<PAGE>
As filed with the Securities and Exchange Commission on May 24, 1999
Registration No. 333-75863
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Amendment No. 1
to
FORM S-1
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 (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification No.)
of incorporation or Classification Code No.)
organization)
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. MICHAEL A. CAMPBELL, ESQ.
MARGUERITE M. ELIAS, ESQ. Mayer Brown & Platt
Katten Muchin & Zavis 190 South LaSalle Street
525 West Monroe Street, Suite 1600 Chicago, Illinois 60603
Chicago, Illinois 60661 (312) 782-0600
(312) 902-5200
--------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 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(c)
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: [_]
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: [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed maximum Amount of
Title of each class of Amount to be maximum offering aggregate registration
securities to be registered registered price per share offering price fee
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<S> <C> <C> <C> <C>
12,075,000
Common Stock, $.01 par value........ shares(1) $15.00(2) $181,125,000(2) $50,353.00(3)
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</TABLE>
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(1) Includes 1,575,000 shares to be offered upon exercise of the underwriters'
over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of Regulation C under the Securities Act of 1933, as amended.
(3) $41,700.00 of such amount was 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. +
+CenterPoint may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated May 24, 1999
PROSPECTUS
10,500,000 Shares
CenterPoint Advisors, Inc.
[LOGO]
Common Stock
-----------
This is CenterPoint's initial public offering of common stock. The
underwriters will offer 10,500,000 shares in the United States and Canada. This
is a firm commitment underwriting.
CenterPoint expects the public offering price to be between $ and
$ per share. Currently, no public market exists for the shares. After
pricing of the offering, CenterPoint expects that the common stock will trade
on The New York Stock Exchange under the symbol " ".
Investing in the common stock involves risks which are described in the
"Risk Factors" section beginning on page 9 of this prospectus.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- ------
<S> <C> <C>
Public offering price................................... $ $
Underwriting discount................................... $ $
Proceeds, before expenses, to CenterPoint............... $ $
</TABLE>
The underwriters may also purchase up to an additional 1,575,000 shares at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
CenterPoint expects that the shares of common stock will be ready for
delivery in New York, New York on or about , 1999.
-----------
Merrill Lynch & Co.
Lehman Brothers
Thomas Weisel Partners LLC
CIBC World Markets
-----------
The date of this prospectus is , 1999
<PAGE>
[U.S. map with the locations of the CenterPoint Companies]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 9
Forward Looking Statements............................................... 17
The Company.............................................................. 18
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Dilution................................................................. 24
Selected Financial Data.................................................. 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Industry Overview........................................................ 53
Business................................................................. 56
Management............................................................... 67
Certain Transactions..................................................... 75
Principal Stockholders................................................... 80
Description of Capital Stock............................................. 81
Shares Eligible for Future Sale.......................................... 82
Underwriting............................................................. 84
Certain Legal Matters.................................................... 87
Experts.................................................................. 87
Where You May Find Additional Information................................ 88
Financial Statements..................................................... F-1
</TABLE>
----------------
CenterPoint's principal executive offices are located at 225 West
Washington Street, 16th Floor, Chicago, Illinois 60606, and its phone number is
(312) 578-9600.
You should rely only on the information contained in this prospectus.
CenterPoint has not, and the underwriters 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 underwriters 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 prospectus is accurate as of the date on
the front cover of this prospectus only. CenterPoint's business, financial
condition, results of operations and prospects may have changed since that
date.
3
<PAGE>
PROSPECTUS SUMMARY
At the same time as, and as a condition to, the closing of the offering,
CenterPoint will acquire, in separate mergers, eleven companies that
collectively provide professional, business and financial services and
products. We refer to these eleven companies as the "CenterPoint Companies."
For more information about the CenterPoint Companies and the mergers, see "The
Company" and "Certain Transactions."
This summary highlights selected information from this prospectus and may
not contain all of the information that may be important to you. You should
read the entire prospectus carefully, including the financial data and related
notes, before you decide whether to invest in CenterPoint. Unless stated
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 the offering; and
. assume that the underwriters' over-allotment option is not
exercised.
The Company
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%.
Industry Overview
The professional and business and financial services market is growing
and changing as clients increasingly look to outside service providers to meet
their complex needs. CenterPoint believes that client demands and other market
forces are redefining the lines that once separated the delivery of traditional
accounting services from other professional, business and financial services.
According to the U.S. Department of Commerce, the accounting profession is
facing greater demand for value-added consulting services. This expansion of
services has fueled significant growth in CenterPoint's industry.
CenterPoint believes that the Big Five accounting firms have focused
primarily on developing diversified business, financial and consulting services
in response to the needs of their largest corporate clients. However,
CenterPoint believes that the needs of middle-market clients are also
increasingly complex, creating opportunities for large regional accounting
firms to expand their service and product offerings. According to Accounting
Today, revenues of the top 100 accounting firms other than the Big Five totaled
$4.9 billion in 1998. When comparing 1998 and 1997, consulting revenues for
such firms were the most significant contributor to the growth that this
segment of the industry experienced, outpacing growth in revenues for tax
services and for accounting and auditing services. CenterPoint believes that
clients are increasingly demanding diverse professional services, including
consulting, as well as other business and financial services and products, and
that these demands are creating a new and rapidly emerging diversified industry
where trusted advisors provide clients with a variety of services and products.
4
<PAGE>
CenterPoint's 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.
. Create national practices that extend its existing industry,
service and product expertise.
. Expand its strong local presence in key geographic markets.
. Integrate its management and its information systems.
. Use a unique compensation structure designed to provide it with a
baseline level of earnings before corporate expenses.
In addition, CenterPoint will implement a growth strategy that focuses on
expanding its services and products in order to better service existing clients
and attract new clients. To execute its growth strategy, CenterPoint will:
. Build upon existing "trusted advisor" relationships by using its
professional services firms as the focal points for delivering its
services and products.
. Encourage cooperation among the CenterPoint Companies by
instituting incentives for client and knowledge sharing.
. Pursue targeted acquisitions and alliances to build and enhance
CenterPoint's national practices, increase its presence and
capacity in key markets and add new professional, business and
financial services and products.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by
CenterPoint..................... 10,500,000 shares
Common stock to be outstanding
after the offering.............. 26,750,676 shares
Use of proceeds.................. CenterPoint expects that the net proceeds
from the offering (after deducting the
underwriting discount and estimated
offering expenses) will be approximately
$130.7 million (assuming an initial public
offering price of $14.00 per share).
CenterPoint intends to use these net
proceeds to pay the cash portion of the
purchase price for the CenterPoint
Companies (other than contingent payments),
to repay indebtedness and fund other
obligations of the CenterPoint Companies
and for general corporate purposes,
including future acquisitions.
Proposed New York Stock Exchange
symbol..........................
</TABLE>
In addition to the 26,750,676 shares of common stock to be outstanding
after the offering, CenterPoint may issue the following:
. 2,006,301 shares of common stock issuable upon the exercise of
options to be granted to CenterPoint's management and other
employees upon closing of the offering;
. 100,000 shares of common stock issuable upon the exercise of
warrants to be issued upon closing of the offering; and
. 5,771,396 shares reserved for issuance under CenterPoint's
incentive compensation and stock purchase plans.
See "Management--Employee Incentive Compensation Plan" and "--Employee
Stock Purchase Plan" and "Certain Transactions--Organization of CenterPoint."
6
<PAGE>
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 offering. 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 offering 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.
<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, 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
========== ========== ==========
</TABLE>
7
<PAGE>
<TABLE>
<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
</TABLE>
- --------
(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 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 offering.
(2) Reflects the reduction in other operating expenses related to 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 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 offering 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 offering, 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 offering.
8
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding whether to purchase CenterPoint common
stock.
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
"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
9
<PAGE>
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--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
10
<PAGE>
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.
11
<PAGE>
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. See "Dilution."
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
12
<PAGE>
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,
13
<PAGE>
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
"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 "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.
14
<PAGE>
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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Introduction--Pro
Forma Combined Liquidity and Capital Resources."
Purchasers of shares in the offering will experience immediate and substantial
dilution
Purchasers of shares of common stock in the offering will experience
immediate dilution in the net tangible book value of their shares of
approximately $13.22 per share. See "Dilution."
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 "Principal
Stockholders" and "Description of Capital Stock" for information concerning the
beneficial ownership of CenterPoint's stockholders and the terms of the
stockholders' agreement.
The number of shares eligible for public sale after the offering may cause a
decline in CenterPoint's stock price
Sales, or the availability for sale, of substantial amounts of the common
stock in the public market after the offering could cause a decline in the
market price of the common stock and impair CenterPoint's ability to raise
equity capital, or finance acquisitions using equity capital, in the future.
See "Shares Eligible for Future Sale" for information regarding the number of
shares of common stock eligible for public sale after the offering.
15
<PAGE>
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. See
"Underwriting" for more information regarding how the initial public offering
price will be determined.
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 Capital Stock" for a description of these provisions.
16
<PAGE>
FORWARD LOOKING STATEMENTS
This 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" set forth above, as well as other cautionary
language in this 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.
17
<PAGE>
THE COMPANY
CenterPoint is a leading provider of professional, business and financial
services and products to middle-market clients. CenterPoint's goal is 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. Five of the
eight CenterPoint Companies that are professional services firms were named in
Accounting Today's 1999 Top 100 Accounting Firms (the "Accounting Top 100")
which ranks the largest accounting firms in the United States in terms of total
revenues for their respective 1998 fiscal years. Based on the pro forma
combined revenues of these eight firms for the fiscal year ended December 31,
1998, CenterPoint would have been ranked No. 13 in the Top 100 had the
CenterPoint Companies been combined throughout such period.
Each of the CenterPoint Companies represents an integral component of
CenterPoint's business and growth strategies and was selected to fill a
specific role in the development of CenterPoint's professional, business and
financial services platforms. The CenterPoint Companies, each of which is
prominent in its market, have collectively achieved substantial growth in
recent years. On a combined historical basis, revenues increased from $169.8
million in fiscal 1997 to $201.0 million in fiscal 1998, representing an annual
growth rate of 18.4%.
A brief description of each CenterPoint Company, its principal areas of
expertise and its anticipated contribution to the execution of CenterPoint's
strategy is set forth below. Except as noted, the following table represents
revenues for the fiscal years ended December 31, 1997 and 1998.
<TABLE>
<CAPTION>
Revenues
-----------------
CenterPoint Company Headquarters 1997 1998
------------------- --------------- -------- --------
(In thousands)
<S> <C> <C> <C>
Professional Services
Reznick Fedder & Silverman(a)......... Bethesda, MD $ 35,103 $ 47,877
Mann Frankfort Stein & Lipp........... Houston, TX 17,475 21,631
Follmer, Rudzewicz & Company(b)....... Detroit, MI 17,954 19,417
Berry, Dunn, McNeil & Parker(c)....... Portland, ME 16,812 17,916
Urbach Kahn & Werlin(d)............... Albany, NY 16,012 17,085
Grace & Company....................... St. Louis, MO 8,524 9,691
Holthouse Carlin & Van Trigt.......... Los Angeles, CA 7,720 9,446
Simione, Scillia, Larrow & Dowling.... New Haven, CT 5,244 6,217
Business and Financial Services
Robert F. Driver Co.(e)............... San Diego, CA 28,170 32,886
Insurance Design Administrators....... Oakland, NJ 9,756 10,933
Reppond............................... Bellevue, WA 6,990 7,892
-------- --------
Total revenues........................ $169,760 $200,991
======== ========
</TABLE>
- --------
(a) For the fiscal years ended September 30, 1997 and 1998.
(b) For the fiscal years ended May 31, 1997 and 1998.
(c) For the fiscal years ended June 30, 1997 and 1998.
(d) For the fiscal years ended October 31, 1997 and 1998.
(e) For the fiscal years ended July 31, 1997 and 1998.
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<PAGE>
Professional Services
Reznick Fedder & Silverman
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 Accounting 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.
Mann Frankfort Stein & Lipp
Mann Frankfort Stein & Lipp, P.C., founded in 1971, provides accounting,
tax, financial reporting, consulting and litigation consulting services
primarily to closely held clients in a wide range of industries. Mann
Frankfort, located in Houston, Texas, is Houston's largest accounting firm
other than the Big Five based on the number of professionals, and was ranked
No. 44 in the Accounting 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.
Follmer, Rudzewicz & Company
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 Accounting 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.
Berry, Dunn, McNeil & Parker
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 Accounting 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.
Urbach Kahn & Werlin
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,
19
<PAGE>
New York; and Poughkeepsie, New York. Urbach, ranked No. 48 in the Accounting
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.
Grace & Company
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.
Holthouse Carlin & Van Trigt
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.
Simione, Scillia, Larrow & Dowling
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.
Business and Financial Services
Robert F. Driver Co.
Robert F. Driver Co., Inc., founded in 1925, is a multi-line insurance
brokerage company that provides property and casualty insurance services,
workers compensation coverage, employee benefits products, surety coverage and
various financial services to a broad range of domestic and international
clients. Driver maintains offices in San Diego, Newport Beach, Escondido,
Sacramento, Fresno, San Francisco, San Rafael and Ontario, California. Driver
manages in excess of $500 million in premiums and was ranked by the San Diego
Business Journal as San Diego's largest independent insurance brokerage firm in
1998 based on premium volume. In terms of brokerage revenues, Driver was ranked
No. 33 nationally in 1998 by Business Insurance. Driver will provide
CenterPoint with a platform for its anticipated national practice in insurance
and benefits brokerage and consulting services.
Insurance Design Administrators
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,
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<PAGE>
IDA was ranked by Employee Benefit News in July 1998 as the 11th largest third
party administrator in the United States. IDA will provide the platform for
CenterPoint's anticipated national practice in third party administration and
self insurance services.
Reppond
The Reppond Company, Inc., Reppond Administrators, LLC, and VeraSource
Excess Risk Ltd. (collectively, "Reppond"), 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.
21
<PAGE>
USE OF PROCEEDS
CenterPoint estimates that the net proceeds from the sale of the
10,500,000 shares of common stock offered by this prospectus, assuming an
initial public offering price of $14.00 per share and after deducting the
underwriting discount and estimated offering expenses, will be approximately
$130.7 million (approximately $151.2 million if the underwriters' over-
allotment option is exercised in full). Estimated offering expenses include
amounts advanced by BGL Capital Partners L.L.C. (an initial investor in
CenterPoint) on behalf of CenterPoint in payment of legal, accounting and other
fees.
Of the net proceeds, CenterPoint intends to use
. approximately $83.9 million to pay the cash portion of the
purchase price for the CenterPoint Companies (other than
contingent payments as described in "Certain Transactions--The
Mergers");
. approximately $28.4 million to repay indebtedness assumed by
CenterPoint in the mergers;
. $4.0 million to fund the redemption by Driver of its outstanding
preferred stock; and
. $250,000 to settle a consulting agreement entered into by Driver.
CenterPoint intends to use the remaining $14.2 million of net proceeds
($34.7 million if the underwriters' over-allotment option is exercised in full)
for working capital and general corporate purposes, including future
acquisitions. Pending such uses, CenterPoint will invest the net proceeds in
short term, interest bearing, U.S. government securities.
The indebtedness CenterPoint intends to repay bears interest at effective
rates up to % with a weighted average interest rate of %, and would
otherwise mature on various dates through . Such indebtedness was
incurred in connection with a recapitalization at one of the CenterPoint
Companies and for purchases of equipment, working capital requirements and
general corporate purposes.
CenterPoint is required to obtain a credit facility of at least $75
million as a condition to the closing of the mergers and is seeking to obtain a
bank credit facility in an amount up to $100 million. CenterPoint has not
obtained any commitments and cannot assure you that it will be able to obtain
this facility, or other financing it may need, on acceptable terms. The Company
anticipates borrowing approximately $10.0 million under the facility during the
six months following the closing of the offering 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 CenterPoint begins to generate cash flow from operations, which is
anticipated to occur between 90 and 120 days following the closing of the
offering.
DIVIDEND POLICY
CenterPoint intends to retain its earnings, if any, to finance the
expansion of its business and for general corporate purposes, and does not
anticipate paying any cash dividends on its common stock in the foreseeable
future. Any payment of future dividends will be at the discretion of the board
of directors and will depend upon, among other things, CenterPoint's earnings,
financial condition, capital requirements, level of indebtedness, any
contractual restrictions on the payment of dividends and other factors the
board of directors believes to be relevant. In addition, in the event
CenterPoint obtains one or more lines of credit, such facility may include
restrictions on CenterPoint's ability to pay dividends without the consent of
the lender.
22
<PAGE>
CAPITALIZATION
The following table shows the current maturities of the short-term and
long-term debt and capitalization of CenterPoint at March 31, 1999 on a pro
forma combined basis to give effect to the mergers, and as further adjusted to
give effect to the offering (assuming an initial public offering price of
$14.00 per share and after deducting the underwriting discount and estimated
offering expenses) and the application of the estimated net proceeds. You
should read this information together with CenterPoint's unaudited pro forma
combined financial statements and the accompanying notes included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
---------------------
Pro
Forma Pro Forma
Combined As Adjusted
-------- -----------
(In thousands)
<S> <C> <C>
Short-term debt, including current maturities of
long-term debt..................................... $ 10,613 $ 2,410
======== ========
Long-term debt, less current maturities............. $ 24,175 $ 4,000
Redeemable preferred stock.......................... 4,000 --
Stockholders' equity:
Preferred Stock, par value $.01 per share,
10,000,000 shares authorized; none issued and
outstanding...................................... -- --
Common stock, par value $.01 per share, 50,000,000
shares authorized; 16,250,676 shares issued and
outstanding, pro forma combined; 26,750,676
shares issued and outstanding, pro forma as
adjusted......................................... 163 268
Additional paid-in-capital.......................... 132,333 260,307
Retained earnings................................... (1,961) (1,961)
-------- --------
Total stockholders' equity...................... 130,535 258,614
-------- --------
Total capitalization............................ $158,710 $262,614
======== ========
</TABLE>
The share information in the table is based on the number of shares of
common stock outstanding on March 31, 1999, and does not include the following
shares that CenterPoint may issue:
. 2,006,301 shares of common stock issuable upon the exercise of
options to be granted to CenterPoint's management and other employees
upon closing of the offering;
. 100,000 shares of common stock issuable upon the exercise of warrants
to be issued upon closing of the offering; and
. 5,771,396 shares reserved for issuance under CenterPoint's incentive
compensation and stock purchase plans.
See "Management--Employee Incentive Compensation Plan" and "--Employee
Stock Purchase Plan" and "Certain Transactions--Organization of CenterPoint."
23
<PAGE>
DILUTION
The deficit in CenterPoint's pro forma net tangible book value as of
March 31, 1999 was approximately $107.2 million, or $6.60 per share of common
stock, after giving effect to the mergers. The pro forma net tangible book
value per share represents CenterPoint's pro forma net tangible assets less
total liabilities divided by the number of shares of common stock to be
outstanding after giving effect to the mergers. After giving effect to the sale
of the 10,500,000 shares of common stock offered by this prospectus, assuming
an initial public offering price of $14.00 per share and after deducting the
estimated underwriting discount and offering expenses, and the application of
such estimated net proceeds from the offering, CenterPoint's pro forma net
tangible book value at March 31, 1999 would have been approximately $20.9
million, or $0.78 per share. This represents an immediate increase in pro forma
net tangible book value of $7.22 per share to existing stockholders and an
immediate dilution of $13.22 per share to new investors purchasing the shares
in the offering. The following table illustrates this pro forma dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share.......................... $14.00
Pro forma net tangible book value per share before the
offering............................................... $(6.60)
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 7.38
------
Pro forma net tangible book value per share after the
offering................................................. 0.78
------
Dilution per share to new investors....................... $13.22
======
</TABLE>
The following table illustrates, on a pro forma basis to give effect to
the mergers as of March 31, 1999, the number of shares of common stock
purchased from CenterPoint, the total consideration paid and the average price
per share paid by existing stockholders, after giving effect to the mergers,
and the new investors purchasing shares of common stock in the offering at an
assumed initial public offering price of $14.00 per share:
<TABLE>
<CAPTION>
Total Average
Shares Purchased Consideration Price
------------------ ------------- Per
Number Percent Amount Share
---------- ------- ------------- -------
<S> <C> <C> <C> <C>
Existing stockholders............ 16,250,676 60.7% $(56,829,000) $(3.50)
New investors.................... 10,500,000 39.3% 147,000,000 14.00
---------- ------ ------------
Total........................ 26,750,676 100.0% $ 90,191,000
========== ====== ============
</TABLE>
As shown in the table, total consideration paid by existing stockholders
represents the combined stockholders' equity of CenterPoint and the CenterPoint
Companies before the offering, adjusted to reflect the cash consideration
payable to the owners of the CenterPoint Companies in the mergers (other than
contingent payments as described in "Certain Transactions--The Mergers").
24
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except share and per share data)
CenterPoint will acquire the CenterPoint Companies simultaneously with
the completion of the offering. 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 offering 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>
25
<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 offering.
(2) Reflects the reduction in other operating expenses related non-recurring
stock compensation charges 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 million 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 offering 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 offering, 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 offering.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "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 professional,
business and financial services and products to 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 offering. 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.
27
<PAGE>
The 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>
Three Months Ended
Year ended March 31,
December 31, ----------------------------
1998 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 5.4 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 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.
28
<PAGE>
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--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
December 31, Ended March 31,
1998 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.
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
29
<PAGE>
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 and 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
primarily 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 clients.
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 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.
30
<PAGE>
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 offering, 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 offering. 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 offering, 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. In
order to demonstrate to the CenterPoint Companies its ability to obtain
financing for working capital and possible future acquisitions, CenterPoint
agreed that obtaining a credit facility in an amount not less than $75 million
would be a condition to the 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 offering, 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 offering 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 offering.
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 the accounting acquiror in
accordance with the provisions of SAB 97, which states that the
31
<PAGE>
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.
Professional Services
Each CenterPoint professional services firm has operated as an
independent, privately-owned entity throughout the periods presented. The
results of operations of these firms reflect varying historical levels of
owners compensation which were determined at the discretion of the owners. The
owners of each of these firms have agreed to reductions in their compensation
and related benefits that will take effect upon the closing of the mergers. See
the unaudited pro forma combined financial statements and notes thereto for
additional information.
32
<PAGE>
For a description of CenterPoint's professional services firms, see "The
Company."
Results of Operations--Reznick
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)
income................. $ (9) (0.0)% $ (214) (0.6)% $ 67 0.1% $ (17) (0.1)% $ (76) (0.2)%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
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, 1999,
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.
