,361 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 eleven Merger
Agreements, each dated as of March 31, 1999 (the "Merger Agreements"), by and
among the Company, wholly-owned subsidiaries of the Company, and eleven separate
companies that collectively provide professional, business and financial
services and products (the "CenterPoint 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.
May 21, 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
3,074,361 shares of Common Stock covered by the Registration Statement, when
issued and exchanged for the equity interests of the CenterPoint 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>
CenterPoint Advisors, Inc................................... April 5, 1999
Reznick Fedder & Silverman, P.C............................. January 29, 1999
Robert F. Driver Co., Inc................................... February 10, 1999
Mann Frankfort Stein & Lipp, P.C............................ January 29, 1999
Follmer, Rudzewicz & Company, P.C........................... February 4, 1999
Berry, Dunn, McNeil & Parker, Chartered..................... January 9, 1999
Urbach Kahn & Werlin PC..................................... February 9, 1999
Self Funded Benefits, Inc. d/b/a Insurance Design
Administrators............................................. February 5, 1999
Grace & Company, P.C........................................ February 12, 1999
Holthouse Carlin & Van Trigt LLP............................ January 31, 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
May 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.
KPMG LLP
San Diego, California
May 24, 1999