33
<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
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
34
<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.
Results of Operations--Mann Frankfort
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>
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.
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.
35
<PAGE>
Results for the Year Ended December 31, 1998 Compared to the Year Ended
December 31, 1997--Mann Frankfort
Revenues. Revenues increased $4.2 million, or 23.8%, from $17.5 million
in the year ended December 31, 1997 to $21.6 million in the year ended December
31, 1998, primarily due to increases in billing rates and billable hours and
the addition of new clients.
Member Compensation and Related Costs. Member compensation and related
costs increased $2.3 million, or 34.4%, from $6.6 million in the year ended
December 31, 1997 to $8.9 million in the year ended December 31, 1998,
primarily due to an increase in the operating income of the firm over the
comparable periods while the number of shareholders increased only slightly
from 15 to 16 from 1997 to 1998. As a percentage of revenues, these expenses
increased from 38.0% in the year ended December 31, 1997 to 41.2% in the year
ended December 31, 1998.
Employee Compensation and Related Costs. Employee compensation and
related costs increased $2.4 million, or 37.8%, from $6.4 million in the year
ended December 31, 1997 to $8.8 million in the year ended December 31, 1998,
primarily due to the addition of professional and administrative staff and
performance-related compensation increases. As a percentage of revenues, these
expenses increased from 36.7% in the year ended December 31, 1997 to 40.8% in
the year ended December 31, 1998.
Other Operating Expenses. Other operating expenses increased $351,000, or
11.7%, from $3.0 million in the year ended December 31, 1997 to $3.3 million in
the year ended December 31, 1998, primarily due to (a) higher occupancy costs
resulting from an expansion of the firm's office and (b) additional
depreciation expenses resulting from investments in computer hardware and
software and leasehold improvements. As a percentage of revenues, these
expenses decreased from 17.1% in the year ended December 31, 1997 to 15.5% in
the year ended December 31, 1998.
Results for the Year Ended December 31, 1997 Compared to the Year Ended
December 31, 1996--Mann Frankfort
Revenues. Revenues increased $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.
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
36
<PAGE>
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.
Results of Operations--Follmer
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................ $15,528 100.0% $17,954 100.0% $19,417 100.0% $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>
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.
37
<PAGE>
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.
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
38
<PAGE>
31, 1997, primarily due to the addition of 20 professional staff members and
annual performance-based compensation increases. As a percentage of revenues,
these expenses decreased from 42.8% in the year ended May 31, 1996 to 42.1% in
the year ended May 31, 1997.
Other Operating Expenses. Other operating expenses increased $261,000, or
6.9%, from $3.8 million in the year ended May 31, 1996 to $4.0 million in the
year ended May 31, 1997, primarily due to increases in training, occupancy,
advertising, promotional and depreciation expenses. As a percentage of
revenues, these expenses decreased from 24.4% in the year ended May 31, 1996 to
22.6% in the year ended May 31, 1997.
Liquidity and Capital Resources--Follmer
Follmer 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.
Results of Operations--Berry Dunn
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>
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.
39
<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.
40
<PAGE>
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 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.
Results of Operations--Urbach
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>
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.
41
<PAGE>
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.
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,
42
<PAGE>
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.
Results of Operations--Holthouse
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>
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 in
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
43
<PAGE>
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.
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.
Results of Operations--Grace
The following table sets forth selected financial data for Grace on a
historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended March
31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C> <C> <C>
Revenues............................................ $3,380 100.0% $3,687 100.0%
Expenses:
Member compensation and related costs............. 711 21.0 733 19.9
Employee compensation and related costs........... 1,445 42.8 1,542 41.8
Other operating expenses.......................... 385 11.4 430 11.7
------ ----- ------ -----
Income from operations.............................. $ 839 24.8% $ 982 26.6%
====== ===== ====== =====
</TABLE>
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.
44
<PAGE>
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 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.
Results of Operations--Simione
The following table sets forth selected financial data for Simione on a
historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended March
31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C> <C> <C>
Revenues............................................ $1,983 100.0% $2,478 100.0%
Expenses:
Member compensation and related costs............. 570 28.7 627 25.3
Employee compensation and related costs........... 588 29.7 574 23.2
Other operating expenses.......................... 327 16.5 333 13.4
------ ----- ------ -----
Income from operations.............................. $ 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.
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
45
<PAGE>
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
1988, 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.
Business and Financial Services
For a description of CenterPoint's business and financial services firms,
see "The Company."
Results of Operations--Driver
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>
Results for the Six Months Ended January 31, 1999 Compared to the Six Months
Ended January 31, 1998-- Driver
Commissions and Fees. Revenues 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.
46
<PAGE>
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.
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.
47
<PAGE>
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.
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.
Results of Operations--IDA
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>
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.
48
<PAGE>
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.
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 form 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 long-term debt of $250,000 in 1997. At
March 31, 1999, IDA had working capital of approximately $1.3 million.
Results of Operations--Reppond
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,
--------------------------
1998 1999
------------ ------------
<S> <C> <C> <C> <C>
Revenues............................................ $1,909 100.0% $2,191 100.0%
Expenses:
Producer compensation............................. 635 33.3 674 30.8
Employee compensation and related costs........... 586 30.7 646 29.5
Other operating expenses.......................... 478 25.0 712 32.5
------ ----- ------ -----
Income from operations.............................. $ 210 11.0% $ 159 7.2%
====== ===== ====== =====
</TABLE>
49
<PAGE>
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.
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 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.
50
<PAGE>
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 is expected 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, 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
51
<PAGE>
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.
52
<PAGE>
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 the Accounting Top 100 had the
CenterPoint Companies been combined throughout such period.
CenterPoint categorizes the competitive environment in the following
manner:
. The Bi. Five. This se.me.t co.sists of Arthur A.derse., De.oitte &
Touche, Er.st & You.., KPMG a.d PricewaterhouseCoopers. These
mu.ti.atio.a. firms provide diversified professio.a., .usi.ess a.d
fi.a.cia. services a.d products primari.y to pu..ic.y-he.d
corporatio.s a.d .ar.e private compa.ies, focusi.. mai..y o.
Fortu.e 1000 compa.ies.
. Re.io.a. Firms. These firms provide services primari.y to
private.y-he.d, midd.e-market c.ie.ts. Firms i. this se.me.t
co.ti.ue to expa.d service a.d product offeri..s .eyo.d
traditio.a. accou.ti...
. Loca. Firms. This se.me.t is comprised of firms whose c.ie.ts are
primari.y sma.., .oca. .usi.esses. Ma.y of these firms have a.so
.e.u. to offer .o.-traditio.a. services a.d products, typica..y o.
a .iche .asis.
. Tax a.d Bookkeepi.. Firms. These .usi.esses .e.era..y provide
.asic .ookkeepi.., tax retur. preparatio. a.d traditio.a.
accou.ti.. services to sma.. .usi.esses a.d i.dividua.s.
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<PAGE>
This segment is extremely fragmented, consisting of approximately
42,000 firms and/or sole practitioners. This category also
includes storefront operations of franchisors.
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 professional 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.
54
<PAGE>
Changing Regulatory Environment
As demand for non-traditional services from accounting firms has
increased, state regulations are evolving to keep pace with this new industry
dynamic. Accordingly, as more states allow CPAs to diversify into new business
lines, there is increasing opportunity for and competitive pressure on
accounting firms to enter into these businesses. 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--Regulation--
Accounting Profession."
55
<PAGE>
BUSINESS
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:
. Deve.op a.d De.iver Hi.h Qua.ity Services a.d Products.
Ce.terPoi.t curre.t.y offers a .road ra..e of hi.h qua.ity
professio.a., .usi.ess a.d fi.a.cia. services a.d products.
Ce.terPoi.t i.te.ds to improve a.d deve.op its service a.d product
offeri..s throu.h i..ovatio. a.d se.ected acquisitio.s a.d
a..ia.ces.
. Create Natio.a. Practices .y Capita.izi.. o. Existi.. Expertise.
Severa. of the Ce.terPoi.t Compa.ies have deve.oped stro..
.atio.a. or re.io.a. reputatio.s re.ati.. to a particu.ar
i.dustry, service or product. For examp.e, Ce.terPoi.t has
si..ifica.t advisory expertise i. the rea. estate, ma.ufacturi..,
hea.th care a.d co.structio. i.dustries a.d i. specia.ized
services i.c.udi.. .iti.atio. co.su.ti.. services a.d i.formatio.
tech.o.o.y co.su.ti.. services. Ce.terPoi.t a.so has expertise i.
i.sura.ce .rokera.e a.d emp.oyee .e.efits admi.istratio. services.
Ce.terPoi.t i.te.ds to use its .atio.a. practices as:
. C.eari..houses of k.ow.ed.e that provide i.dustry, service or
product expertise to a.. Ce.terPoi.t .usi.ess u.its.
. Resources for the deve.opme.t of ".est practices" that wi.. .e
used for trai.i.., co.ti.ui.. educatio. a.d practice
deve.opme.t throu.hout Ce.terPoi.t.
. P.atforms for ide.tifyi.., i.te.rati.. a.d ma.a.i.. future
acquisitio.s a.d a..ia.ces.
. Expa.d its Prese.ce i. Key Geo.raphic Markets. Capita.izi.. o. the
stro.. reputatio.s of the Ce.terPoi.t Compa.ies, Ce.terPoi.t
i.te.ds to .ui.d upo. its .oca. prese.ce throu.h se.ected
acquisitio.s i. its curre.t markets. At the same time, Ce.terPoi.t
i.te.ds to take adva.ta.e of its existi.. .eo.raphic diversity .y
adopti.. a marketi.. strate.y that promotes the Ce.terPoi.t .ra.d
.atio.a..y a.d hi.h.i.hts Ce.terPoi.t's expa.ded fu.ctio.a.
capa.i.ities a.d market prese.ce.
. I.te.rate its Ma.a.eme.t a.d its I.formatio. Systems. Ce.terPoi.t
reco..izes the importa.ce of i.te.rati.. a.d coordi.ati.. its
.usi.ess u.its a.d systems a.d has hired a chief i.te.ratio.
officer to .ead this process. Ce.terPoi.t's executive ma.a.eme.t
team wi..
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<PAGE>
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:
. Bui.d Upo. Trusted Advisor Re.atio.ships. Ce.terPoi.t .e.ieves
that its trusted advisor re.atio.ships prese.t a. opportu.ity to
provide additio.a. services a.d products to c.ie.ts. Ce.terPoi.t
i.te.ds to .ui.d upo. these re.atio.ships .y usi.. its
professio.a. services firms as the foca. poi.ts for de.iveri..
Ce.terPoi.t's services a.d products. By capita.izi.. o. its c.ie.t
re.atio.ships as we.. as its reputatio. for qua.ity, each
Ce.terPoi.t Compa.y ca. he.p direct its c.ie.ts to the expertise,
services a.d products that provide the .est so.utio.s to their
.usi.ess a.d perso.a. .eeds.
. I.stitute I.ce.tives for C.ie.t a.d K.ow.ed.e Shari... Ce.terPoi.t
i.te.ds to imp.eme.t i.ce.tives to motivate the shari.. of c.ie.t
re.atio.ships a.d expertise throu.hout Ce.terPoi.t. I. additio.,
Ce.terPoi.t uses stock ow.ership to a.i.. the o.jectives of its
.usi.ess u.its.
. Capture Be.efits of Sca.e. Ce.terPoi.t .e.ieves that it ca.
achieve certai. .e.efits as a resu.t of its size. Its com.i.ed
c.ie.t .ase, .um.er of professio.a.s a.d i.dustry a.d product
specia.ties provide opportu.ities to create .atio.a. practices.
Ce.terPoi.t's .road .eo.raphic covera.e wi.. e.a..e it to serve
c.ie.ts as they expa.d i.to .ew markets. I. additio., Ce.terPoi.t
.e.ieves that it ca. reduce costs throu.h .reater purchasi.. power
i. key expe.se areas a.d .y e.imi.ati.. or co.so.idati.. certai.
dup.icative admi.istrative fu.ctio.s.
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 professio.a. services practice with a .atio.a. or
re.io.a. reputatio.;
. expa.d Ce.terPoi.t's offeri..s a.d expertise to .ui.d a.d e.ha.ce
.atio.a. practices;
. fu.ctio. as a distri.utio. poi.t .y providi.. a .oca. prese.ce i.
.ew .eo.raphic markets; or
. expa.d the prese.ce of Ce.terPoi.t's existi.. p.atforms i. their
.eo.raphic 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:
. the opportu.ity to .etter serve their c.ie.ts' .eeds;
. the opportu.ity to e.ha.ce curre.t a.d future profita.i.ity;
. access to .ew tech.o.o.y a.d operatio.a. processes; a.d
. e.ha.ced fi.a.cia. resources a.d visi.i.ity as a pu..ic compa.y.
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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:
. Ce.terPoi.t is the o..y U.S. mem.er of Ur.ach Hacker You..
I.ter.atio.a. Limited, a. i.ter.atio.a. strate.ic a..ia.ce of 42
i.ter.atio.a. firms from 36 cou.tries. Throu.h this a..ia.ce,
Ce.terPoi.t ca. assist c.ie.ts i. achievi.. their .usi.ess a.d
fi.a.cia. o.jectives i. the i.ter.atio.a. marketp.ace.
. Ce.terPoi.t has a. a..ia.ce with Om.itech Corporate So.utio.s,
I.c., a. i.formatio. tech.o.o.y co.su.ti.. firm .ocated i. the
Northeast. Throu.h this .o.-exc.usive arra..eme.t, Om.itech has
.ee. ide.tified as o.e of Ce.terPoi.t's preferred providers of
.etwork services, i.ter.et desi.. a.d imp.eme.tatio., software
deve.opme.t, sa.es force automatio. a.d other i.formatio.
tech.o.o.y services to Ce.terPoi.t's c.ie.ts.
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 provides 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
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.controllership activities.
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 also 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
specialized services offered to clients across industry lines. CenterPoint
intends to build national practices based on these specialized services, which
include:
. Liti.atio. Co.su.ti.. Services. Ce.terPoi.t provides .iti.atio.
co.su.ti.. services, which i.c.ude a.a.yzi.. a.d providi.. expert
opi.io.s a.d testimo.y o. comp.ex fi.a.cia. disputes.
. I.formatio. Tech.o.o.y Co.su.ti.. Services. Ce.terPoi.t's
i.formatio. tech.o.o.y co.su.ta.ts advise c.ie.ts as to strate.ic
systems p.a..i.., app.icatio. systems se.ectio. a.d procureme.t,
.etwork desi.. a.d i.sta..atio., software imp.eme.tatio.
ma.a.eme.t a.d 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:
. Rea. Estate. Ce.terPoi.t has a .atio.a..y reco..ized practice
servi.. the u.ique .eeds of the rea. estate i.dustry. It advises
c.ie.ts as to structuri.. rea. estate i.vestme.ts, fi.a.ci..s a.d
tra.sactio.s, i.vestme.t a.a.ysis, tax comp.ia.ce a.d p.a..i..,
due di.i.e.ce, rea. estate sy.dicatio. a.d operatio.a. rea. estate
projectio.s.
. Ma.ufacturi... Ce.terPoi.t advises its ma.ufacturi.. c.ie.ts as to
imp.eme.ti.. i.ve.tory ma.a.eme.t systems, cost a.d prici..
systems a.d qua.ity ma.a.eme.t systems required for i.dustry
reco..ized certificatio.s such as ISO a.d QS 9000 re.istratio..
. Hea.th Care. Ce.terPoi.t advises hospita.s, .ursi.. homes a.d
other hea.th care i.dustry c.ie.ts as to physicia. practice
va.uatio., .i..i.. code a.d rate audits, medicare a.d medicaid
reporti.. a.d auditi.., medica. records ma.a.eme.t a.d patie.t
.i..i.. systems.
. Co.structio.. Ce.terPoi.t advises co.structio. co.tractors a.d
re.ated c.ie.ts as to estimati.. a.d jo. cost ma.a.eme.t systems,
co.tract auditi.., .o.di.. capacity a.a.ysis, capita. equipme.t
fi.a.ci.. optio.s a.d other specia. 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.
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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."
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
industry and client relationships, CenterPoint anticipates 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 a significant portion 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
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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 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
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<PAGE>
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 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 professional services firms and pursue and
integrate acquisitions.
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
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<PAGE>
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.
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 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 uniform and more hospitable
to an expanded scope of services. 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;
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. 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 licensing reciprocity among states.
State laws 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. Certain of these restrictions would be relaxed
with the passage of the Uniform Accountancy Act, as currently proposed.
CenterPoint will comply with these restrictions in implementing its
compensation arrangements.
The accounting profession and accounting regulators have put in place
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 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 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. CenterPoint
intends to comply with all applicable requirements related to independence and
avoidance of conflicts of interest.
Existing state laws and regulations are subject to evolving
interpretations and enforcement policies and present numerous risks to
CenterPoint's operations, primarily those described under "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."
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.
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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.
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.
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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 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
Corporate Management
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
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$190,000. Mr. Bikun is receiving annual consulting fees of $175,000. These
arrangements will remain in effect until the earliest of the closing of the
offering, the execution of an employment agreement with 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:
. 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
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reduction in executive's duties or responsibilities which, in either
case, are inconsistent with those customarily associated with such
position;
. a relocation by 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.
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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;
. 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--Employee Incentives--Professional
Services." The
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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 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 offering, 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 offering, 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
offering and each option will have an exercise price equal to the initial
public offering price. These options will vest over periods ranging from three
to five years and will expire 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 offering of an option to purchase 15,000
shares of common stock, and 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
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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.
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 offering, 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 offering, 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 "Shares
Eligible for Future Sale."
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 offering, 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 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
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Reppond, within any business market where Driver or Reppond conducts business
and with respect to the other 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. See "Shares Eligible for
Future Sale."
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 "Principal Stockholders."
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--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--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.
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.
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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 impact 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.
At March 31, 1999, the outstanding balance of loans made by David Reznick
to Reznick was approximately $66,000.
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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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PRINCIPAL STOCKHOLDERS
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 offering;
(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 offering.
(9) Includes 45,000 shares of common stock issuable upon the exercise of
options which will be granted and vest upon completion of the offering.
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DESCRIPTION OF CAPITAL STOCK
Upon the completion of the offering, 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 offering. 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 offered
by this prospectus when issued and paid for 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 which 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
offering. 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. See "Shares Eligible for Future Sale."
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.
SHARES ELIGIBLE FOR FUTURE SALE
After the offering, 26,750,676 shares of common stock will be
outstanding. The 10,500,000 shares being sold in the offering are freely
tradable without restriction unless acquired by CenterPoint's affiliates. Of
the 12,569,367 shares issued in connection with the mergers, 3,074,361 shares
will be registered on a registration statement on Form S-4. An additional
160,200 shares issued in connection with the mergers will be awarded by
CenterPoint Companies to employees pursuant to bonus plans and will be
registered on a registration statement on Form S-8 which will be filed by
CenterPoint promptly after the closing of the offering. The shares registered
on the S-4 and the S-8 will be freely tradeable under federal securities laws
unless acquired by CenterPoint's affiliates. The remaining 9,334,806 shares
issued in connection with the mergers and the 3,681,309 shares issued to the
initial investors and corporate management of CenterPoint will not be
registered and, therefore, may not be sold unless subsequently registered under
the Securities Act or sold pursuant to an exemption from registration, such as
the exemption provided by Rule 144. Under the merger agreements and the
stockholders' agreement, all of CenterPoint's stockholders (other than
purchasers in the offering) have agreed, subject to limited exceptions, not to
sell, transfer or otherwise dispose of any of these 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.
Shares issued to corporate management and to owners of CenterPoint
Companies in the mergers are subject to additional restrictions. If such
person's employment is terminated within 30 months of the offering, other than
under specified circumstances, restricted shares then held by such stockholder
will remain restricted until the fifth anniversary of the offering. Beginning
on the second anniversary of the offering, such persons have the right to
include shares that have been released from transfer restrictions in
registration statements
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relating to CenterPoint's securities. The certificates representing the shares
issued in the mergers and shares issued to initial investors and CenterPoint's
management will bear a legend or legends describing the applicable transfer
restrictions.
In general, under Rule 144 as currently in effect, a person, including an
affiliate, who has beneficially owned shares for at least one year may sell,
within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of:
. one percent of the then outstanding shares of the common stock; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the date on which a notice of such sale is filed
with the SEC.
In addition, a person who is not deemed to have been an affiliate of
CenterPoint at any time for 90 days preceding a sale and who has beneficially
owned the shares proposed to be sold for at least two years would be entitled
to sell such shares under Rule 144 without regard to these volume restrictions.
CenterPoint and all of its stockholders, other than purchasers in the
offering, have agreed, for a period of 180 days after the date of this
prospectus, not to offer or sell any shares of common stock or securities
convertible into or exchangeable for common stock without the prior written
consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, on behalf of the
underwriters. See "Underwriting" for more detailed information regarding these
restrictions and permitted exceptions.
Sales, or the availability for sale of, substantial amounts of the common
stock in the public market after the offering could adversely affect prevailing
market prices of the common stock and the ability of CenterPoint to raise
equity capital, or finance acquisitions using equity capital, in the future.
Transfer Agent and Registrar
The transfer agent and registrar for CenterPoint's common stock is
.
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UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc.,
Thomas Weisel Partners LLC and CIBC Oppenheimer Corp. are acting as
representatives of each of the underwriters named below. Subject to the terms
and conditions set forth in an underwriting agreement between CenterPoint and
the underwriters, CenterPoint has agreed to sell to the underwriters, and each
of the underwriters severally has agreed to purchase from CenterPoint, the
number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................................
Lehman Brothers Inc............................................
Thomas Weisel Partners LLC.....................................
CIBC Oppenheimer Corp..........................................
----------
Total..................................................... 10,500,000
==========
</TABLE>
In the underwriting agreement, the several underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of common stock being sold under such agreement if any of the shares of
common stock being sold under such agreement are purchased.
The representatives have advised CenterPoint that the underwriters
propose initially to offer the shares of common stock to the public at the
public offering price set forth on the cover page of this prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share. The underwriters may allow, and such dealers may reallow, a discount not
in excess of $ per share of common stock on sales to certain other
dealers. After the public offering, the public offering price, concession and
discount may be changed.
CenterPoint has granted an option to the underwriters, exercisable for 30
days after the date of this prospectus, to purchase up to an aggregate of
1,575,000 additional shares of common stock at the public offering price set
forth on the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise this option to cover over-allotments, if any, made on
the sale of the common stock offered by this prospectus. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of common
stock proportionate to such underwriter's initial amount reflected in the
foregoing table.
The following table shows the per share and total underwriting discounts
and commissions to be paid by CenterPoint to the underwriters. This information
is presented assuming either no exercise or full exercise by the underwriters
of their over-allotment option.
<TABLE>
<CAPTION>
Without With
Per Share Option Option
--------- ------- ------
<S> <C> <C> <C>
Public offering price............................ $ $ $
Underwriting discount............................ $ $ $
Proceeds, before expenses, to CenterPoint........ $ $ $
</TABLE>
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The expenses of the offering are estimated at $ million and are
payable entirely by CenterPoint. Such expenses include amounts advanced by BGL
Capital on CenterPoint's behalf. See "Certain Transactions--Other
Transactions."
CenterPoint, its executive officers and directors and substantially all
of the existing stockholders have agreed not to offer or sell any other shares
of common stock or common stock equivalents for 180 days after the date of this
prospectus, without the prior written consent of Merrill Lynch, Pierce, Fenner
& Smith Incorporated, on behalf of the underwriters. Common stock equivalents
include securities convertible into or exchangeable for common stock. During
the 180-day period, CenterPoint, its executive officers and directors and the
existing stockholders have also agreed not to:
. sell to third parties any call option or other right to acquire common
stock or common stock equivalents;
. purchase from third parties any put option or other right to sell common
stock or common stock equivalents; or
. enter into any swap or other arrangement that transfers the economic
consequences of ownership of common stock or common stock equivalents, in
each case, without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, on behalf of the underwriters.
There are some exceptions to these restrictions. CenterPoint may issue
common stock in connection with acquisitions as long as such issued stock is
subject to the same restrictions for the remainder of the restrictive period,
may grant stock options under existing employee benefit plans and may issue
common stock upon the exercise of stock options. CenterPoint's stockholders may
make bona fide gifts of shares of common stock and stockholders that are
members of CPA Holdings may distribute shares of common stock to their members
or partners; provided in each case that the transferee is subject to the same
restrictions for the balance of the restricted period.
Prior to the offering, there has been no public market for CenterPoint's
common stock. The initial public offering price will be determined through
negotiations between CenterPoint and the representatives of the underwriters.
The factors considered in determining the initial public offering price, in
addition to prevailing market conditions, will be price-earnings ratios of
publicly traded companies that the representatives believe to be comparable to
CenterPoint, certain of its financial information, the history of, and the
prospects for, CenterPoint and the industry in which it competes, an assessment
of its management, its past and present operations, the prospects for, and
timing of, its future revenues, the present state of its development, and the
above factors in relation to market values and various valuation measures of
other companies engaged in activities similar to CenterPoint. There can be no
assurance that an active trading market will develop for the common stock or
that the common stock will trade in the public market subsequent to the
offering at or above the public offering price.
CenterPoint has applied to have the common stock listed on The New York
Stock Exchange under the symbol " ."
The underwriters do not intend to confirm sales of the common stock
offered hereby to any accounts over which they exercise discretionary
authority.
CenterPoint has agreed to indemnify the underwriters against certain
liabilities, including certain liabilities under the Securities Act.
Until the distribution of the common stock is completed, rules of the SEC
may limit the ability of the underwriters and certain selling group members to
bid for and purchase the common stock. As an exception to these rules, the
representatives are permitted to engage in certain transactions that stabilize
the price of the common stock. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the common
stock.
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If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares of common stock
than are set forth on the cover page of this prospectus, the representatives
may reduce that short position by purchasing common stock in the open market.
The representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.
The representatives may also impose a penalty bid on certain underwriters
and selling group members. This means that if the representatives purchase
shares of common stock in the open market to reduce the underwriters' short
position or to stabilize the price of the common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group
members who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of the common stock to the extent
that it were to discourage resales of the common stock.
Neither CenterPoint nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the common stock. In
addition, neither CenterPoint nor any of the underwriters makes any
representation that the representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
At CenterPoint's request, the underwriters have reserved up to 5% of the
shares of common stock offered by this prospectus for sale, at the initial
public offering price, to certain of its directors, officers, employees, and
business associates of, and certain other persons designated by CenterPoint who
have expressed an interest in purchasing such shares of common stock. The
number of shares of common stock available for sale to the general public in
the offering will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares which are not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares
offered by this prospectus.
Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December 1998.
Since December 1998, Thomas Weisel Partners has co-managed sixteen public
offerings of equity securities and has acted as an underwriter in an additional
five public offerings of equity securities. Thomas Weisel Partners does not
have any relationship with CenterPoint or any of its officers, directors or
controlling persons, except with respect to its contractual relationship with
CenterPoint pursuant to the underwriting agreement to be entered into in
connection with the offering.
Affiliates of CIBC Oppenheimer Corp., one of the representatives of the
underwriters, are members of BGL Capital, which is an initial investor in
CenterPoint. See "Certain Transactions--Organization of CenterPoint" and
"Principal Stockholders."
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CERTAIN LEGAL MATTERS
The legality of the shares of common stock offered by this prospectus
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. See
"Certain Transactions--Organization of CenterPoint" and "Principal
Stockholders." Certain legal matters concerning the offering will be passed
upon for the underwriters by Mayer, Brown & Platt, Chicago, Illinois.
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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WHERE YOU MAY FIND ADDITIONAL INFORMATION
CenterPoint has filed a registration statement on Form S-1 (which
includes all amendments to such registration statement) with the SEC under the
Securities Act concerning the common stock offered by this prospectus. This
prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules. All material terms of
each contract or other document are described in this prospectus. However,
statements contained in this prospectus concerning the contents of any contract
or other document are not necessarily complete and in each instance reference
is made to the copy of such contract or document filed as an exhibit to the
registration statement and each such statement is qualified in all respects by
such reference. For further information concerning CenterPoint, please refer to
the registration statement and its exhibits and schedules.
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's SEC filings are also available to you on the SEC Internet site
(http://www.sec.gov.).
CenterPoint intends to furnish its stockholders with an annual report
containing audited financial statements and an opinion of such registration
statement expressed by independent auditors for each fiscal year and with
quarterly reports containing unaudited summary information for the first three
quarters of each fiscal year.
88
<PAGE>
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 Statements of Operations.................. F- 6
Notes to Unaudited Pro Forma Combined Financial Statements............. F- 9
Historical Financial Statements
Report of Independent Accountants...................................... F-17
Balance Sheet.......................................................... F-18
Statement of Operations................................................ F-19
Statement of Cash Flows................................................ F-20
Notes to Financial Statements.......................................... F-21
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>
F-9
<PAGE>
CENTERPOINT ADVISORS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
- --------
(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 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 acquirer. The purchase
price has been allocated to the assets and liabilities acquired based on their
respective carrying values, as those are deemed to represent fair market value
of such assets and liabilities. The allocation of the purchase price is
considered preliminary until such time as the closing of the transaction and
consummation of the Mergers. 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 agreement"
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 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.
F-22
<PAGE>
CENTERPOINT ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 1999 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
Shares
CenterPoint Advisors, Inc.
Common Stock
----------------
PROSPECTUS
----------------
Merrill Lynch & Co.
Lehman Brothers
Thomas Weisel Partners LLC
CIBC World Markets
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by
CenterPoint in connection with the issuance and distribution of the common
stock pursuant to the prospectus contained in this Registration Statement.
CenterPoint will pay all of these expenses.
<TABLE>
<CAPTION>
Approximate
Amount
-----------
<S> <C>
Securities and Exchange Commission registration fee............ 50,353
NASD filing fee................................................ 18,613
NYSE listing fee............................................... *
Accountants' fees and expenses................................. *
Blue Sky fees and expenses..................................... *
Legal fees and expenses........................................ *
Transfer Agent and Registrar fees and expenses................. *
Printing and engraving......................................... *
Miscellaneous expenses......................................... *
------
Total...................................................... $ *
======
</TABLE>
- --------
*To be filed by amendment.
Item 14. 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.
II-1
<PAGE>
Section of the underwriting agreement filed as Exhibit 1.1 provides
that the Underwriters named therein will indemnify and hold harmless
CenterPoint and each director, officer or controlling person of CenterPoint
from and against certain liabilities, including liabilities under the
Securities Act. CenterPoint expects to have director and officer insurance
coverage concurrently with the consummation of this offering.
Item 15. Recent Sales of Unregistered Securities.
The following information relates to securities of CenterPoint issued or
sold by CenterPoint since inception that were not registered under the
Securities Act:
1. CenterPoint was incorporated on November 9, 1998 and issued 2,992
shares of its common stock to its founders at a price of $10.00 per
share. Of such shares, 100 were issued to BGL Capital Partners,
L.L.C. ("BGL Capital") and 2,892 were issued to Robert C. Basten.
2. On December 30, 1998, CenterPoint issued 333 shares to Rondol E.
Eagle at $10.00 per share.
3. On February 1, 1999, CenterPoint issued 12,400 shares to CPA Holdings
LLC for total consideration of $108,000 in cash and 40 shares of
common stock of Professional Service Group, Inc.
4. On February 15, 1999, CenterPoint issued 150 shares to Dennis W.
Bikun at a price of $40.00 per share.
5. On March 8, 1999, CenterPoint issued an aggregate of 625 shares to
Jonathan R. Rutenberg and Reznick, Fedder & Silverman, C.P.A.s,
L.L.C. at a price of $10.00 per share.
6. On March 9, 1999, CenterPoint issued 1,000 shares to DeAnn L. Brunts
at a price of $40.00 per share.
The offer and sale of these shares were exempt from registration under
the Securities Act in reliance on the exemption provided by Section 4(2)
thereof. Prior to the completion of the offering, the number of these shares
will be increased to 3,681,309 by the approximately 210.3605-for-one stock
split.
Simultaneously with the closing of the offering, CenterPoint will issue
3,074,361 unregistered shares of common stock to owners of the CenterPoint
Companies. Such shares were offered and will be sold in reliance on the
exemption provided by Section 4(2) of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
2.1** Merger Agreement between CenterPoint, Reznick Fedder & Silverman,
Inc., 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 & Co., P.C., dated as of March
31, 1999.
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.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
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 and 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-3
<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** Form of Amended and Restated Certificate of Incorporation of the
Registrant.
3.2** Form of Amended and Restated 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).
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 Self Funded Benefits, Inc.
(d/b/a Insurance Design Administrators) and Robert F. Gallo.
10.6 Form of Employment Agreement between CenterPoint, Robert F.
Driver Co., Inc. and Thomas W. Corbett.
10.7** Form of Stockholders' Agreement.
10.8** Form of Incentive Compensation Agreement.
10.9** Form of Separate Practice Agreement.
10.10** Form of Services Agreement.
10.11 Form of Employee Incentive Compensation Plan.
10.12 Form of Stock Purchase Plan.
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 to be named as prospective director (David Reznick)
23.5** Consent to be named as prospective director (Thomas W. Corbett)
23.6** Consent to be named as prospective director (Richard H. Stein)
23.7** Consent to be named as prospective director (Anthony P. Frabotta)
23.8** Consent to be named as prospective director (Charles H. Roscoe)
23.9** Consent to be named as prospective director (Steven N. Fischer)
23.10** Consent to be named as prospective director (Robert F. Gallo)
23.11** Consent to be named as prospective director (Wayne J. Grace)
23.12** Consent to be named as prospective director (Philip J. Holthouse)
23.13** Consent to be named as prospective director (Anthony P. Scillia)
</TABLE>
II-4
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23.14** Consent to be named as prospective director (Louis C. Fornetti)
23.15** Consent to be named as prospective director (William J. Lynch)
24** Power of Attorney (see signature page).
</TABLE>
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*To be filed by amendment.
**Previously filed.
(b) Financial Statement Schedules.
Not applicable.
Item 17. Undertakings.
The Registrant hereby undertakes:
(1) To provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
(2) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by CenterPoint pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus 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.
Insofar as indemnification for liabilities arising under the
Securities Act 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
Commission, such indemnification is against public policy as expressed
in the Securities 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, suite 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 had 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
Securities Act and will be governed by the final adjudication of such
issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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, and 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 and
DeAnn L. Brunts a Director
* Vice President and May 21, 1999
____________________________________ Chief Accounting Officer
Dennis W. Bikun
* Director May 21, 1999
____________________________________
Scott H. Lang
</TABLE>
<TABLE>
<S> <C> <C>
/s/ Robert C. Basten May 21, 1999
</TABLE>
*By: _____________________
Robert C. Basten
Attorney-in-fact
<TABLE>
<S> <C>
</TABLE>
II-6
<PAGE>
Exhibit 2.2
- --------------------------------------------------------------------------------
MERGER AGREEMENT
by and among
CENTERPOINT ADVISORS, INC.,
RFD MERGERSUB INC.,
ROBERT F. DRIVER CO., INC.
and
those Stockholders and Warrant Holders of
ROBERT F. DRIVER CO., INC.
reflected on
Exhibit A
March 31, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
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<S> <C> <C>
ARTICLE I
PURCHASE AND SALE OF STOCK..................................................... 2
1.1 Merger............................................................... 2
1.2 Effects of the Merger................................................ 2
1.3 Directors and Officers of the Surviving Corporation.................. 2
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT............................................ 3
2.1 Merger Consideration................................................. 3
2.1.1 Basic Purchase Consideration.................................. 3
2.1.2 Cancellation of Company Stock................................. 3
2.1.3 Dissenting Shares............................................. 3
2.1.4 Conversion of Mergersub Stock................................. 3
2.1.5 Exchange of Certificates for Consideration; Escrow............ 3
2.1.6 The Stockholder Representative................................ 4
2.1.7 Escrow Instructions........................................... 4
2.1.8 Costs of Escrow............................................... 5
2.2 Contingent Payment................................................... 5
2.2.1 Financial Statements and Contingent Payment Report............ 5
2.2.2 Dispute Notice................................................ 5
2.2.3 Dispute Resolution............................................ 6
2.2.4 Definitions................................................... 6
2.2.5 Example....................................................... 7
ARTICLE III
THE CLOSING AND CONSUMMATION DATE.............................................. 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................. 7
4.1 Organization and Qualification....................................... 7
4.2 Company Subsidiaries................................................. 8
4.3 Authority; Non-Contravention; Approvals.............................. 8
4.4 Capitalization....................................................... 9
4.5 Year 2000............................................................10
4.6 Financial Statements.................................................10
4.7 Absence of Undisclosed Liabilities...................................11
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4.8 Accounts and Notes Receivable...................................... 11
4.9 Absence of Certain Changes or Events............................... 11
4.10 Litigation......................................................... 14
4.11 Compliance with Applicable Laws.................................... 14
4.12 Licenses........................................................... 15
4.13 Material Contracts................................................. 15
4.14 Properties......................................................... 18
4.15 Intellectual Property.............................................. 20
4.16 Taxes.............................................................. 21
4.17 Employee Benefit Plans; ERISA...................................... 21
4.18 Labor Matters...................................................... 23
4.19 Environmental Matters.............................................. 24
4.20 Insurance.......................................................... 24
4.21 Interest in Customers and Suppliers; Affiliate Transactions........ 25
4.22 Business Relationships............................................. 25
4.23 Compensation....................................................... 26
4.24 Bank Accounts...................................................... 26
4.25 Disclosure; No Misrepresentation................................... 26
4.26 Title to and Transfer of Insurance Expirations..................... 27
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SIGNING STOCKHOLDERS................ 27
5.1 Several Representations and Warranties............................. 27
5.1.1 Capitalization.............................................. 27
5.1.2 Authority................................................... 27
5.1.3 Non-Contravention........................................... 28
5.1.4 Approvals................................................... 28
5.1.5 Litigation.................................................. 28
5.1.6 No Transfer................................................. 28
5.1.7 Disclosure.................................................. 29
5.2 Joint and Several Representations and Warranties..................... 29
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPOINT............................. 29
6.1 Organization And Qualification..................................... 29
6.2 Capitalization..................................................... 30
6.3 No Subsidiaries.................................................... 30
6.4 Authority; Non-Contravention; Approvals............................ 31
6.5 Absence of Undisclosed Liabilities................................. 32
</TABLE>
(ii)
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6.6 Litigation......................................................... 32
6.7 Compliance with Applicable Laws.................................... 32
6.8 No Misrepresentation............................................... 32
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS.......................................... 33
7.1 Conduct of Business by the Company Prior to the Effective Time..... 33
7.2 No-Shop............................................................ 35
7.3 Schedules.......................................................... 36
7.4 Company Stockholder Meeting........................................ 37
7.5 Covenants of Warrant Holders....................................... 37
ARTICLE VIII
ADDITIONAL AGREEMENTS...................................................... 37
8.1 Access to Information.............................................. 37
8.2 Registration Statements............................................ 38
8.3 Expenses and Fees.................................................. 39
8.4 Agreement to Cooperate............................................. 39
8.5 Public Statements.................................................. 40
8.6 Registration Rights................................................ 40
8.7 CenterPoint Covenants.............................................. 42
8.8 Release of Guarantees.............................................. 42
8.9 Lock-Up Agreement.................................................. 42
8.10 Preparation and Filing of Tax Returns.............................. 43
8.11 Maintenance of Insurance........................................... 43
ARTICLE IX
INDEMNIFICATION............................................................ 43
9.1 Indemnification by the Signing Stockholders and the Company........ 43
9.2 Indemnification by CenterPoint..................................... 46
9.3 Indemnification Procedure for Third Party Claims................... 47
9.4 Direct Claims...................................................... 49
9.5 Failure to Give Timely Notice...................................... 49
9.6 Reduction of Loss.................................................. 49
9.7 Limitation on Indemnities.......................................... 50
9.7.1 Threshold for a Signing Stockholder........................ 50
9.7.2 Threshold for CenterPoint.................................. 50
9.7.3 Limitations on Claims Against the Signing Stockholders..... 50
9.7.4 Limitation on Claims Against CenterPoint................... 50
</TABLE>
(iii)
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9.8 Survival of Representations, Warranties and Covenants of the Signing
Stockholders and the Company; Time Limits on Indemnification Obligations........51
9.9 Survival of Representations, Warranties and Covenants of CenterPoint; Time
Limits on Indemnification Obligations...........................................51
9.10 Defense of Claims; Control of Proceedings.......................................51
9.11 Fraud; Exclusive Remedy.........................................................51
9.12 Manner of Satisfying Indemnification Obligations................................52
9.13 Certain Set-Off Rights..........................................................52
ARTICLE X
CLOSING CONDITIONS.......................................................................52
10.1 Conditions to Each Party's Obligation to Effect the Merger......................52
10.2 Conditions to Obligation of the Stockholders and the Company to Effect the
Merger..........................................................................53
10.3 Conditions to Obligation of CenterPoint to Effect the Merger....................55
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER........................................................57
11.1 Termination.....................................................................57
11.2 Effect of Termination...........................................................58
11.3 Amendment.......................................................................58
11.4 Waiver..........................................................................59
ARTICLE XII
TRANSFER RESTRICTIONS....................................................................59
12.1 Transfer Restrictions, Generally................................................59
12.2 Release of Restrictions.........................................................59
12.3 Legend..........................................................................60
ARTICLE XIII
NONCOMPETITION...........................................................................61
13.1 Prohibited Activities...........................................................62
13.2 Damages.........................................................................63
13.3 Reasonable Restraint............................................................63
13.4 Severability; Reformation.......................................................64
13.5 Independent Covenant............................................................64
13.6 Materiality.....................................................................64
</TABLE>
(iv)
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ARTICLE XIV
NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................................64
14.1 Signing Stockholders' Covenant..................................................64
14.2 Damages.........................................................................65
14.3 Survival........................................................................65
ARTICLE XV
GENERAL PROVISIONS.......................................................................66
15.1 Brokers.........................................................................66
15.2 Notices.........................................................................66
15.3 Interpretation..................................................................67
15.4 Certain Definitions.............................................................67
15.5 Entire Agreement; Assignment....................................................68
15.6 Applicable Law..................................................................68
15.7 Counterparts....................................................................68
15.8 Parties in Interest.............................................................68
</TABLE>
(v)
<PAGE>
LIST OF SCHEDULES
-----------------
Schedule 2.1 Consideration
Schedule 4.2 Company Subsidiaries
Schedule 4.3.2 Required Consents
Schedule 4.4 Capitalization
Schedule 4.5 Year 2000
Schedule 4.7 Liabilities
Schedule 4.9 Certain Changes and Events
Schedule 4.10 Litigation
Schedule 4.11 Noncompliance with Applicable Laws
Schedule 4.12 Licenses and Permits
Schedule 4.13 Material Contracts
Schedule 4.14.1-1 Real Property
Schedule 4.14.1-2(a) Exceptions Regarding Owned Property
Schedule 4.14.1-2(b) Exceptions Regarding Leased Property
Schedule 4.14.2 Tangible Personal Property; Liens
Schedule 4.15 Intellectual Property
Schedule 4.16.1-1 Taxes
Schedule 4.16.1-2 Tax Audits
Schedule 4.17.1 Employee Plans
Schedule 4.17.2 Unwritten Employee Plans
Schedule 4.18 Labor Matters
(vi)
<PAGE>
Schedule 4.19 Environmental Matters
Schedule 4.20 Insurance
Schedule 4.21 Affiliate Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 6.2 CenterPoint's Capitalization
Schedule 6.5 Liabilities
Schedule 7.1.3 Terminated Agreements
Schedule 8.8 Stockholders' Guarantees
Schedule 15.1 Brokers
Schedule 15.2.3 Stockholders and Their Counsel
(vii)
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A Stockholders of the Company
Exhibit 2.1.7 Form of Escrow Agreement
Exhibit 9.1.1(f) Form of Side Letter
Exhibit 10.2(c) Form of Opinion of CenterPoint's Counsel
Exhibit 10.2(d)(i) Form of Employment Agreement - Thomas W. Corbett
Exhibit 10.2(d)(ii) Form of Employment Agreement - Jerold D. Hall
Exhibit 10.2(d)(iii) Form of Employment Agreement - P. Gregory Zimmer
Exhibit 10.2(f) Form of Stockholders Agreement
Exhibit 10.3(c) Form of Opinion of Counsel to Company and Stockholders
Exhibit 10.3(j) Form of Stockholders' Release
Exhibit 10.3(n) Form of Voting Agreement
CenterPoint agrees to furnish supplementally to the Securities Exchange
Commission, upon request, a copy of any omitted exhibit or schedule to this
Agreement.
(viii)
<PAGE>
DEFINED TERMS
-------------
Actions..........................................................Section 4.10.1
Acquisition....................................................Section 2.2.4(a)
Acquisition Transaction............................................Section 13.1
Affiliate..........................................................Section 15.4
Affiliate Transactions.............................................Section 4.21
Agreement..........................................................Introduction
Aggregate Basic Purchase Consideration..............................Section 2.1
Base EBITDA....................................................Section 2.2.4(b)
Business...........................................................Introduction
CenterPoint........................................................Introduction
CenterPoint Common Stock............................................Section 2.1
CenterPoint Indemnified Party(ies)..................................Section 9.1
CenterPoint Material Adverse Effect...............................Section 6.4.3
CenterPoint Representatives.......................................Section 8.1.1
CenterPoint Required Statutory Approvals..........................Section 6.4.3
Closing.............................................................Article III
Closing Date........................................................Article III
Code...............................................................Introduction
Company............................................................Introduction
Company Material Adverse Effect...................................Section 4.3.3
Company Representatives...........................................Section 8.1.1
(ix)
<PAGE>
Company Stock.......................................................Section 2.1
Company Subsidiaries................................................Section 4.2
Contracts..........................................................Section 4.13
Copyrights.........................................................Section 4.15
Debt...........................................................Section 2.2.4(c)
Defense Notice....................................................Section 9.3.1
DGCL................................................................Section 1.1
Direct Claim........................................................Section 9.4
Dissenting Shares.................................................Section 2.1.3
EBITDA.........................................................Section 2.2.4(d)
Effective Time......................................................Section 1.1
Employee Plan.................................................Section 4.17.5(a)
Environmental and Safety Requirements..............................Section 4.19
ERISA.........................................................Section 4.17.5(b)
Escrow............................................................Section 2.1.5
Escrow Holder.....................................................Section 2.1.5
Escrowed Shares...................................................Section 2.1.5
Financial Statements................................................Section 4.6
First Person..................................................Section 4.17.5(c)
Form S-1..........................................................Section 4.3.3
Form S-4..........................................................Section 4.3.3
Founding Companies.................................................Introduction
(x)
<PAGE>
GAAP..............................................................Section 4.6.1
general increase...................................................Section 4.23
Governmental Authority............................................Section 4.3.2
Hazardous Materials................................................Section 4.19
HSR Act...........................................................Section 4.3.3
Indemnified Party.................................................Section 9.3.1
Indemnifying Party................................................Section 9.3.1
Intellectual Property..............................................Section 4.15
Intellectual Property Licenses.....................................Section 4.15
IPO................................................................Introduction
Knowledge..........................................................Section 15.4
Latest Balance Sheet................................................Section 4.6
Laws...............................................................Section 4.11
Leased Property..................................................Section 4.14.1
Licenses...........................................................Section 4.12
Liens.............................................................Section 4.3.2
Liquidated Damages Amount...........................................Section 7.3
Losses..............................................................Section 9.1
Market Price.......................................................Section 9.12
Marks..............................................................Section 4.15
Material Contracts.................................................Section 4.13
Merger.............................................................Introduction
(xi)
<PAGE>
Mergersub.........................................................Introduction
Mergersub Stock..................................................Section 6.2.1
Merger Documents...................................................Section 1.1
1933 Act.........................................................Section 4.3.3
1934 Act...........................................................Section 8.7
Organizational Documents...........................................Section 4.1
Other Agreements..................................................Introduction
Other Mergers.....................................................Introduction
Other Founding Companies...........................................Section 9.1
Owned Property..................................................Section 4.14.1
Patents...........................................................Section 4.15
Person............................................................Section 15.4
Plan Affiliate...............................................Section 4.17.5(c)
Purchase Multiple.............................................Section 2.2.4(f)
Real Property...................................................Section 4.14.1
Registration Statements..........................................Section 4.3.3
Restricted Shares.................................................Section 12.2
Returns.........................................................Section 4.16.1
Schedules..........................................................Section 7.3
SEC..............................................................Section 4.3.3
Securities Act...................................................Section 4.3.3
Signing Stockholders...............................................Section 5.1
(xii)
<PAGE>
Stockholder........................................................Introduction
Stockholder Indemnified Party.......................................Section 9.2
Stockholders Agreement..........................................Section 10.2(f)
Stockholder Representative........................................Section 2.1.6
Surviving Corporation...............................................Section 1.2
Taxes............................................................Section 4.16.2
Third Party Claim.................................................Section 9.3.1
Trade Secrets......................................................Section 4.15
2000 EBITDA....................................................Section 2.2.4(g)
Underwriters......................................................Section 8.1.1
Voting Agreement...................................................Introduction
Warrant Holder....................................................Section 5.1.1
Warrants..........................................................Section 2.1.1
(xiii)
<PAGE>
MERGER AGREEMENT
----------------
THIS MERGER AGREEMENT (this "Agreement") is made as of March 31, 1999, by
and among CenterPoint Advisors, Inc., a Delaware corporation ("CenterPoint"),
RFD Mergersub Inc., a Delaware corporation and wholly-owned subsidiary of
CenterPoint ("Mergersub"), Robert F. Driver Co., Inc., a Delaware corporation
(the "Company") and the stockholders and Warrant Holders (as hereinafter
defined) of the Company identified on Exhibit A to this Agreement (each,
including the Warrant Holders, a "Signing Stockholder" and, collectively, the
"Signing Stockholders").
WITNESSETH:
WHEREAS, the Company engages directly, and indirectly through the Company
Subsidiaries in the business of (i) placing, soliciting, selling and servicing
insurance coverage as a licensed insurance agent/broker and (ii) forming,
administering and/or marketing policies of insurance to bona-fide groups and
associations and forming and administering risk retention groups and/or
purchasing groups as contemplated and defined in 65 U.S.C. 3901 et seq., as
amended (such business provided by the Company is referred to as the
"Business");
WHEREAS, the Boards of Directors of the Company, CenterPoint and Mergersub
deem it advisable and in the best interests of their respective shareholders to
approve and consummate the business combination transaction provided for herein
in which Mergersub would merge with the Company, with the Company being the
surviving corporation in the merger (the "Merger");
WHEREAS, certain Signing Stockholders have entered into a Voting Agreement
dated the date hereof (the "Voting Agreement") pursuant to which among other
things such Signing Stockholders have agreed to vote the shares of capital stock
of the Company that such Signing Stockholders own or control, directly or
indirectly, to approve the Merger and the transactions contemplated by this
Agreement;
WHEREAS, CenterPoint is entering into other agreements (the "Other
Agreements") substantially similar to this Agreement with each of Reznick Fedder
& Silverman, P.C., Mann Frankfort Stein & Lipp, P.C., The Reppond Company, Inc.,
Reppond Administrators, LLC, Verasource Excess Risk Ltd., Berry, Dunn, McNeil &
Parker, Chartered, Urbach Kahn & Werlin PC, Self Funded Benefits, Inc. d/b/a
Insurance Design Administrators, Grace & Company, P.C., Simione, Scillia, Larrow
& Dowling LLC, Follmer Rudzewicz & Co., P.C., Holthouse and Carlin & Van Trigt
(which companies together with the Company are collectively referred to herein
as the "Founding Companies"), which agreements provide for the merger of a
wholly-owned subsidiary of CenterPoint with each such Founding Company (the
"Other Mergers") simultaneously with the Merger;
<PAGE>
WHEREAS, simultaneously with the consummation of the Merger, CenterPoint
will close an initial public offering (the "IPO") of CenterPoint Common Stock
(as defined in Section 2.1(a)); and
WHEREAS, the parties intend the acquisition of CenterPoint Common Stock
pursuant to the terms hereof be tax-free under the provisions of Section 351 of
the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 Merger. Upon the terms and subject to the conditions set forth in
this Agreement and in reliance upon the representations and warranties set forth
herein, Mergersub shall be merged with and into the Company, the result of which
will cause the separate corporate existence of Mergersub to cease and the
Company to continue under the laws of the State of Delaware. As promptly as
possible on the Closing Date, the parties shall cause the Merger to be completed
by filing articles of merger and a certificate of merger, as applicable (the
"Merger Documents"), with the Secretary of State of the State of Delaware, as
provided in the General Corporation Law of the State of Delaware, as amended
(the "DGCL"). The Merger shall become effective (the "Effective Time") upon the
filing of the Merger Documents with the Secretary of State of Delaware or at
such later time, contemporaneously with the closing of the IPO, as agreed by
CenterPoint and the Company and specified in the Merger Documents.
1.2 Effects of the Merger. At the Effective Time (a) the separate
existence of Mergersub shall cease and Mergersub shall be merged with and into
the Company, with the Company being the surviving corporation in the Merger (the
Company is sometimes referred to herein as the "Surviving Corporation"), (b) the
Certificates of Incorporation and By-laws of the Surviving Corporation shall be
amended in form and substance acceptable to CenterPoint and as specified in the
Merger Documents, (c) the Merger shall have all the effects provided by
applicable law, and (d) the Company shall be a wholly-owned subsidiary of
CenterPoint.
1.3 Directors and Officers of the Surviving Corporation. From and after
the Effective Time, the directors and officers of Mergersub shall be the
directors and officers of the Surviving Corporation until their successors are
duly elected and qualified.
2
<PAGE>
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2.1 Merger Consideration.
2.1 Basic Purchase Consideration. At the Closing, by virtue of the
Merger and without any action on the part of the holders thereof, the
outstanding shares of capital stock, consisting of 1,169,222 shares of Class A
common stock, par value $.01 per share, upon exercise of warrants to purchase
123,042 shares of Class A common stock, par value $.01 per share, (the
"Warrants"), and zero (0) shares of Class B common stock, par value $.01 per
share, of the Company (collectively, the "Company Stock") shall be converted
into the right to receive that number of shares of common stock, par value $.01
per share, of CenterPoint ("CenterPoint Common Stock") determined in accordance
with the formula set forth in Schedule 2.1, the value (determined as set forth
on Schedule 2.1) of all shares of CenterPoint Common Stock to be issued to the
Stockholders is herein referred to as "Aggregate Basic Purchase Consideration."
2.1 Cancellation of Company Stock. Each share of capital stock of
the Company held in treasury of the Company shall be canceled and retired and no
payment shall be made in respect thereof.
2.1 Dissenting Shares. Each outstanding share of capital stock of
the Company the holder of which has perfected his right to dissent under
applicable law and has not effectively withdrawn or lost such right as of the
Effective Time (the "Dissenting Shares") shall not be converted into the right
to receive Aggregate Basic Purchase Consideration, and the holder thereof shall
be entitled only to such rights as are granted by applicable law. The Company
shall give CenterPoint prompt notice upon receipt by the Company of any such
written demands for payment of fair value of shares of capital stock of the
Company and any other instruments provided pursuant to applicable law. Any
payments made in respect of Dissenting Shares shall be made by the Surviving
Corporation.
2.1 Conversion of Mergersub Stock. At the Effective Time, each share
of Mergersub Stock issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into and become one validly issued, fully paid and
non-assessable share of the Surviving Corporation. Such newly issued shares
shall thereafter constitute all of the issued and outstanding capital stock of
the Surviving Corporation.
2.1 Exchange of Certificates for Consideration; Escrow. At the
Closing, the Stockholders shall deliver to CenterPoint the original certificates
representing the Company Stock, duly endorsed in blank by the Stockholders or
accompanied by blank stock powers. In order to provide indemnification in
accordance with Article IX of this Agreement and with the Escrow Agreement,
CenterPoint shall issue and deliver to Imperial Bank as the Escrow Holder (the
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<PAGE>
"Escrow Holder") for deposit into escrow (the "Escrow") certificates
representing the number of shares of CenterPoint Common Stock to which the
Shareholders are entitled determined in accordance with Section 2.1 (the
"Escrowed Shares"). The shares represented by the Company stock certificates so
delivered shall be canceled. Until surrendered as contemplated by this Section
2.1.5, each certificate representing shares of Company Stock represents only the
right to receive the Aggregate Basic Purchase Consideration, as adjusted in
accordance with this Article II.
2.1 The Stockholder Representative. Jerold D. Hall has been selected
by the Stockholders as the agent and representative of the Stockholders (the
"Stockholder Representative"), and, in the event of his inability or
unwillingness prior to the execution of the Escrow Agreement to act as
Stockholder Representative, a substitute Stockholder Representative shall be
similarly selected; provided, that the Stockholder Representative may be removed
and a successor to the Person originally serving as the Stockholder
Representative may be designated in a writing signed by a majority in interest
of the Signing Stockholders and delivered to CenterPoint in accordance with
Section 15.2. The Stockholder Representative is authorized by this Agreement,
as a specific term and condition of the Merger, to act hereunder and under the
Escrow Agreement with the powers and authority provided for herein and therein,
as representative of each of the Stockholders of the Company and their
successors. The Stockholder Representative shall also have full power and
authority to agree, contest or settle any claim or dispute affecting any Signing
Stockholder made under Articles II or IX and to otherwise act on behalf of the
Signing Stockholders in accordance with the terms of this Agreement including,
without limitation, to direct the amount and manner of the payment of Aggregate
Basic Purchase Consideration. Approval of this Agreement and the Merger shall
constitute approval on behalf of each of the Stockholders and their successors
of the terms and conditions of the Escrow Agreement and ratification of the
selection of the Stockholder Representative and of his authority to act
hereunder and under the Escrow Agreement on their behalf. Any rights of the
Stockholders to receive any Escrowed Shares shall in no circumstances be sold,
assigned or otherwise transferred by them other than by will or pursuant to the
laws of descent and distribution. All certificates representing Escrowed Shares
shall be accompanied by separate stock powers endorsed in blank by the
Stockholder Representative on behalf of the Stockholders. Subject to the Escrow
Agreement, holders of Escrowed Shares shall retain their voting rights and shall
be entitled to receive dividends when, and if declared and paid with respect to
the Escrowed Shares deposited with the Escrow Holder in accordance with this
Section 2.1.6, but shall not otherwise be entitled to mortgage, pledge,
encumber, option, sell, assign or otherwise transfer all or any interest in any
Escrowed Shares.
2.1 Escrow Instructions. The parties hereto agree that this
Agreement, together with an Escrow Agreement the terms of which are attached
hereto as Exhibit 2.1.7 (the "Escrow Agreement"), shall constitute the escrow
instructions for the transfer of the Escrowed Shares, the right of the
Stockholders to receive the Contingent Payment, if any, (defined below) and
cash, to the extent $27,631,505 set forth as "Driver Debt Assumed" on Line "N"
of Schedule 2.1 which has been allocated to the payment of the obligations of
the Company set forth on Schedule 2.1.7 exceeds the amounts actually required to
satisfy those obligations. For purposes of the preceding sentence, such
obligations shall be deemed to be "satisfied" only upon either: (i) the delivery
to CenterPoint of notice reflecting payment in full and release of such
obligations, the forms of such notice to the
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satisfaction of CenterPoint, or (ii) transfer to CenterPoint of cash in an
amount equal to the obligation assumed by CenterPoint on the Closing Date (the
"Escrow Instructions"). In the event of a conflict between the Escrow Agreement
and the terms of this Agreement (exclusive of the Escrow Agreement), then the
terms of this Agreement (exclusive of the Escrow Agreement) shall control for
all purposes and under all circumstances.
2.1 Costs of Escrow. Each of CenterPoint and the Signing Stockholders
shall bear one half of the costs and expenses of the Escrow during the first
year of the Escrow.
2.2 Contingent Payment. Subject to Article IX, Stockholders shall be
entitled to receive from CenterPoint a contingent payment, if any, based on the
formula set forth below (the "Contingent Payment"). The Contingent Payment, if
any, shall be calculated based upon the following formula:
Purchase Multiple x (2000 EBITDA - Base EBITDA)
The Contingent Payment, if any, shall be paid in cash, freely tradeable
CenterPoint Common Stock or any combination thereof, at the sole option of the
Board of Directors of CenterPoint, no later than two business days after the
earliest occurrence of one of the following events: (1) the expiration of the
Review Period without the filing of any Dispute Notice; or (2) the resolution of
the Dispute Notice; or (3) the delivery of the Arbitrator Report. If the amount
calculated under Section 2.2 is negative, the payment under such Section shall
be zero and the Stockholders shall have no obligation to refund to CenterPoint
the amount of such negative calculation expressed as a positive number and such
negative number will not be carried forward into subsequent periods.
2.2 Financial Statements and Contingent Payment Report. As promptly
as practicable, but no later than March 31, 2001, the Company shall prepare and
deliver to Stockholders Representative, (i) a copy of the Company's financial
statements for the twelve month period ending December 31, 2000, and (ii) a
report calculating the Company's EBITDA for the twelve month period ending
December 31, 2000 (the "Contingent Payment Report"), together with supporting
documentation with respect thereto, for the purpose of determining the amount of
the Contingent Payment, if any.
2.2 Dispute Notice. CenterPoint shall have 30 days from the date on
which the Financial Statements and Contingent Payment Report are delivered to it
to review such documents (the "Review Period"). CenterPoint, shall be provided
with full access to the work papers of the Company and reasonable access to the
accounting personnel and/or the auditor of the Company and its subsidiaries in
connection with such review. If CenterPoint shall have any objections to the
Contingent Payment Report, on or prior to the last day of the Review Period, it
will deliver a written notice to the Stockholder Representative describing in
reasonable detail its objections and the basis for such objections (the "Dispute
Notice"). The Dispute Notice shall set forth CenterPoint's position as to the
disputed items on the Contingent Payment Report. CenterPoint may deliver to the
Stockholder Representative at any time a notice accepting the Contingent Payment
Report without objection.
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2.2.3 Dispute Resolution. The Stockholders' Representative and
CenterPoint shall attempt to resolve any objections contained in the Dispute
Notice and upon such resolution will cause the Contingent Payment Report to be
revised to reflect such resolution. Such revised Contingent Payment Report (or
the Contingent Payment Report prepared by CenterPoint, if the Stockholders'
Representative does not object thereto) shall constitute the final Contingent
Payment Report and shall be final and binding upon CenterPoint, the Company and
the Stockholders. If the Stockholders' Representative and CenterPoint are unable
to resolve any objection raised in the Dispute Notice within 15 days after
CenterPoint has received the Dispute Notice, then a representative from the
office of a nationally recognized accounting firm selected jointly by the
Stockholders' Representative and CenterPoint (the "Arbitrator") will arbitrate
the dispute in Chicago, Illinois. The Stockholders' Representative and
CenterPoint will present their respective positions with respect to any
unresolved objection identified in the Dispute Notice to the Arbitrator together
with such materials as the Arbitrator deems appropriate. The Arbitrator shall,
after the submission of the materials, submit a written decision on each
unresolved objection to the Stockholders' Representative and CenterPoint and
such determination shall be final and binding on the parties hereto (the
"Arbitrator Report"). The parties agree that the cost of the Arbitrator shall be
borne by the non-prevailing party or as determined by the Arbitrator.
2.2.4 Definitions. For purpose of Section 2.2, the following terms
shall have the following meanings:
(a) "Acquisition" means each entity or portion of such entity acquired
or merged with or into the Company after the Closing.
(b) "Base EBITDA" shall be equal to $11,633,839.
(c) "Debt" means (a) all indebtedness for borrowed money, whether or
not evidenced by an instrument, (b) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money, (c) any obligation owed for all or part of the deferred purchase
price of property or services (excluding accounts payable arising in the
ordinary course of business) and (d) any guaranty of a Person with respect to
liabilities of a type described in immediately preceding clauses (a) through
(c).
(d) "EBITDA" means the sum of: (a) the net income (or loss) of the
Company excluding extraordinary items, (b) provisions for taxes based on income,
(c) total interest expense of the Company with respect to Debt, (d) to the
extent net income for the Company has been reduced thereby, depreciation
expense, and (e) to the extent net income for the Company has been reduced
thereby, amortization expense less non-cash items increasing net income, all as
determined in accordance with GAAP.
(e) "Purchase Multiple" means 6.75.
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(f) "2000 EBITDA" means the Company's EBITDA for the twelve month
period ending December 31, 2000, excluding EBITDA attributable to any
Acquisition.
<TABLE>
<CAPTION>
<S> <C>
2.2.5 Example
-------
2000 EBITDA $ 13,442,343
Less: Base EBITDA $(11,633,839)
---------------
Net EBITDA $ 1,808,505
Purchase Multiple 6.75
Net Value $ 12,207,403
============
</TABLE>
ARTICLE III
THE CLOSING AND CONSUMMATION DATE
The consummation of the Merger and the other transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Katten
Muchin & Zavis, Chicago, Illinois, contemporaneously with the closing of the
IPO, or at such other time and date as the parties hereto may mutually agree
(the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to CenterPoint, as of the date
hereof and, subject to Section 7.3, as of the date on which CenterPoint and the
lead Underwriter (as defined in Section 8.1.1) execute and deliver the
Underwriting Agreement related to the IPO and as of the Closing Date, as
follows:
4.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each Company Subsidiary (as defined in Section 4.2) is duly
organized, validly existing and in good standing under the laws of the state of
its organization set forth on Schedule 4.2. Each of the Company and the Company
Subsidiaries has the requisite power and authority under state and federal law
to own, lease and operate its assets and properties and to carry on the Business
as it is now being conducted, to do and/or licensed to transact and is qualified
to do business and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensure necessary. True, accurate
and complete copies of the Company's and each Company Subsidiary's
Organizational Documents, in each case as in effect on the date hereof, have
heretofore been delivered to CenterPoint. "Organizational
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Documents" means (a) the articles or certificate of incorporation and the bylaws
of a corporation (professional or otherwise), (b) the partnership agreement and
any statement of partnership of a general partnership, (c) the limited
partnership agreement and the certificate of limited partnership of any limited
partnership, (d) the operating or limited liability company agreement and
certificate of formation of any limited liability company, (e) any charter or
similar document adopted and filed in connection with the creation, formation,
organization or governance (as applicable) of any Person and (f) any amendment
to any of the foregoing.
4.2 Company Subsidiaries. Schedule 4.2 sets forth the name (including any
assumed names), jurisdiction of organization and ownership of the issued and
outstanding equity interests of each Person in which the Company owns, directly
or indirectly, securities or other interests having the power to elect a
majority of such Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of such Person
(each a "Company Subsidiary"). Except as set forth on Schedule 4.2, the Company
does not, directly or indirectly, own, of record or beneficially, or control any
capital stock, securities convertible into capital stock or any other equity
interest in any Person.
4.3 Authority; Non-Contravention; Approvals.
---------------------------------------
4.3.1 The Company has full right, power and authority to enter into
this Agreement and, subject to the approval of the Merger and the transactions
contemplated hereby by the Stockholders, to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company has been duly authorized by all necessary corporate action on the
part of the Company, subject to the approval of the Merger and the transactions
contemplated hereby by the Stockholders. This Agreement has been duly executed
and delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by CenterPoint, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
4.3.2 The execution and delivery of this Agreement by the Company
does not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any claim, lien, privilege,
mortgage, charge, hypothecation, assessment, security interest, pledge or other
encumbrance, conditional sales contract, equity charge, restriction, or adverse
claim of interest of any kind or nature whatsoever (each a "Lien" and
collectively, the "Liens"), upon the Business or any of the properties or assets
of the Company or any Company Subsidiary under, any of the terms, conditions or
provisions of (i) the Organizational Documents of the Company or any Company
Subsidiary, (ii) any statute, law, ordinance, rule, regulation, state or federal
regulatory agency bulletin, state attorney general opinion, judgment, decree,
order, injunction, writ, permit or license of any court or federal, state,
provincial, local or foreign government, or any subdivision, agency or authority
of any thereof, including any
8
<PAGE>
state's department of insurance ("Governmental Authority") applicable to the
Company, any Company Subsidiary, the Business, or properties or assets of the
Company or any Company Subsidiary, or (iii) any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company, or any
Company Subsidiary is a party or by which the Company, any Company Subsidiary or
any of the properties or assets of the Company or any Company Subsidiary may be
bound or affected. The consummation the Company of the transactions contemplated
hereby will not result in a violation, conflict, breach, right of termination,
creation or acceleration of Liens under the terms, conditions or provisions of
the items described in clauses (i) through (iii) of the immediately preceding
sentence, subject, in the case of the terms, conditions or provisions of the
items described in clauses (ii) or (iii) above, to obtaining (prior to the
Closing Date) such consents required from third parties set forth on Schedule
4.3.2.
4.3.3 Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 (the "Form S-1") and the filing of a
registration statement on Form S-4 (the "Form S-4") (Form S-1 and Form S-4 are
collectively the "Registration Statements") with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"or the "1933 Act"), the declaration of the effectiveness thereof
by the SEC and filings, if required, with various state securities or "blue sky"
authorities, and (ii) any filing which may be required under the Hart-Scott-
Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any Governmental Authority is necessary for the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not,
individually or in the aggregate, have a "Company Material Adverse Effect,"
which, for purposes of this Agreement means a material adverse effect on the
operations, assets, condition (financial or other), operating results, employee
or client relations, or prospects of the Company and the Company Subsidiaries,
taken as a whole.
4.4 Capitalization.
--------------
4.4.1 The authorized capital stock of the Company consists of
10,000,000 shares of Class A Common Stock, par value $.01 per share, 10,000,000
shares of Class B Common Stock, par value $.01 per share and 5,000,000 shares of
Preferred Stock, par value $.01 per share, of which 1,046,180 shares of Class A
Common Stock, warrants to purchase 123,042 shares of Class A common stock, par
value $.01 per share, and 4,000 shares of Preferred Stock are issued and
outstanding. The authorized capital stock of each of the Company Subsidiaries,
if any, and the number of such shares issued and outstanding is completely and
accurately set forth in Schedule 4.4. All of such issued and outstanding shares
are validly issued and are fully paid, nonassessable and free of preemptive
rights. The Stockholders are all of the stockholders of the Company and own
beneficially and of record all of the issued and outstanding shares of the
Company Stock as set forth in Schedule 4.4, which shares constitute all of the
outstanding shares of capital stock of the Company. The Company owns all shares
of the Company's Subsidiaries as indicated on Schedule
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4.4, in each case free and clear of all Liens, and the Company has good and
marketable title to such shares of the Company Subsidiaries. All of such issued
and outstanding shares are validly issued and are fully paid, nonassessable and
free of preemptive rights.
4.4.2 Except as set forth on Schedule 4.4, there are no
outstanding subscriptions, options, calls, contracts, commitments, undertakings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of the Company or any Company Subsidiary
or obligating the Company or any Company Subsidiary to grant, extend or enter
into any such agreement or commitment or obligating the Company or any Company
Subsidiary to convey or transfer any Company Stock or Company Subsidiary stock,
as the case may be. As of the Closing Date, there will be no voting trusts,
proxies or other agreements or understandings to which the Company or any
Company Subsidiary is a party or is bound with respect to the voting of any
shares of capital stock or other equity interests of the Company or any Company
Subsidiary.
4.5 Year 2000. Except as set forth on Schedule 4.5, to the Knowledge of
the Company, all of the computer software, computer firmware, computer hardware
(whether general or special purpose), and other similar or related items of
automated, computerized, and/or software system(s) that are used or relied on by
the Company or any Company Subsidiary in the conduct of the Business will not
malfunction, will not cease to function, will not generate incorrect data, and
will not produce incorrect results when processing, providing, and/or receiving
(i) date-related data into and between the twentieth (20th) and twenty-first
(21st) centuries and (ii) date-related data in connection with any valid date
in the twentieth (20th) and twenty-first (21st) centuries, except for any
malfunctions or generations of incorrect data or results that would not
individually or in the aggregate have a Company Material Adverse Effect. Nothing
in this Section 4.5 is intended or shall be construed as a representation or
warranty with respect to embedded systems.
4.6 Financial Statements. The Company has previously furnished to
CenterPoint copies of the audited consolidated balance sheet of the Company as
of July 31 in each of the years 1997 and 1998 (the "Latest Balance Sheet"), and
the related audited consolidated statements of income, stockholders' equity and
cash flow for each of the years in the three (3) year period ended October 31,
1998, including all notes thereto (collectively, the "Financial Statements").
Each of the Financial Statements is accurate and complete in all material
respects, is consistent with the books and records of the Company and the
Company Subsidiaries (which, in turn, are accurate and complete in all material
respects), and fairly presents in all material respects the financial condition,
assets and liabilities of the Company and the Company Subsidiaries as of its
date and the results of operations and cash flows for the periods related
thereto, in each case in accordance with generally accepted accounting
principles applied on a consistent basis ("GAAP").
4.7 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
4.7, neither the Company nor any Company Subsidiary had, as of the date of the
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except
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(i) to the extent clearly and accurately reflected or accrued or fully reserved
against in the Financial Statements or (ii) liabilities and obligations which
have arisen after the date of the Latest Balance Sheet in the ordinary course of
business and consistent with past custom and practices (none of which is a
liability resulting from a breach of contract, breach of warranty, tort,
infringement claim, legal violation or lawsuit).
4.8 Accounts and Notes Receivable. All of the accounts receivable of the
Company and each Company Subsidiary reflected in the Latest Balance Sheet or
arising from the date thereof until the Closing Date have arisen or will arise
in the ordinary course of the Company's Business and each Company Subsidiary's
Business, are not and will not be subject to any defense, counterclaim or
setoff, subject to insureds' rights to cancel insurance coverage, and have been
collected or are and will be collectible in the ordinary course of the Company's
Business using normal collection practices and policies employed by the Company
and each Company Subsidiary as of the date of this Agreement, in each case
subject to any allowance for doubtful accounts determined in accordance with the
Company's past custom and practices.
4.9 Absence of Certain Changes or Events. Except as set forth on Schedule
4.9, since the date of the Latest Balance Sheet, each of the Company and the
Company Subsidiaries has conducted its business only in the ordinary course
consistent with past custom and practices. Except as set forth on Schedule 4.9,
since the date of the Latest Balance Sheet, there has not been any:
(a) change in the operations, condition (financial or otherwise),
operating results, assets, liabilities, employee, or client or policyholder
relations or prospects of the Company or any Company Subsidiary except as
would not have a Company Material Adverse Effect;
(b) damage, destruction or loss of any property owned by the Company
or any Company Subsidiary, or used in the operation of the Business,
whether or not covered by insurance, having a replacement cost or fair
market value in excess of five percent (5%) of the amount of net property,
plant and equipment shown on the Latest Balance Sheet, in the aggregate;
(c) voluntary or involuntary sale, transfer, surrender, cancellation,
abandonment, waiver, release or other disposition of any kind by the
Company or any Company Subsidiary of any right, power, claim or debt,
except the collection of accounts in the ordinary course of business
consistent with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union organizational
activity, allegation, charge or complaint of employment discrimination or
other labor dispute or similar occurrence that is reasonably expected to
adversely affect the Company, a Company Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary to any
Person, other than as a result of services performed for, or expenses
properly and reasonably
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advanced for the benefit of, customers in the ordinary course of business
consistent with past custom and practices;
(f) notice (formal or otherwise) of any liability, potential liability
or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or other
distribution in respect of the Company's capital stock or other equity
interests or any direct or indirect redemption, purchase, or other
acquisition of the Company's or any Company Subsidiary's capital stock or
other equity interests, or the payment of principal or interest on any
note, bond, debt instrument or debt to any Affiliate (as defined in Section
15.4) of the Company or any Company Subsidiary, except bonuses and
distributions to employees and Stockholders disclosed to CenterPoint in
writing that are consistent with the Company's past custom and practices or
as otherwise contemplated by this Agreement;
(h) incurrence by the Company or any Company Subsidiary of debts,
liabilities or obligations except (i) current liabilities incurred in
connection with or for services rendered in the ordinary course of business
consistent with past custom and practices, (ii) liabilities on account of
taxes and governmental charges (but not penalties, interest or fines in
respect thereof), and (iii) obligations or liabilities incurred by virtue
of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any notes,
bonds, or other debt securities or any equity securities or securities
convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or amendment
or termination of, any material commitment, contract, agreement, or
transaction, other than in the ordinary course of business and other than
expiration of contracts in accordance with their terms, except the Company
and any Company Subsidiary may amend any such material commitment,
contract, agreement or transaction necessary to prevent the relevant
commitment, contract, agreement or transaction from terminating due to the
transactions contemplated herein, provided that all material terms of such
commitment, contract, agreement or transaction shall remain the same;
(k) loss or threatened loss of, or any material reduction or
threatened material reduction in revenues from, any client of the Company
or any Company Subsidiary that accounted for revenues during the last
twelve months in excess of one percent (1%) of the consolidated net
revenues of the Company and the Company Subsidiaries, or change in the
relationship of the Company or any Company Subsidiary with any client or
Governmental Authority that is reasonably expected to adversely affect the
Company, any Company Subsidiary or the Business;
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(l) change in accounting principles, methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) utilized by the Company or any Company Subsidiary;
(m) discharge or satisfaction by the Company or any Company Subsidiary
of any material liability or encumbrance or payment by the Company or any
Company Subsidiary of any material obligation or liability, other than
current liabilities paid in the ordinary course of its business consistent
with past custom and practices;
(n) sale, lease or other disposition by the Company or any Company
Subsidiary of any tangible assets having an aggregate replacement cost or
fair market value in excess of five percent (5%) of the amount of net
property, plant and equipment shown on the Latest Balance Sheet) other than
in the ordinary course of business, or the sale, assignment or transfer by
the Company or any Company Subsidiary of any trademarks, service marks,
trade names, corporate names, copyright registrations, trade secrets, lists
of past and present customers, lists of potential customers, insurance
policy expiration data or rights, research sales data, analyses, sales and
marketing materials, scheduling and service methods, sales and service
manuals, or other intangible assets, or disclosure of any proprietary or
confidential information of the Company or any Company Subsidiary relating
to or used in connection with the Business to any Person other than an
employee, agent, attorney, accountant or other representative of the
Company that has agreed to maintain the confidentiality of any such
proprietary confidential information;
(o) capital expenditures or commitments therefor by the Company or any
Company Subsidiary in excess of $50,000 individually or $100,000 in the
aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the Company
or any Company Subsidiary or creation of any easements, Liens or other
interests against or on any of the Real Property (as defined in Section
4.14.1);
(q) adoption, amendment or termination of any Employee Plan (as
defined in Section 4.17.5(a)) or increase in the benefits provided under
any Employee Plan, or promise or commitment to undertake any of the
foregoing in the future; or
(r) an occurrence or event not included in clauses (a) through (q)
that has resulted or, based on information of which the Company has
Knowledge, is reasonably expected to result in a Company Material Adverse
Effect.
4.10 Litigation. Except as set forth on Schedule 4.10 (which shall
disclose the parties to, nature of and relief sought for each matter to be
disclosed on Schedule 4.10):
4.10.1 There is no suit, action, proceeding, investigation, claim or
order pending or, to the Knowledge of the Company, threatened against the
Company or any Company Subsidiary, or with respect to the Merger, or with
respect to any Employee Plan, or any fiduciary of any such
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plan (or pending or, to the Knowledge of the Company, threatened against any of
the officers, directors, members, partners or employees of the Company or any
Company Subsidiary with respect to its business or proposed business
activities), or to which the Company or any Company Subsidiary is otherwise a
party, or that is reasonably expected to have a Company Material Adverse Effect,
before any court, or before any Governmental Authority (each an "Action" and
collectively, the "Actions"); nor, to the Knowledge of the Company, is there
any basis for any such Action.
4.10.2 Neither the Company nor any Company Subsidiary is subject to
any unsatisfied or continuing judgment, order or decree of any court or
Governmental Authority. Neither the Company nor any Company Subsidiary, to the
Knowledge of the Company, is otherwise exposed, from a legal standpoint, to any
liability or disadvantage that is reasonably expected to result in a Company
Material Adverse Effect, and neither the Company nor any Company Subsidiary is a
party to any legal action to recover monies due it or for damages sustained by
it, other than collection of past due charges for services rendered or expenses
incurred by the Company.
4.10.3 Schedule 4.10 lists the insurer for each Action covered by
insurance or designates such Action, or a portion of such Action, as uninsured
and lists the individual and aggregate policy limits for the insurance covering
each insured Action and the applicable policy deductibles for each insured
Action.
4.10.4 Schedule 4.10 sets forth all material closed litigation
matters to which the Company or any Company Subsidiary was a party during the
five (5) year period preceding the Closing Date, the date such litigation was
commenced and concluded, and the nature of the resolution thereof (including
amounts paid in settlement or judgment).
4.11 Compliance with Applicable Laws. Except as set forth on Schedules
4.11 and 4.19, each of the Company, and the Company Subsidiaries and every
person acting on behalf of the Company or any Company Subsidiary has complied in
all material respects with all laws, rules, regulations, regulatory agency
bulletins, attorney general opinions, writs, injunctions, decrees, and orders
(collectively, "Laws") applicable to the Company, any Company Subsidiary and
every person acting on behalf of the Company or any Company Subsidiary in
relation to the operation of the Business, except where failure to so comply
would not have a Company Material Adverse Effect, and has not received any
notice of any alleged claim or threatened claim, violation of, citation for non-
compliance with, or liability or potential responsibility under, any such Law
which has not heretofore been cured and for which there is no remaining
liability and, to the Knowledge of the Company, no event has occurred or
circumstances exist that (with or without notice or lapse of time) is reasonably
expected to constitute or result in a violation by the Company, any Company
Subsidiary or any person acting on behalf of the Company or any Company
Subsidiary of any Law or that gives rise to any liability on the part of the
Company or any Company Subsidiary under any Law. Neither the Company nor any
Company Subsidiary has received notice of potential claims, allegations,
grievances or complaints against or pertaining to the Business, including any
consumer complaints from any state departments of insurance.
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4.12 Licenses. Schedule 4.12 lists all Licenses used by the Company, the
Company Subsidiary and each Licensed Person that are material to the conduct of
the Business. "Licenses" means all notifications, licenses, permits, franchises,
certificates, approvals, exemptions, classifications, registrations,
qualifications and other similar documents and authorizations, and applications
therefor held by the Company, each Company Subsidiary and each Person acting on
behalf of the Company or a Company Subsidiary whose activities require Licenses
("Licensed Person") and issued or submitted to the Company, any Company
Subsidiary or any Licensed Persons by any Governmental Authority or other
Person. All such Licenses are valid, binding and in full force and effect.
Except as described on Schedule 4.12, the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
will not adversely affect any such Licenses. To the Knowledge of the Company,
the Company and the Company Subsidiaries have taken all necessary action to
maintain such Licenses. No loss or expiration of any such License is pending
or, to the Company's Knowledge, threatened or reasonably foreseeable.
4.13 Material Contracts. Except as listed or described on Schedule 4.13
(such contracts, or those which should have been listed on Schedule 4.13, are
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments (each a
"Contract" and collectively, the "Contracts") relating to or in any way
affecting the operation or ownership of the Business that are of a type
described below and no such agreements are currently in negotiation or proposed:
(a) any consulting agreement pursuant to which the Company or a
Company Subsidiary is to receive consulting services (other than consulting
agreements that may be terminated by the Company or a Company Subsidiary on
not more than 30 days notice without penalty), employment agreement,
change-in-control agreement, or collective bargaining arrangement with any
labor union;
(b) any Contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $50,000.
(c) any Contract for the purchase, maintenance or acquisition, or the
sale or furnishing, of materials, supplies, merchandise, machinery,
equipment, parts or other property or services (except if such Contract is
made in the ordinary course of business and requires aggregate future
payments of less than $25,000);
(d) any Contract, other than trade payables in the ordinary course of
business, relating to the borrowing of money, or the guaranty of another
Person's borrowing of money, including, without limitation, any notes,
mortgages, indentures and other obligations, guarantees of performance,
agreements and instruments for or relating to any lending or borrowing,
including assumed indebtedness, other than any contract with an insurance
carrier under which the Company or any Company Subsidiary is responsible
for the payment of
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insurance premiums whether or not such premiums are first collected by the
Company or any Company Subsidiary;
(e) any Contract granting any Person a Lien on all or any part of the
assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (as defined in Section 4.19), the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) any Contract granting to any Person an option or a first refusal,
first-offer or similar preferential right to purchase or acquire any
material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative which
is not terminable by the Company or a Company Subsidiary upon ninety (90)
calendar days or less notice without penalty;
(i) any Contract under which the Company or any Company Subsidiary is
(A) a lessee or sublessee of any machinery, equipment, vehicle or other
tangible personal property, or (B) a lessor of any tangible personal
property owned by the Company or any Company Subsidiary, in either case
having an original purchase price or requiring aggregate lease payments in
excess of $50,000;
(j) any Contract under which the Company or any Company Subsidiary has
granted or received a license or sublicense or under which it is obligated
to pay or has the right to receive a royalty, license fee or similar
payment, in either case which provides for payments over the life of such
Contract in excess of $25,000, except such Contracts with insurance
companies whereby the Company or a Company Subsidiary is acting as an
insurance producer and has the right to receive any commission payments;
(k) any Contract concerning an Affiliate Transaction (as defined in
Section 4.21);
(l) any Contract providing for the indemnification or holding harmless
of any officer, director, employee or other Person;
(m) any Contract (A) for purchase or sale by the Company or any
Company Subsidiary of any real property on which the Company or any Company
Subsidiary conducts any aspect of the Business, (B) granting any options to
lease or purchase all or any portion of the Real Property, or (C) providing
for labor, services or materials to the Real Property (including, without
limitation, brokerage or management services) involving aggregate future
payments of more than $25,000;
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(n) any Contract limiting, restricting or prohibiting the Company or
any Company Subsidiary from conducting business anywhere in the United
States or elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to the
Leased Property (as defined in Section 4.14.1);
(q) any Contract requiring prior notice, consent or other approval
upon a change of control in the equity ownership of the Company or any
Company Subsidiary, which, if amended, modified or terminated as a result
of, relating to or in connection with a failure to provide prior notice, or
gain such consent or approval, would result in a Company Material Adverse
Effect; or
(r) any other Contract, whether or not made in the ordinary course of
business, which involves future payments by the Company or any Company
Subsidiary in excess of $25,000.
The Company has provided CenterPoint with a true and complete copy of each
written Material Contract and a true and complete summary of each oral Material
Contract, in each case including all amendments or other modifications thereto.
Except as set forth on Schedule 4.13, each Material Contract is a valid and
binding obligation of, and enforceable in accordance with its terms against, the
Company or a Company Subsidiary, as applicable, and, to the Knowledge of the
Company, the other parties thereto, and is in full force and effect, subject
only to bankruptcy, reorganization, receivership and other laws affecting
creditors' rights generally and equitable principles. Except as set forth on
Schedule 4.13, the Company or one of the Company Subsidiaries, as applicable,
has performed in all material respects all obligations required to be performed
by it as of the date hereof and will have performed in all material respects all
obligations required to be performed by it as of the Closing Date under each
Material Contract and neither the Company or Company Subsidiary, as applicable,
nor, to the Knowledge of the Company, any other party to any Material Contract
is in breach or default thereunder, and, to the Knowledge of the Company, there
exists no condition which would, with or without the lapse of time or the giving
of notice, or both, constitute a breach or default thereunder. The Company has
not been notified that any party to any Material Contract intends to cancel,
terminate, not renew, or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
4.14 Properties.
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4.14.1 Schedule 4.14.1-1 is a correct and complete list, and a brief
description of, all real estate in which the Company or any of the Company
Subsidiaries has an ownership interest (the "Owned Property") and all real
property leased by the Company (the "Leased Property"). Except as lessee of
Leased Property, neither the Company nor any Company Subsidiary is a lessee
under or otherwise a party to any lease, sublease, license, concession
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or other agreement, whether written or oral, pursuant to which another
Person has granted to the Company or any Company Subsidiary the right to
use or occupy all or any portion of any real property.
The Company or one of the Company Subsidiaries has good and marketable
fee simple title to the Owned Property and, assuming good title in the
Landlord, a valid leasehold interest in the Leased Property (the Owned
Property and the Leased Property being sometimes referred to herein as
"Real Property"), in each case free and clear of all Liens, assessments or
restrictions (including, without limitation, inchoate liens arising out of
the provision of labor, services or materials to any such real estate)
other than (a) mortgages shown on the Financial Statements as securing
specified liabilities or obligations, with respect to which no default (or
event that, with notice or lapse of time or both, would constitute a
default) exists, (b) Liens for current taxes not yet due, (c) (i) minor
imperfections of title, including utility and access easements depicted on
subdivision plats for platted lots that do not impair the intended use of
the property, if any, none of which materially impairs the current
operations of the Company or the Business, and (ii) zoning laws and other
land use restrictions or restrictive covenants that do not materially
impair the present use of the property subject thereto, and (d) Liens,
assessments, and restrictions pursuant to and by virtue of the terms of the
lease of the Leased Property. The Real Property constitutes all real
properties reflected on the Financial Statements or used or occupied by the
Company or any Company Subsidiary in connection with the Business or
otherwise.
With respect to the Owned Property, except as reflected on Schedule
4.14.1-2(a):
(a) the Company or one of the Company Subsidiaries is in exclusive
possession thereof and no easements, licenses or rights are necessary to
conduct the Business thereon in addition to those which exist as of the
date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority materially
adverse to the Owned Property and, to the Knowledge of the Company, there
is no threatened condemnation or proceeding with respect thereto;
(c) there is no violation of any covenant, condition, restriction,
easement or agreement of any Governmental Authority that affects the Owned
Property or the ownership, operation, use or occupancy thereof;
(d) no portion of any parcel of the Owned Property is subject to any
roll-back tax, dual or exempt valuation tax and no portion of any Owned
Property is omitted from the appropriate tax rolls; and
(e) all assessments and taxes currently due and payable on such Owned
Property have been paid.
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With respect to the Leased Property, except as reflected on Schedule
4.14.1-2(b):
(i) the Company and/or one of the Company Subsidiaries is in
exclusive, peaceful and undisturbed possession thereof and, to the
Knowledge of the Company, no easements, licenses or rights are necessary to
conduct the Business thereon in addition to those which exist as of the
date hereof; and
(ii) to the Knowledge of the Company, no portion thereof is
subject to any pending condemnation proceeding or proceeding by any public
or quasi-public authority materially adverse to the Leased Property and
there is no threatened condemnation or proceeding with respect thereto.
4.14.2 The Latest Balance Sheet and/or Schedule 4.14.2 reflect all
material tangible personal property owned by the Company or any Company
Subsidiary, except as sold or otherwise disposed of or acquired in the ordinary
course of business. Except as set forth on Schedule 4.14.2, the Company or one
of the Company Subsidiaries has good and marketable title to, or a valid
leasehold interest in, or valid license of, such personal property (including,
without limitation, machinery, equipment and computers), in each case free and
clear of any Liens (other than Liens that are part of such leasehold or
license), and each such asset is in working order and has been maintained in a
commercially reasonable manner and does not contain, to the Knowledge of the
Company, any material defect. Except as set forth in Schedule 4.14.2, no
personal property (including, without limitation, software and databases
maintained on off-premises computers) used by the Company or any Company
Subsidiary in connection with the Business is held under any lease, security
agreement, conditional sales contract or other title retention or security
arrangement or is located other than on the Real Property.
4.15 Intellectual Property. The (i) patents, patent applications,
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered trademarks, trade names, company names, assumed
business names and service marks (collectively, the "Marks"), (iii) copyrights
(the "Copyrights"), and (iv) know how, trade secrets, confidential information,
software, technical information, data, process technology, plans and drawings,
lists of past and present customers, lists of potential customers, insurance
expiration data and rights, business plans, performance standards, catalogues,
research sales data, analyses, and programs, sales and marketing materials,
scheduling and service methods, sales and service manuals and all other
proprietary, confidential and other similar information (in whatever form or
medium) relating to or used in connection with the Business (collectively, the
"Trade Secrets"), and the business and goodwill of the Company and the Company
Subsidiaries as a going concern owned, used or licensed by the Company or any
Company Subsidiary (collectively, the "Intellectual Property") are all those
necessary to enable the Company and the Company Subsidiaries to conduct and to
continue to conduct the Business substantially as it is currently conducted.
Schedule 4.15 contains a complete and accurate list of all material Patents,
Marks and Copyrights and a brief description of all material Trade Secrets
owned, used by or directly licensed to the Company or any Company Subsidiary,
and a list of all material license agreements and arrangements with respect to
any of the Intellectual Property to which the Company or any Company Subsidiary
is a party, whether as licensee, licensor
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or otherwise (collectively, the "Intellectual Property Licenses"). Except as set
forth on Schedule 4.15, (i) all of the Intellectual Property is owned, or to the
Knowledge of the Company used under a valid Intellectual Property License, by
the Company or one of the Company Subsidiaries, and is free and clear of all
Liens and other adverse claims; (ii) neither the Company nor any Company
Subsidiary has received any written notice that it is or has infringed on,
misappropriated or otherwise conflicted with, or otherwise has Knowledge that it
is infringing on, misappropriating, or otherwise conflicting with the
intellectual property rights of any third parties; (iii) there is no claim
pending or, to the Knowledge of the Company threatened against the Company or
any Company Subsidiary with respect to the alleged infringement or
misappropriation by the Company or Company Subsidiary, or a conflict with, any
intellectual property rights of others; (iv) the operation of any aspect of the
Business in the manner in which it has heretofore been operated or is presently
operated does not give rise to any such infringement or misappropriation; and
(v) there is no infringement or misappropriation of the Intellectual Property by
a third party or claim, pending or, to the Knowledge of the Company, threatened,
against any third party with respect to the alleged infringement or
misappropriation of the Intellectual Property.
4.16 Taxes.
4.16.1 Except as set forth on Schedule 4.16.1-1, each of the Company
and the Company Subsidiaries has timely and accurately prepared and filed or
will timely and accurately prepare and file all federal, state (including any
state premium filings), local and foreign returns, declarations and reports,
information returns and statements (collectively, the "Returns") for Taxes (as
defined in Section 4.16.2) required to be filed by or with respect to the
Company or the Company Subsidiaries before the Closing Date, and has paid or
caused to be paid, or has made adequate provision or set up an adequate accrual
or reserve for the payment of, all Taxes required to be paid in respect of the
periods for which Returns are due on or prior to the Closing Date, and will
establish an adequate accrual or reserve for the payment of all Taxes payable in
respect of the period, including portions thereof, subsequent to the last of
said periods required to be so accrued or reserved, in each case in accordance
with GAAP up to and including the Closing Date. All such Returns are or will be
true and correct in all material respects. The Company has delivered to
CenterPoint true and complete copies of all Returns referred to in the first
sentence of this Section 4.16.1 (including any amendments thereof) for the five
(5) most recent taxable years. Neither the Company nor any Company Subsidiary
is delinquent in the payment of any Tax, and no material deficiencies for any
Tax, assessment or governmental charge have been threatened, claimed, proposed
or assessed. No waiver or extension of time to assess any Taxes has been given
or requested. No written claim, or any other claim, by any taxing authority in
any jurisdiction where the Company or any Company Subsidiary does not file Tax
returns is pending pursuant to which the Company or Company Subsidiary, as
applicable, is or may be subject to taxation by that jurisdiction. The
Company's and the Company Subsidiaries' Returns were last audited by the
Internal Revenue Service or comparable state, local or foreign agencies on the
dates set forth on Schedule 4.16.1-2.
4.16.2 For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, withholdings, fees, levies, penalties, additions, interest
or other assessments, including, without limitation, income, gross receipts,
excise, property, sales, employment, withholding, social
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security, occupation, use, service, service use, license, payroll, franchise,
transfer and recording taxes, fees and charges, windfall profits, severance,
customs, import, export, employment or similar taxes, charges, fees, levies or
other assessments, imposed by the United States, or any state (including any
state premium tax filings), local, foreign or provincial government or
subdivision or any agency thereof, whether computed on a separate, consolidated,
unitary, combined or any other basis.
4.17 Employee Benefit Plans; ERISA.
-----------------------------
4.17.1 Except as described in Schedule 4.17.1, neither the Company
nor any Company Subsidiary has or is reasonably expected to have any liability
(including contingent liability) whether direct or indirect (and regardless of
whether it would be derived from a current or former Plan Affiliate as defined
in Section 4.17.5(c)) with respect to any of the following (whether written,
unwritten or terminated): (i) any employee welfare benefit plan, as defined in
Section 3(1) of "ERISA," including, but not limited to, any medical plan, life
insurance plan, short-term or long-term disability plan or dental plan; (ii) any
"employee pension benefit plan," as defined in Section 3(2) of ERISA (as defined
in Section 4.17.5(b)), including, but not limited to, any excess benefit plan,
top hat plan or deferred compensation plan or arrangement, nonqualified
retirement plan or arrangement, qualified defined contribution or defined
benefit arrangement; or (iii) any other benefit plan, policy, program,
arrangement or agreement, including, but not limited to, any material fringe
benefit plan or program, personnel policy, bonus or incentive plan, stock
option, restricted stock, stock bonus, holiday pay, vacation pay, sick pay,
bonus program, service award, moving expense, reimbursement program, tool
allowance, safety equipment allowance, deferred bonus plan, salary reduction
agreement, change-of-control agreement, employment agreement or consulting
agreement.
4.17.2 A complete copy of each written Employee Plan (as defined in
Section 4.17.5(a)) as amended to the Closing, together with audited financial
statements, if any, for the three (3) most recent plan years; a copy of each
trust agreement or other funding vehicle with respect to each such plan; a copy
of any and all determination letters, rulings or notices issued by a
Governmental Authority with respect to such plan; a copy of the Form 5500 Annual
Report for the three (3) most recent plan years; and a copy of each and any
general explanation or communication which was required to be distributed or
otherwise provided to participants in such plan and which describes all or any
relevant aspect of each plan, including summary plan descriptions and/or summary
of material modifications, have been delivered to CenterPoint. A description of
each unwritten Employee Plan, including a description of eligibility,
participation, benefits, funding arrangements and assets or other relevant
aspects of the obligation, is set forth in Schedule 4.17.2.
4.17.3 Except as is not reasonably expected to give rise to any
liability (including contingent liability), whether direct or indirect, to the
Company or any Company Subsidiary, each Employee Plan (i) has been and is
operated and administered in compliance with its terms; (ii) has been and is
operated, administered, maintained and funded in compliance with the applicable
requirements of the Code in such a manner as to qualify, where appropriate and
intended, for both Federal and state purposes, for income tax exclusions, tax-
exempt status, and the allowance of deductions and credits with respect to
contributions thereto; (iii) where appropriate, has received a
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favorable determination letter from the Internal Revenue Service upon which the
sponsor of the plan may currently rely; (iv) has been and currently complies in
form and in operation in all respects with all applicable requirements of ERISA
and the Code and any applicable reporting and disclosure requirements of Federal
and state laws, including but not limited to the requirement of Part 6 of
subtitle B of Title I of ERISA and Section 4980B of the Code. With respect to
each Employee Plan, no Person has: (i) entered into any nonexempt "prohibited
transaction," as such terms are defined in ERISA or the Code; (ii) breached a
fiduciary obligation or (iii) any liability for any failure to act or comply in
connection with the administration or investment of the assets of such plan; and
no Employee Plan has any liability and there is no liability in connection with
any Employee Plan, other than a liability (i) which is expressly and adequately
reflected in the Latest Balance Sheets, (ii) which is discretionary or
terminable at will by the Company or one of the Company Subsidiaries without
incurring any such liability, or (iii) which is adequately funded under a
funding arrangement separate from the assets of the Company, any Company
Subsidiary or a Plan Affiliate (and only to the extent of such funding). Any
contribution made or accrued with respect to any Employee Plan is fully
deductible by the Company, a Company Subsidiary or a Plan Affiliate.
4.17.4 Neither the Company nor any Company Subsidiary or Plan
Affiliate has ever sponsored, maintained, contributed to or been required to
contribute to, or has any liability, whether direct or indirect, with respect to
any Employee Plan which is or has ever been (i) a "multiemployer plan" as
defined in Section 4001 of ERISA, (ii) a "multiemployer plan" within the meaning
of Section 3(37) of ERISA, (iii) a "multiple employer plan" within the meaning
of Code Section 413(c), (iv) a "multiple employer welfare arrangement" within
the meaning of Section 3(40) of ERISA, (v) subject to the funding requirements
of Section 412 of the Code or to Title IV of ERISA, or (vi) provides for post-
retirement medical, life insurance or other welfare-type benefits.
4.17.5 As used in this Agreement, the following terms shall have the
following respective meanings:
(a) the term "Employee Plan" shall mean any plan, policy,
program, arrangement or agreement described in Section 4.17.1, whether or
not scheduled;
(b) the term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended; and
(c) with respect to any Person ("First Person"), the term "Plan
Affiliate" shall mean any other Person with whom the First Person
constitutes or has constituted all or part of a controlled group, or which
would be treated or have been treated with the First Person as under common
control or whose employees would be or have been treated as employed by the
First Person, under Section 414 of the Code or Section 4001(b) of ERISA and
any regulations, administrative rulings and case law interpreting the
foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no,
and within the last three (3) years neither the Company nor any Company
Subsidiary has experienced any, strike,
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picketing, boycott, work stoppage or slowdown or other similar labor dispute,
union organizational activity, allegation, charge or complaint of unfair labor
practice, employment discrimination or other matters relating to the employment
of labor pending or, to the Knowledge of the Company, threatened against the
Company or any Company Subsidiary, or which might affect the Company or any
Company Subsidiary; nor, to the Knowledge of the Company, is there any basis for
any such allegation, charge, or complaint. There is no request for
representation pending and, to the Knowledge of the Company, no question
concerning representation has been raised. There is no grievance pending that is
reasonably expected to result in a Company Material Adverse Effect nor any
arbitration proceeding arising out of a union agreement. To the Knowledge of the
Company, no key employee and no group of employees has announced or otherwise
indicated any plans to terminate employment with the Company or any Company
Subsidiary. Each of the Company and any Company Subsidiary has complied with all
applicable laws relating to the employment of labor, including provisions
thereof relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other taxes. Neither the Company nor any
Company Subsidiary is liable for any arrears of wages or any taxes or penalties
for failure to comply with any such laws, ordinances or regulations.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19,
(i) each of the Company and the Company Subsidiaries is operating and has
operated its business in compliance with all applicable Environmental and Safety
Requirements (as defined later in this Section); (ii) to the actual knowledge of
the officers of the Company, without any duty to inquire (notwithstanding the
definition of "Knowledge" in Section 15.4), there are no Hazardous Materials (as
defined later in this Section) present at, on or under any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
(other than those present in office supplies and cleaning/maintenance materials)
for which the Company or a Company Subsidiary is or is reasonably expected to be
responsible, or otherwise have any liability, for response costs under any
Environmental and Safety Requirements; (iii) each of the Company and the Company
Subsidiaries has disposed of all waste materials generated by the Company or
such Company Subsidiary at any real property currently or formerly owned, leased
or used by the Company or Company Subsidiary in compliance with applicable
Environmental and Safety Requirements; and (iv) there are and have been no
facts, events, occurrences or conditions at or related to any real property
currently or formerly owned, leased or used by the Company or Company Subsidiary
that is reasonably expected to cause or give rise to liabilities or response
obligations of the Company or any Company Subsidiary under any Environmental and
Safety Requirements. The term "Environmental and Safety Requirements" means any
federal, state and local laws, statutes, regulations or other requirements
relating to the protection, preservation or conservation of the environment or
worker health and safety, all as amended or reauthorized. The term "Hazardous
Materials" means "hazardous substances," as defined by the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. (S) 9601 et
seq., "hazardous wastes," as defined by the Resource Conservation Recovery Act,
42 U.S.C. (S) 6901 et seq., asbestos in any form or condition, polychlorinated
biphenyls and any other material, substance or waste to which liability or
standards of conduct may be imposed under any Environmental and Safety
Requirement.
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4.20 Insurance. Each of the Company and the Company Subsidiaries has in
full force and effect commercially reasonable amounts of insurance (including,
but not limited to, errors and omissions insurance up to $10,000,000 per
occurrence and $10,000,000 aggregate) to protect the Company's and the Company
Subsidiaries' ownership or interest in, and operation of, its assets against the
types of liabilities, customarily insured against in connection with operations
similar to the Business, and all premiums due on such policies have been paid.
To the Company's Knowledge, each of the Company and the Company Subsidiaries has
complied with the provisions of all such policies and is not in default under
any of such policies. Schedule 4.20 contains a complete and correct list of all
such insurance policies. Neither the Company nor any Company Subsidiary has
received any notice of cancellation or non-renewal or intent to cancel or non-
renew or increase premiums with respect to such insurance policies. Schedule
4.20 also contains a list of all claims or asserted claims reported to insurers
under such policies relating to the ownership or interest in the Company's and
the Company Subsidiaries' assets, or operation of the Business, including all
errors and omissions claims and similar types of claims, actions or proceedings
asserted against the Company or any Company Subsidiary arising out of the
Business at any time within the past three (3) years.
4.21 Interest in Customers and Suppliers; Affiliate Transactions. Except
as described on Schedule 4.21 and except for ownership as an investment of not
more than one percent (1%) of any class of capital stock of any publicly-traded
company, no Stockholder, any Affiliate of a Stockholder nor Affiliate of the
Company or any Company Subsidiary (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of any
Person that is a client, supplier, customer, lessor, lessee or competitor of the
Company or any Company Subsidiary, (ii) owns, directly or indirectly, in whole
or in part, or has any interest in any tangible or intangible property used in
the conduct of the Business, or (iii) is a party to an agreement or
relationship, that involves the receipt by such Person of compensation or
property from the Company or any Company Subsidiary other than through a written
employment relationship or through distributions made with respect to the
Company Stock or equity interests in any Company Subsidiary (provided such
distributions have been made consistent with the Company's or any Company
Subsidiary's, as the case may be, past custom and practices). Schedule 4.21
sets forth the parties to and the date, nature and amount of each transaction
during the last five years involving the transfer of any cash, property or
rights to or from the Company or any Company Subsidiary from, to or for the
benefit of any Affiliates (other than customary employment relationships or
distributions made with respect to the Company Stock) ("Affiliate
Transactions"), and any existing commitments of the Company or any Company
Subsidiary to engage in the future in any Affiliate Transactions. Except as
disclosed, each Affiliate Transaction and each transaction with former
Affiliates of the Company or any Company Subsidiary was effected on terms
equivalent to those that would have been established in an arm's-length
transaction.
4.22 Business Relationships. Schedule 4.22 lists all clients of the
Company and each Company Subsidiary representing one percent (1%) or more of the
Company's revenues for the twelve (12) months ended December 31, 1998. Except
as set forth on Schedule 4.22, since December 31, 1998, none of such clients has
canceled or substantially reduced its business with the Company or Company
Subsidiary, as applicable, nor are any of such clients threatening to do so.
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To the Knowledge of the Company, no policyholders, retail producers, licensed
agents and brokers, bona-fide associations and/or groups and risk retention
groups or risk purchasing groups, or insurance carriers that accounts for one
percent (1%) or more of the Company's consolidated net revenue or supplier of
the Company or any Company Subsidiary, will cease to do business with, or
substantially reduce its business with, the Company or Company Subsidiary, as
applicable, after the consummation of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
names and current total compensation, including, without limitation, salary and
bonuses paid to employees and draws or other distributions paid to partners,
members or owners of each Person who earned from the Company or a Company
Subsidiary in 1998 total compensation in excess of $100,000. Except as set forth
in Schedule 4.23, no Person listed thereon has received any bonus or increase in
compensation and there has been no "1 general increase" in the compensation or
rate of compensation payable to any employees, partners, members or owners of
the Company or any Company Subsidiary since the date of the Latest Balance
Sheet, other than in the Company's and Company Subsidiaries' ordinary course of
business, consistent with past custom and practices, nor since that date has
there been any oral or written promise to employees, partners, members or owners
of any bonus or increase in compensation, other than in the Company's ordinary
course of business, consistent with past custom and practices. The term "general
increase" as used herein means any increase generally applicable to a class or
group, but does not include increases granted to individuals for merit, length
of service or change in position or responsibility made on the basis of the
custom and past practices of the Company or any Company Subsidiary. Schedule
4.23 includes the date and amount of the last bonus or similar distribution or
increase in compensation for each listed individual.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each
bank in which the Company or any Company Subsidiary has an account or safe
deposit box, the number of each such account or box, and the names of all
Persons authorized to draw thereon or to have access thereto. Without limiting
the generality of Section 4.11 herein, the Company and each Company Subsidiary
has complied with all laws, regulations, bulletins promulgated by the California
Department of Insurance and all other state departments of insurance where
clients of the Company or a Company Subsidiary reside, and all written policies
of the California Department of Insurance and all other state departments of
insurance where clients of the Company or a Company Subsidiary reside pertaining
to the handling and maintenance of premium fund trust accounts and premiums held
by the Company and the Company Subsidiaries generally ("Premium Fund Insurance
Regulations"). The premium fund trust accounts of the Company and each Company
Subsidiary have the proper amount of funds in such accounts in accordance with
all Premium Fund Insurance Regulations, and the Company and each Company
Subsidiary have not or are not currently using such funds for their own use. The
Company and each Company Subsidiary have never been found to violate any Premium
Fund Insurance Regulations.
4.25 Disclosure; No Misrepresentation. No representation or warranty of
the Company contained in this Agreement or in any of the certification,
schedules, lists, documents, exhibits, or other instruments delivered or to be
delivered to CenterPoint as contemplated by any provision
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hereof contains any untrue statement regarding a material fact or omits to state
a material fact necessary in order to make the statements made herein or therein
not misleading. To the Knowledge of the Company, there is no fact or
circumstance that has not been disclosed to CenterPoint herein that has or is
reasonably expected to have a Company Material Adverse Effect.
4.26 Title to and Transfer of Insurance Expirations. The Company or the
Company Subsidiaries have good and valid title or rights, free and clear of any
Liens, liabilities, encumbrances, obligations or other restrictions whatsoever,
to the Insurance Expirations (as hereinafter defined). For the purpose of this
Section 4.26, "Insurance Expirations" is defined as the right to service,
continue and renew, and collect all commissions and other amounts on, all
insurance policies of every type and description placed by or through the
Company or a Company Subsidiary, including all of (i) the expiration data
relating to such policies of insurance placed by or through the Company or a
Company Subsidiary, (ii) all books, records and files pertaining to all
insurance policies, including, without limitation, all computerized data records
and all other records and files regardless of the media in or on which such
data, records or files are maintains, and (iii) the customer and prospective
customer lists used by the Company or a Company Subsidiary.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE SIGNING STOCKHOLDERS
5.1.1 Several Representations and Warranties. Each Signing Stockholder,
severally and not jointly, hereby represents and warrants to CenterPoint as of
the date hereof and, subject to Section 7.3, as of the date on which CenterPoint
and the lead Underwriter execute and deliver the Underwriting Agreement related
to the IPO and as of the Closing Date as follows:
5.1.1 Capitalization. Except for The 1818 Mezzanine Fund, L.P. and
Hales Capital Advisors LLC, (each a "Warrant Holder" and collectively the
"Warrant Holders"), each Signing Stockholder owns beneficially and of record all
of the issued and outstanding shares of the Company Stock (and with respect to
each Warrant Holder upon exercise of the Warrants will be) set forth opposite
the name of such Signing Stockholder in Schedule 4.4. On the Closing Date each
Warrant Holder will own beneficially and of record all of issued and outstanding
shares of the Company Stock set forth opposite the name of such Warrant Holder.
Such Company Stock is free and clear of all Liens and such Signing Stockholder
has (and with respect to each Warrant Holder upon exercise of the Warrants will
have) good and marketable title to such Company Stock. At the Closing as
provided in this Agreement, CenterPoint will acquire good and valid title to
such Company Stock, free and clear of any Lien other than any Lien created by
CenterPoint.
5.1.2 Authority. Such Signing Stockholder has full right, capacity,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by such Signing Stockholder, and, assuming the due authorization,
execution and delivery hereof by CenterPoint, constitutes a valid and legally
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binding agreement of such Signing Stockholder, enforceable against such Signing
Stockholder in accordance with its terms, except that such enforcement may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights generally
and (ii) general equitable principles.
5.1.3 Non-Contravention. The execution and delivery of this Agreement
by such Stockholder does not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any Lien upon
any of the properties or assets of the Company or any Company Subsidiary under,
any of the terms, conditions or provisions of (i) any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction, writ, permit or license
of any Governmental Authority applicable to such Signing Stockholder or (ii)
other than those licenses, franchises, permits, concessions or instruments of
any Governmental Authority, any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which such Signing Stockholder is a party
or by which such Signing Stockholder may be bound or affected. The consummation
by such Signing Stockholder of the transactions contemplated hereby will not
result in a violation, conflict, breach, right of termination, creation or
acceleration of Liens under the of the terms, conditions or provisions of the
items described in clauses (i) and (ii) of the immediately preceding sentence
subject to obtaining (prior to the Closing Date) the consents set forth on
Schedule 4.3.2.
5.1.4 Approvals. To the Knowledge of such Signing Stockholder, and
except with respect to (i) the filing of the Registration Statements with the
SEC pursuant to the 1933 Act, the declaration of the effectiveness of the
Registration Statements by the SEC and filings, if required, with various state
securities or "blue sky" authorities, and (ii) any filing which may be required
under the HSR Act, no declaration, filing, or registration with, or notice to,
or authorization, consent or approval of, any Governmental Authority is
necessary for the execution and delivery of this Agreement by such Signing
Stockholder or the consummation by such Signing Stockholder of the transactions
contemplated hereby.
5.1.5 Litigation. There is no action, claim, suit, proceeding
(disciplinary or otherwise), arbitration or investigation pending, or to the
Knowledge of such Signing Stockholder, threatened against such Signing
Stockholder relating to (i) the transactions contemplated by this Agreement, or
(ii) any action taken by such Signing Stockholder or contemplated by such
Signing Stockholder in connection with the consummation by such Signing
Stockholder of the transactions contemplated hereby.
5.1.6 No Transfer. There are no outstanding subscriptions, options,
calls, contracts, commitments, undertakings, restrictions, arrangements, rights
or warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement to deliver or sell, or cause to be
delivered or sold, shares of Company Stock owned by such Signing Stockholder or
obligating such Signing Stockholder to grant, extend or enter into any such
agreement or commitment or obligating such Signing Stockholder to convey or
transfer any Company Stock. As
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of the Closing Date, there will be no voting trusts, proxies or other agreements
or understandings to which such Signing Stockholder is a party or is bound with
respect to the voting of any shares of capital stock or other equity interests
of the Company other than the Voting Agreement.
5.1.7 Disclosure. No representation or warranty by such Signing
Stockholder contained in this Agreement or any of the written statements or
certificates furnished at or prior to the Closing by such Signing Stockholder to
CenterPoint or its representatives in connection herewith or pursuant hereto,
contains any untrue statement of a material fact, or omits or will omit to state
any material fact required to make the statements contained herein or therein
not misleading.
5.2 Joint and Several Representations and Warranties. Subject to Section
9.1.1(a), the Signing Stockholders jointly and severally represent and warrant
(other than The 1818 Mezzanine Fund, L.P. for which such representation and
warranty shall only be several) to CenterPoint that to such Signing
Stockholder's actual knowledge, the representations and warranties (other than
the representations and warranties in Section 4.4.1 and Section 4.16) of the
Company set forth in Article IV of this Agreement are true and correct. Subject
to Section 9.1.1(a), the Signing Stockholders jointly and severally represent
and warrant (other than The 1818 Mezzanine Fund, L.P. for which such
representation and warranty shall only be several) to CenterPoint that the
representations and warranties of the Company in Section 4.4.1 and Section 4.16
are true and correct.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CENTERPOINT
CenterPoint represents and warrants to the Company and the Stockholders as
of the date hereof and, subject to Section 7.3, as of the date on which
CenterPoint and the lead Underwriter execute and deliver the Underwriting
Agreement related to the IPO and as of the Closing Date as follows:
6.1 Organization And Qualification. Each of CenterPoint and Mergersub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted. True, accurate and complete copies of each of CenterPoint's
and Mergersub's Certificate of Incorporation and By-laws, as in effect on the
date hereof, including all amendments thereto, have heretofore been delivered to
the Company.
6.2 Capitalization.
--------------
6.2.1 The authorized capital stock of CenterPoint consists of 20,000
shares of CenterPoint Common Stock, of which 17,500 shares are outstanding as of
the date hereof. All of the issued and outstanding shares of CenterPoint Common
Stock are validly issued and are fully paid, nonassessable and free of
preemptive rights. Immediately prior to the Closing Date, the authorized
capital stock of CenterPoint will consist of 50,000,000 shares of CenterPoint
Common
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Stock, of which the number of shares set forth in the Form S-1 will be issued
and outstanding, and 10,000 shares of Preferred Stock, par value $0.01 per
share, none of which will be issued and outstanding. Other than (i) shares of
CenterPoint Common Stock issued pursuant to a split of the shares outstanding as
of the date of this Agreement, (ii) shares of CenterPoint Common Stock issued in
accordance with the Merger and the Other Mergers, and (iii) shares of
CenterPoint Common Stock that may be issued to new members of management in lieu
of shares previously issued to current members of management, but which will not
increase the number of shares of outstanding CenterPoint Common Stock, no shares
of CenterPoint Common Stock will be issued prior to the consummation of the IPO.
Mergersub's authorized capital stock consists solely of 100 shares of common
stock, par value $.01 per share (the "Mergersub Stock"), all of which are issued
and outstanding, are owned free and clear of any Liens by CenterPoint, and are
fully paid, nonassessable and free of pre-emptive rights.
6.2.2 Except as set forth on Schedule 6.2, as of the date hereof,
there are no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement obligating CenterPoint to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of the capital stock of CenterPoint
or obligating CenterPoint to grant, extend or enter into any such agreement or
commitment. There are no voting trusts, proxies or other agreements or
understandings to which CenterPoint is a party or is bound with respect to the
voting of any shares of capital stock of CenterPoint. The shares of CenterPoint
Common Stock issued to stockholders of the Company in the Merger will at the
Closing Date be duly authorized, validly issued, fully paid and nonassessable
and free of preemptive rights and issued pursuant to a registration statement as
required by the 1933 Act or an exemption thereof.
6.3 No Subsidiaries. Except for CenterPoint's ownership of 100% of the
capital stock of Professional Service Group, Inc., a Delaware corporation
("PSG") and Mergersub (and similar entities created for similar purposes with
respect to Other Agreements), CenterPoint has no subsidiaries and it does not
own any capital stock of any corporation or any equity or other interest of any
nature whatsoever in any Person.
6.4 Authority; Non-Contravention; Approvals.
---------------------------------------
6.4.1 Each of CenterPoint and Mergersub has all requisite right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been approved by the Board
of Directors of CenterPoint and Mergersub, and no other corporate proceedings on
the part of CenterPoint or Mergersub are necessary to authorize the execution
and delivery of this Agreement or the consummation by CenterPoint and Mergersub
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by CenterPoint and Mergersub and, assuming the due authorization,
execution and delivery hereof by the Company and the Stockholders, constitutes a
valid and legally binding agreement of CenterPoint and Mergersub, enforceable
against each of them in accordance with its terms, except that such enforcement
may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other
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similar laws affecting or relating to enforcement of creditors' rights generally
and (ii) general equitable principles.
6.4.2 The execution and delivery of this Agreement by CenterPoint and
Mergersub does not violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any of the
properties or assets of CenterPoint or Mergersub under any of the terms,
conditions or provisions of (i) the Certificate of Incorporation or By-laws of
CenterPoint or Mergersub, (ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any court or
Governmental Authority applicable to CenterPoint or Mergersub or any of their
respective properties or assets, or (iii) any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which CenterPoint or
Mergersub is now a party or by which CenterPoint, Mergersub or any of their
respective properties or assets, may be bound or affected. The consummation by
CenterPoint or Mergersub of the transactions contemplated hereby will not result
in any violation, conflict, breach, right of termination or acceleration or
creation of Liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the immediately preceding sentence,
subject, in the case of the terms, conditions or provisions of the items
described in clause (ii) above, to obtaining (prior to the Closing Date)
CenterPoint Required Statutory Approvals (as defined in Section 6.4.3) and, in
the case of the terms, conditions or provisions of the items described in clause
(iii) above, to obtaining (prior to the Closing Date) consents required from
commercial lenders, lessors or other third parties.
6.4.3 Except with respect to (i) the filing of the Registration
Statements with the SEC pursuant to the 1933 Act, the declaration of the
effectiveness of the Registration Statements by the SEC and filings, if
required, with various state securities or blue sky authorities, and (ii) any
filing which may be required under the HSR Act (the filings and approvals
referred to in clauses (i) through (iii) are collectively referred to as the
"CenterPoint Required Statutory Approvals") no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the execution and
delivery of this Agreement by CenterPoint or Mergersub or the consummation by
CenterPoint or Mergersub of the transactions contemplated hereby, other than
such declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, are not reasonably
expected to, in the aggregate, have a material adverse effect on the business
operations, properties, assets, condition (financial or other), results of
operations or prospects of CenterPoint and its subsidiaries, taken as a whole (a
"CenterPoint Material Adverse Effect").
6.5 Absence of Undisclosed Liabilities. Except as set forth on Schedule
6.5, neither CenterPoint nor Mergersub has incurred any liabilities or
obligations (whether known or unknown, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise) of any nature. Except as set
forth on Schedule 6.5, neither CenterPoint nor Mergersub has engaged in any
business
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activities of any type or kind whatsoever, nor entered into any agreements nor
is it bound by any obligation or undertaking.
6.6 Litigation. There are no claims, suits, actions or proceedings
pending or, to the Knowledge of CenterPoint, threatened against, relating to or
affecting CenterPoint or Mergersub, before any court, Governmental Authority or
any arbitrator that seek to restrain or enjoin the consummation of the Merger or
the IPO or which could reasonably be expected, either alone or in the aggregate
with all such claims, actions or proceedings, to have a CenterPoint Material
Adverse Effect. CenterPoint is not subject to any unsatisfied or continuing
judgment, order or decree of any court or Governmental Authority. CenterPoint is
not a party to any legal action to recover monies due it for damages sustained
by it.
6.7 Compliance with Applicable Laws. Each of CenterPoint and Mergersub has
complied in all material respects with all Laws applicable to it, and has not
received any notice of any alleged claim or threatened claim, violation of or
liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
Knowledge of CenterPoint, no event has occurred or circumstances exist that
(with or without notice or lapse of time) may constitute or result in a
violation by CenterPoint or Mergersub of any Law or may give rise to any
liability on the part of the CenterPoint or Mergersub under any Law.
6.8 No Misrepresentation. None of the representations and warranties of
CenterPoint set forth in this Agreement or in any of the certificates,
schedules, lists, documents, exhibits, or other instruments delivered or to be
delivered to the Stockholders or the Company as contemplated by any provision
hereof contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. To the Knowledge of CenterPoint, there is no fact or circumstance
that has not been disclosed to the Company herein that has or is reasonably
expected to have a Company Material Adverse Effect.
ARTICLE VII
CERTAIN COVENANTS AND OTHER TERMS
7.1 Conduct of Business by the Company Prior to the Effective Time.
7.1.1 Except as otherwise contemplated by this Agreement, after the
date hereof and prior to the Closing Date or earlier termination of this
Agreement, unless CenterPoint shall otherwise agree in writing, the Company
shall, and shall cause each Company Subsidiary to:
(a) in all material respects conduct its businesses in the
ordinary and usual course and consistent with past customs and
practices;
(b) not (i) amend its Organizational Documents, (ii) split,
combine or reclassify its outstanding capital stock or (iii) (subject
to the adjustment of the
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Company's working capital pursuant to Section 7.1(l)) declare, set
aside or pay any dividend or distribution payable in cash, stock,
property or otherwise, except dividends or distributions which (A) are
consistent with past customs and practices, and (B) do not result in a
Company Material Adverse Effect;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
options, warrants or rights of any kind to acquire any shares of, its
capital stock or equity interests of any class, (ii) any debt with
voting rights or (iii) any debt or equity securities convertible into
or exchangeable for, or any rights, warrants, calls, subscriptions, or
options to acquire, any such capital stock, debt with voting rights or
convertible securities;
(d) not (i) incur or become contingently liable with respect to
any indebtedness for borrowed money other than (A) borrowings in the
ordinary course of business in a manner consistent with past customs
and practices, (B) borrowings to refinance existing indebtedness on
commercially reasonable terms, or (C) liability related to placing
insurance with insurance companies and collecting premiums therefor in
the ordinary course of business, (ii) redeem, purchase, acquire or
offer to purchase or acquire any shares of its capital stock or equity
interests or any options, warrants or rights to acquire any of its
capital stock or equity interests or any security convertible into or
exchangeable for its capital stock or equity interests, (iii) sell,
pledge, dispose of or encumber any assets or businesses other than
dispositions in the ordinary course of business in a manner consistent
with past customs and practices or (iv) enter into any contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
(e) use commercially reasonable efforts to (i) preserve intact
its business organizations and goodwill, (ii) keep available the
services of its present officers and key employees, and (iii) preserve
the goodwill and business relationships with clients and others having
business relationships with it and not engage in any action, directly
or indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of CenterPoint to report operational matters of
materiality and the general status of ongoing operations;
(g) not (i) increase in any manner the base compensation of, or
enter into any new bonus or incentive agreement or arrangement with,
any of its employees, partners, members or owners, except in the
ordinary course of business in a manner consistent with past customs
and practices of the Company or any Company Subsidiary, as applicable,
(ii) pay or agree to pay any additional pension, retirement allowance
or other employee benefit under any Employee Plan to any such Person,
whether past or present, (iii) enter into any new employment,
severance, consulting,
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or other compensation agreement with any of its existing employees,
partners, members or owners, (iv) amend or enter into a new Employee
Plan (except as required by Law) or amend or enter into a new
collective bargaining agreement, or (v) engage in any new Affiliate
Transaction;
(h) comply in all material respects with all applicable Laws;
(i) not make any material investment in, directly or indirectly,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any businesses or any Person or
division thereof or otherwise acquire or agree to acquire any assets
in each case which are material to it other than in the ordinary
course of business in a manner consistent with past customs and
practices; provided that the Company or any Company Subsidiary may
enter into discussions and/or negotiations regarding a potential
acquisition of or merger with or into (i) Summit Risk Management &
Insurance Services, (ii) MGU of the West, (iii) Superior Access
Insurance Services, Inc. (SAI), (iv) Barry Miller & Associates, and/or
(v) Innovative Cost Management (ICM) (the entities referred to in
items (i) through (v) collectively, the "Targets"); provided further,
that the consummation of any such merger or acquisition shall be
subject to CenterPoint's consent which may be withheld in its sole and
absolute discretion, and that any such discussions and/or negotiations
with any Target shall be subject to such Target first entering into a
confidentiality agreement restricting the disclosure of the terms or
existence of the contemplated transaction, the Merger and the Other
Mergers in a form and substance reasonably satisfactory to
CenterPoint;
(j) not sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, license, encumber or otherwise dispose of,
any of its assets;
(k) maintain with financially responsible insurance companies
insurance on its tangible assets and its businesses in such amounts
and against such risks and losses in a manner consistent with past
customs and practices in all material respects;
(l) cash, to the extent the cash allocated to the payment of the
obligations of the Company and the Stockholders set forth on Schedule
2.1.7 exceeds the amounts actually required to satisfy those
obligations. For purposes of the preceding sentence, such obligations
shall be deemed to be "satisfied" only upon either: (i) the delivery
to CenterPoint of notice reflecting payment in full and release of
such obligations, the form of such notice to the satisfaction of
CenterPoint, or (ii) transfer to CenterPoint of cash in an amount
equal to the obligation assumed by CenterPoint on the Closing Date;
and
(m) collect and bill receivables in the ordinary and usual course
and consistent with past custom and practices.
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7.1.2 Notwithstanding the fact that such action might otherwise be
permitted pursuant to this Article, none of the Stockholders or the Company
shall take, or permit any Company Subsidiary to take, any action that would or
is reasonably likely to result in any of the representations or warranties of
the Stockholders and the Company set forth in this Agreement being untrue or in
any of the conditions to the consummation of the transactions contemplated
hereunder set forth in Article X (other than Section 10.1(i)) not being
satisfied.
7.1.3 At or prior to the Closing, the Company and/or the
Stockholders, as applicable, shall terminate, without any liability to the
Company or the Company Subsidiaries, all agreements relating to the voting of
the Company's capital stock, and all agreements and obligations of the Company
and the Company Subsidiaries relating to borrowed money and/or involving
payments to or for the benefit of a Stockholder or former stockholder of the
Company, or an Affiliate or family member of a Stockholder or former stockholder
of the Company, including without limitation those set forth on Schedule 7.1.3,
but excluding matters shown as excluded on Schedule 7.1.3 and (B) items approved
by CenterPoint in writing.
7.2 No-Shop.
(a) After the date hereof and prior to the Closing Date or earlier
termination of this Agreement, the Company and the Signing Stockholders
shall (i) not, and the Company shall use its diligent efforts to cause the
Company Subsidiaries and any officer, director or employee of, or any
attorney, accountant, investment banker, financial advisor or other agent
retained by the Company or any Company Subsidiary not to, initiate,
solicit, negotiate, encourage, or provide non-public or confidential
information to facilitate, any proposal or offer to acquire all or any
substantial part of the business and properties of the Company or any
Company Subsidiary, or any capital stock of the Company or any Company
Subsidiary, whether by merger, purchase of assets or otherwise, whether for
cash, securities or any other consideration or combination thereof, or
enter into any joint venture or partnership or similar arrangement, and
(ii) promptly advise CenterPoint of the terms of any communications the
Company or the Signing Stockholders may receive or become aware of relating
to any bid for part or all of the Company or any Company Subsidiary.
(b) The Company and the Signing Stockholders (i) acknowledge that a
breach of any of their covenants contained in this Section 7.2 will result
in irreparable harm to CenterPoint which will not be compensable in money
damages; and (ii) agree that such covenant shall be specifically
enforceable and that specific performance and injunctive relief shall be a
remedy properly available to the other party for a breach of such covenant.
7.3 Schedules. Each party hereto agrees that with respect to the
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement or amend and deliver to the other parties all the schedules to this
Agreement (the "Schedules") to correct any matter which would constitute a
breach of any such party's representations and warranties herein; provided,
however, that no amendment or supplement to a Schedule that constitutes or
reflects a Company Material Adverse Effect or affects
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Schedule 4.2, Schedule 4.4 or Schedule 8.8 may be made unless CenterPoint and a
majority of the Founding Companies consent to such amendment or supplement. No
amendment or supplement to a Schedule shall be made later than three (3)
business days prior to the anticipated effectiveness of the Form S-1. For all
purposes of this Agreement, including, without limitation, for purposes of
determining (x) whether the conditions set forth in Sections 10.2 and 10.3 have
been fulfilled, and (y) the rights of a party to indemnification pursuant to
Article IX the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.3. In the event that (i) one of the
other Founding Companies seeks to amend or supplement a Schedule pursuant to
Section 7.3 of one of the Other Agreements, (ii) such amendment or supplement
constitutes or reflects a Company Material Adverse Effect (as defined in such
Other Agreement) or affects Schedule 4.2, Schedule 4.4 or Schedule 8.8 of such
Other Agreement, and (iii) CenterPoint and a majority of the Founding Companies
consent to such amendment or supplement, but the Company and the Stockholders do
not, the Company and the Stockholders may terminate this Agreement at any time
prior to the Closing Date. In the event that (i) the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.3, (ii) such amendment or
supplement constitutes or reflects a Company Material Adverse Effect or affects
Schedule 4.2, Schedule 4.4 or Schedule 8.8, and (iii) CenterPoint and a majority
of the Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section 7.3,
unless this Agreement is so terminated pursuant to the last sentence of the
preceding paragraph in connection with an amendment of or supplement to a
Schedule relating to a breach of a representation or warranty as of the date of
this Agreement in which case the Company shall pay to CenterPoint, as
CenterPoint's exclusive remedy (notwithstanding anything to the contrary) and
as liquidated damages, and not as a penalty, an amount equal to $2,000,000 (the
"Liquidated Damages Amount"). The Company agrees that in the case of such
termination, CenterPoint and the Founding Companies (excluding the Company) will
sustain immediate and irreparable economic harm and loss of goodwill and that
actual losses suffered by such parties will be difficult, if not impossible, to
ascertain, but the Liquidated Damages Amount set forth herein is reasonable and
has been arrived at after a good faith effort to estimate such losses. Payment
of the Liquidated Damages Amount shall be made in cash to CenterPoint within
thirty (30) days of a termination pursuant to the last sentence of the preceding
paragraph in connection with an amendment of or supplement to a Schedule
relating to a breach of a representation or warranty as of the date of this
Agreement.
7.4 Company Stockholder Meeting. The Company shall take all action in
accordance with applicable Laws and its Organizational Documents necessary to
duly call, give notice of, convene and hold a meeting of the Stockholders to be
held on the earliest practicable date determined in consultation with
CenterPoint to consider and vote upon approval of the Merger, this Agreement and
the transactions contemplated hereby by the Stockholders, and the Company's
Board of Directors shall recommend approval of the Merger, this Agreement and
the transactions contemplated hereby by the Stockholders.
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7.5 Covenants of Warrant Holders. Each Warrant Holder agrees to exercise
all of its Warrants on or prior to the Closing Date subject to the fulfillment
of the condition that the Merger is effective on the Closing Date.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Access to Information.
8.1.1 The Company shall and shall cause the Company Subsidiaries to
afford to CenterPoint and its accountants, counsel, financial advisors and other
representatives, including without limitation the underwriters engaged in
connection with the IPO (each an "Underwriter" and collectively, the
"Underwriters") and their counsel (collectively, the "CenterPoint
Representatives"), and to the other Founding Companies and their accountants,
counsel, financial advisors and other representatives, and CenterPoint shall
afford to the Stockholders and the Company and their accountants, counsel,
financial advisors and other representatives (the "Company Representatives"),
upon reasonable notice, full access during normal business hours throughout the
period prior to the Closing Date to all of its respective properties, books,
contracts, commitments and records (including, but not limited to, financial
statements and Tax Returns) and, during such period, shall furnish promptly to
one another all due diligence information requested by the other party.
CenterPoint shall hold and shall use its best efforts to cause the CenterPoint
Representatives to hold, and the Signing Stockholders and the Company shall hold
and shall use their best efforts to cause the Company Representatives to hold,
in strict confidence all non-public information furnished to it in connection
with the transactions contemplated by this Agreement, except that each of
CenterPoint, the Signing Stockholders and the Company may disclose any
information that it is required by law or judicial or administrative order to
disclose. In addition, CenterPoint will cause each of the other Founding
Companies and their members and stockholders to enter into a provision similar
to this Section 8.1 requiring each such Founding Company to keep confidential
any information obtained by such Founding Company in connection with the
transactions contemplated by this Agreement.
8.1.2 In the event that this Agreement is terminated in accordance
with its terms, each party shall promptly return to the disclosing party all
non-public written material provided pursuant to this Section 8.1 or pursuant to
the Other Agreements and shall not retain any copies, extracts or other
reproductions of such written material. In the event of such termination, all
documents, memoranda, notes and other writings prepared by CenterPoint or the
Company based on the information in such material shall be destroyed (and
CenterPoint and the Company shall use their respective reasonable best efforts
to cause their advisors and representatives to similarly destroy such documents,
memoranda and notes), and such destruction (and reasonable best efforts) shall
be certified in writing by an authorized officer supervising such destruction.
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8.2 Registration Statements.
8.2.1 Subject to the reasonable discretion of CenterPoint as advised
by the lead Underwriter, CenterPoint shall file with the SEC as soon as is
reasonably practicable after the date hereof the Registration Statements and
shall use all reasonable efforts to have the Registration Statements declared
effective by the SEC as promptly as practicable. CenterPoint shall also take any
action required to be taken under applicable state "blue sky" or securities laws
in connection with the issuance of CenterPoint Common Stock. CenterPoint, the
Company and the Signing Stockholders shall promptly furnish to each other all
information, and take such other actions, as may reasonably be requested in
connection with making such filings. All information provided and to be provided
by CenterPoint and the Company, respectively, for use in the Registration
Statements shall be true and correct in all material respects without omission
of any material fact which is required to make such information not false or
misleading as of the date thereof and in light of the circumstances under which
given or made. The Company and the Signing Stockholders agree promptly to advise
CenterPoint if at any time during the period in which a prospectus relating to
the offering of the Merger is required to be delivered under the Securities Act,
any information contained in the prospectus concerning the Company, the Company
Subsidiaries or the Stockholders becomes incorrect or incomplete in any material
respect, and to provide the information needed to correct such inaccuracy or
remedy such incompletion.
8.2.2 CenterPoint agrees that it will provide to the Company and its
counsel copies of drafts of the Registration Statements (and any amendments
thereto) containing material changes to the information therein as they are
prepared and will not (i) file with the SEC, (ii) request the acceleration of
the effectiveness of or (iii) circulate any prospectus forming a part of, the
Registration Statements (or any amendment thereto) unless the Company and its
counsel (x) have had at least two days to review the revised information
contained therein (which changes shall be highlighted by computer generated
marks indicating the additions and deletions made from the prior draft reviewed
by the Company's counsel) and (y) have not objected to the substance of the
information contained therein. Any objections posed by the Company or its
counsel shall be in writing and state with specificity the material in question,
the reason for the objection, and the Company's proposed alternative. If the
objection is founded upon a rule promulgated under the Securities Act, the
objection shall cite the rule. Notwithstanding the foregoing, during the five
(5) business days immediately preceding the date scheduled for the filing of the
Registration Statements and any amendment thereto, the Company and its counsel
shall be obligated to respond to proposed changes electronically transmitted to
them within two (2) hours from the time the proposed changes (in the case of the
initial filing of the Registration Statements, from the last circulated draft of
the Registration Statements; and, in the case of any subsequent filing of the
Registration Statements or any amendment thereof, from the most recently filed
Registration Statements or amendment thereof) are transmitted to the Company's
counsel; provided, that, CenterPoint has provided to the Company or its counsel
reasonable advance notice of such proposed changes; provided, further, that such
changes are highlighted by computer generated marks indicating the additions and
deletions made from the prior draft reviewed by the Company's counsel.
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8.2.3 CenterPoint will advise each Stockholder Representative of the
effectiveness of the Registration Statements, advise each Stockholder
Representative of the entry of any stop order suspending the effectiveness of
the Registration Statements or the initiation of any proceeding for that
purpose, and, if such stop order shall be entered, use its best efforts promptly
to obtain the lifting or removal thereof. Upon the written request of any
Stockholder, CenterPoint will furnish to such Stockholder a reasonable number of
copies of the final prospectus associated with the IPO.
8.3 Expenses and Fees. CenterPoint shall pay the fees and expenses of the
independent public accountants and legal counsel to CenterPoint and all filing,
printing and other reasonable, documented fees and expenses associated with the
IPO and Form S-4. Neither the Company nor the Signing Stockholders will be
liable for any portion of the above expenses in the event the IPO is not
completed. CenterPoint shall also pay the underwriting discounts and
commissions payable in connection with the sale of CenterPoint Common Stock in
the IPO. All other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
8.4 Agreement to Cooperate. Subject to the terms and conditions herein
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
8.5 Public Statements. Except as may be required by law, no party hereto
nor any Affiliate of any party hereto shall issue any press release or any
written public statement with respect to this Agreement or the transactions
contemplated by this Agreement or the Other Agreements without the prior written
consent of CenterPoint and the Company.
8.6 Registration Rights.
8.6.1 At any time after the second anniversary but prior to the
fourth anniversary of the Closing Date, whenever CenterPoint proposes to
register any CenterPoint Common Stock for its own account or the account of
others under the Securities Act for a public offering for cash other than a
registration relating to employee benefit plans or acquisitions, CenterPoint
will give each of the Stockholders prompt written notice of its intent to do so.
Upon the written request of any of the Stockholders given within thirty (30)
days after receipt of such notice, CenterPoint will use its best efforts to
cause to be included in such registration all of the CenterPoint Common Stock
which any such Stockholder requests, provided that CenterPoint shall have the
right to reduce the number of shares included in such registration, if
CenterPoint is advised in writing in good faith by any managing underwriter of
the securities being offered pursuant to any registration statement under this
Section 8.6 that the number of shares to be sold by Persons other than
CenterPoint is greater than the number of such shares which can be offered
without adversely affecting the offering; in such case, CenterPoint may reduce
the number of shares offered for the accounts of such Persons to a number deemed
satisfactory by such managing underwriter. Any such reduction shall occur first
by eliminating from such registration any shares held by Persons other than
Persons holding CenterPoint Common Stock directly or indirectly immediately
following the Closing and then
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reducing pro rata (based upon the number of shares requested to be registered)
the number of shares offered for the account of such Person. CenterPoint shall
not be obligated to register any shares of CenterPoint Common Stock held by any
Stockholder at any time when such shares are not then transferable in accordance
with Section 12.2. Registration rights under this Section 8.6 may be transferred
in whole or in part in connection with the transfer of any shares of CenterPoint
Common Stock received pursuant to this Agreement other than the transfer of the
kind described in clause (x) of Section 12.2 hereof.
8.6.2 Except for underwriting commissions and discounts, all expenses
incurred in connection with the registrations under this Section 8.6 (including
all registration, filing, qualification, legal, printer and accounting fees)
shall be paid by CenterPoint. In connection with registrations under this
Section 8.6, CenterPoint shall
(a) use its best efforts to prepare and file with the SEC as soon
as reasonably practicable, a registration statement with respect to the
CenterPoint Common Stock (and such amendments and supplements to such
registration statement and the prospectus used in connection therewith as
may be required by applicable law) and use its best efforts to cause such
registration to promptly become and remain effective for a period of at
least one hundred twenty (120) days (or such shorter period during which
holders shall have sold all CenterPoint Common Stock which they requested
to be registered);
(b) upon the written request of a Stockholder whose CenterPoint
Common Stock is to be covered by any such registrations, furnish to such
Stockholder a reasonable number of copies of the prospectus covering the
offering and sale by the Stockholder of the shares to be covered thereby;
(c) use its best efforts to register and qualify the CenterPoint
Common Stock covered by such registration statement under applicable state
securities laws as the holders shall reasonably request for the
distribution for the CenterPoint Common Stock;
(d) take such other actions as are reasonable and necessary to
comply with the requirements of the 1933 Act and the regulations
thereunder;
(e) advise each Stockholder whose CenterPoint Common Stock is to
be covered by such registration of the effectiveness of such registration
statement, advise each such Stockholder of the entry of any stop order
suspending the effectiveness of such registration statement or of the
initiation of any proceeding for that purpose, and, if such stop order
shall be entered, use its best efforts promptly to obtain the lifting or
removal thereof; and
(f) at any time when a prospectus relating to any CenterPoint
Common Stock is required to be delivered under the 1933 Act, notify each
Stockholder whose
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CenterPoint Common Stock is to be covered by such registration of the
happening of any event as a result of which the registration statement, the
prospectus or any document incorporated therein by reference includes an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements made
therein not misleading and, at the request of such Stockholder, prepare and
furnish to such Stockholder a post-effective amendment or supplement to the
registration statement or the related prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of such shares, such
prospectus shall not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements made therein not misleading.
8.6.3 In connection with each registration pursuant to this Section
8.6 covering an underwritten registration public offering, CenterPoint and each
participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of CenterPoint's size and investment stature, including
indemnification.
8.6.4 In consideration of the granting to the Stockholders of the
registration rights under this Section 8.6, the Stockholders agree, and agree to
enter into an agreement with the underwriters in connection with an underwritten
registration to the effect, that it/they will not sell, transfer or otherwise
dispose of, including, without limitation, through put or short sale
arrangements, shares of CenterPoint Common Stock in the ten (10) days prior to
the effectiveness of any registration of CenterPoint Common Stock for sale to
the public and for up to ninety (90) days following the effectiveness of such
registration, provided that all directors, executive officers and holders of
more than five percent (5%) of the outstanding CenterPoint Common Stock agree to
the same restrictions; and further provided that, with respect to the first
public offering of shares of the CenterPoint Common Stock within three (3) years
following the IPO, the Stockholders shall have been afforded a meaningful
opportunity to include shares in such registration after any reduction by reason
of underwriters' written advice.
8.7 CenterPoint Covenants. After the date hereof and prior to the Closing
Date or earlier termination of this Agreement in accordance with its terms,
CenterPoint shall comply in all material requests with all applicable laws.
CenterPoint shall not take any action that would or is reasonably likely to
result in any of the representations or warranties of CenterPoint set forth in
this Agreement being untrue or in any of the conditions to the consummation of
the transactions contemplated hereunder set forth in Article X not being
satisfied.
8.8 Release of Guarantees. CenterPoint shall use all commercially
reasonable efforts and good faith to have the Stockholders released from any and
all guarantees on any indebtedness and leases that they personally guaranteed
for the benefit of the Company as set forth on Schedule 8.8, with all such
guarantees on indebtedness and leases being assumed by CenterPoint, if necessary
to
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achieve such releases. If any guaranteed indebtedness is repaid in full with
proceeds from the IPO and the Stockholders' guarantees thereafter shall have no
further force and effect, then CenterPoint shall not be obligated to use any
efforts to obtain release of such guarantee. In the event that CenterPoint
cannot obtain such releases from the lenders of any such guaranteed indebtedness
or lessors of any guaranteed leases, CenterPoint agrees to indemnify, defend and
hold harmless the Stockholders against any and all claims made by lenders or
landlords under such guarantees.
8.9 Lock-Up Agreement. Each Signing Stockholder agrees, and agrees to
enter into an agreement with the Underwriter on or prior to the date on which
preliminary Prospectuses are delivered to the effect that, the such Signing
Stockholder will not offer, sell, contract to sell or otherwise dispose of any
shares of CenterPoint Common Stock, or any securities convertible into or
exercisable or exchangeable for CenterPoint Common Stock, for a period of 180
days after the date of the final Prospectus for the IPO without the prior
written consent of the Underwriter except for shares of CenterPoint Common Stock
disposed of as bona fide gifts, subject to any remaining portion of the 180-day
period applying to any shares so disposed of.
8.10 Preparation and Filing of Tax Returns.
8.10.1 The Company shall be responsible for causing the timely filing
of the final pre-Closing Returns for the Company and the Company Subsidiaries;
provided, however, that CenterPoint and its advisors shall have the right to
review and approve such returns prior to filing, which approval shall not be
unreasonably withheld. CenterPoint shall, and shall cause its Affiliates to,
provide to the Company such cooperation and information reasonably requested in
filing any return, amended return or claim for refund, determining a liability
for Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. The Company shall bear all costs of filing such
returns. As of the Closing Date, the Company hereby assigns to the Stockholders
the right to receive any and all refunds, if any, from the Internal Revenue
Service which have been or will be payable in connection with the Company's
filing of the final pre-Closing Returns. To the extent any refund is received by
the Company, CenterPoint shall cause the Company to direct such funds to the
Stockholder Representative for the benefit of the Stockholders.
8.10.2 Each of the Company, CenterPoint and the Stockholders shall
comply with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction as
subject to the provisions of Section 351 of the Code.
8.11 Maintenance of Insurance. The Company covenants and agrees that all
insurance policies listed, or required to be listed, on Schedule 4.20 will be
maintained in full force and effect through the Closing Date.
8.12 Payment of Indebtedness; Cancellation of Preferred Stock. CenterPoint
will cause all indebtedness (including accrued and unpaid interest, if any, and
prepayment penalties) owing to Imperial Bank and The 1818 Mezzanine Fund, L.P.
and any other obligation set forth on Schedule 2.1.7(a) to be paid in full on
the Closing Date. On the Closing Date, the Company shall cause the redemption
and retirement of the Preferred Stock.
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ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by the Signing Stockholders and the Company.
9.1.1 To the extent and in the manner set forth in the Escrow
Agreement and subject to Section 5.2, this Section 9.1 and Sections 9.7, 9.8,
and 9.11, each Signing Stockholder, severally and not jointly, agrees to
indemnify, defend and save the CenterPoint Indemnified Parties (hereinafter
defined), forever harmless from and against, and to promptly pay to a
CenterPoint Indemnified Party or reimburse a CenterPoint Indemnified Party for,
any and all Losses (hereinafter defined) sustained or incurred by any
CenterPoint Indemnified Party resulting from, arising out of, in connection with
or otherwise by virtue of:
(a) any misrepresentation or breach of a representation or warranty
made in Section 5.2 herein by such Signing Stockholder or any action,
demand or claim by any third party against or affecting any CenterPoint
Indemnified Party which, if successful, would give rise to a breach of any
such representation or warranty, provided, that, Signing Stockholders'
liability under Section 5.2. shall be allocated among the Signing
Stockholders and borne by each of them pro rata, in accordance with the
number of shares of common stock of the Company held by each Signing
Stockholder at the Closing compared to the total number of shares of common
stock held by all the Signing Stockholders at the Closing;
(b) any misrepresentation or breach of a representation or warranty
made in Section 5.1 by such Signing Stockholder provided, that, for the
sake of clarity and the avoidance of doubt it is understood that the
obligation of any Signing Stockholder to indemnify, defend and save
harmless for any misrepresentation or breach of representation or warranty
made in Section 5.1 hereof shall be limited to the several Signing
Stockholder(s) making such misrepresentation or breach;
(c) any failure by any such Signing Stockholder to observe or perform
any of such Stockholder's covenants and agreements set forth herein related
to the period prior to the Closing, provided that the obligation to
indemnify, defend and save harmless shall be limited to the several Signing
Stockholder(s) failing to observe or perform such covenant or agreement;
(d) if and only if the Closing occurs, any failure by the Company to
observe or perform any of its covenants and agreements set forth herein
related to the period prior to the Closing, provided, that, the Signing
Stockholders' liability to indemnify, defend and save harmless shall be
allocated among the Signing Stockholders and borne by each of them pro
rata, in accordance with the number of shares of common stock of the
Company held by each Signing Stockholder at the Closing compared to the
total number of shares of common stock held by all the Signing Stockholders
at the Closing;
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(e) any liability under the 1933 Act, the 1934 Act or other federal or
state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to the Company, contained in any preliminary prospectus
relating to the IPO, the Registration Statements or any proxy statement or
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission to state therein a
material fact relating to the Company required to be stated therein or
necessary to make the statements therein not misleading, and not provided
to CenterPoint or its counsel by the Company; provided, however, that such
indemnity shall not inure to the benefit of any CenterPoint Indemnified
Party to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and (i) the Company provided, in writing, corrected
information to CenterPoint or its counsel for inclusion in the final
prospectus prior to distributing such prospectus, and such information was
not so included, or (ii) CenterPoint did not provide the Company and its
counsel with the information required to be provided pursuant to Section
8.2.2, and such information is the basis for the untrue statement or
omission (or alleged untrue statement or omission) giving rise to the
liability under this Section 9.1.1(e); provided, that, such Signing
Stockholders' obligation shall be allocated among the Signing Stockholders
and borne by each of them pro rata, in accordance with the number of shares
of common stock of the Company held by each Signing Stockholder compared to
the total number of shares of common stock held by all the Signing
Stockholders;
(f) notwithstanding anything contained in this Agreement to the
contrary, (i) any arrangements made by or on behalf of the Signing
Stockholder or the Company in connection with the Merger or the
transactions contemplated by this Agreement with respect to brokerage,
finders and other fees or commissions, (ii) any Loss relating to, resulting
from, arising out of or otherwise by virtue of any matter which is or
should be listed on Schedule 4.10 hereto (provided, however, that the
Company shall be entitled to indemnification for Losses resulting from,
arising out of or otherwise by virtue of either of the cases entitled
Leslie Davidson v. Averback Company Insurance Brokers or James Davidson v.
Averback Insurance Brokers reflected on Schedule 4.10 only to the extent
the Company has requested and been denied reimbursement for such Losses
from Musick Peeler & Garrett, as the escrow agent, pursuant to and in
accordance with the Escrow Agreement, dated February 19, 1999, as amended,
by and between the escrow agent, Robert F. Driver and Richard B. Crean, as
the shareholders' representative), (iii) any payment with respect to
Dissenting Shares and (iv) any claims of shareholders or members of The
Reppond Company, Inc., Reppond Administrators, LLC, Verasource Excess Risk
Ltd. (collectively "Reppond") arising from the side letter in the form of
Exhibit 9.1.1(f) by and among Reppond and the Company, provided, that, the
Signing Stockholders' liability shall be allocated among the Signing
Stockholders and borne by each of them pro rata, in accordance with the
number of shares of common stock of the Company held by each Signing
Stockholder at the Closing compared to the total number of shares of common
stock held by all the Signing Stockholders at the Closing.
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9.1.2 In the event this Agreement is terminated pursuant to Section
11.1 as a result of the Company's willful failure to observe any of its
covenants and agreements set forth herein related to the period prior to the
Closing, the Company agrees to indemnify, defend and save the CenterPoint
Indemnified Parties, forever harmless from and against, and to promptly pay to a
CenterPoint Indemnified Party or reimburse a CenterPoint Indemnified Party for,
any and all Losses sustained or incurred by any CenterPoint Indemnified Party
resulting from, arising out of, in connection with or otherwise by virtue of (i)
the Company's failure to observe or perform such covenant or agreement, (ii)
arrangements described in Section 9.1.1(f)(i) (as it relates to the Company) and
(iii) claims under Section 9.1.1(f)(iv), and the Signing Stockholders shall have
no further liability to the CenterPoint Indemnified Parties hereunder.
As used herein, the "CenterPoint Indemnified Parties" shall mean
CenterPoint, its Subsidiaries and Affiliates, the Founding Companies other than
the Company (the "Other Founding Companies"), and their respective officers,
directors, employees, agents, employee plans and plan fiduciaries, plan
administrators or other Person dealing with any such plans; provided, however,
that the Other Founding Companies, and each of their respective officers,
directors, employees, agents, employee plans and plan fiduciaries, plan
administrators or other Persons dealing with any such plans, shall cease to be a
"CenterPoint Indemnified Party" for all purposes hereunder (i) as of the Closing
or (ii) in the event of termination by CenterPoint for a non-willful breach of
the Agreement by the Company or the Stockholders, and thereafter such Persons
shall have no further rights and remedies under this Article IX (except to the
extent a Person is an officer, director, employee or agent of CenterPoint as a
result of the consummation of the transactions contemplated under the Other
Agreements); provided, further, that the Subsidiaries of CenterPoint shall
include the Company, the Company Subsidiaries and the other Founding Companies
from and after the Closing. Accordingly, for purposes of this Article IX and
subject to the limitations set forth in this Article IX, the Other Founding
Companies, and each of their respective officers, directors, employees, agents,
employee plans and plan fiduciaries, plan administrators or other Persons
dealing with any such plans, shall be deemed to be third party beneficiaries of
this Agreement.
As used in this Agreement, "Losses" shall mean the following: (i) in the
event the Agreement is terminated pursuant to Section 11.1 and the Closing does
not occur, any and all out-of-pocket costs and expenses (including reasonable
fees and expenses of the attorneys, accountants and other experts), or (ii)
subsequent to the Closing, any and all liabilities (whether contingent, fixed or
unfixed, liquidated or unliquidated, or otherwise), obligations, deficiencies,
demands, claims, suits, actions, or causes of action, assessments, losses,
costs, expenses, interests, fines, penalties, actual or punitive damages or
costs or expenses of any and all investigations, proceedings, judgments, orders,
environmental analyses, remediations, settlements and compromises (including
reasonable fees and expenses of the attorneys, accountants and other experts).
9.2 Indemnification by CenterPoint. CenterPoint agrees to indemnify,
defend and save each of the Stockholders and their respective Affiliates, and
their Affiliates' respective officers, directors, employees and agents (each, a
"Stockholder Indemnified Party") forever harmless from and against, and to
promptly pay to a Stockholder Indemnified Party or reimburse a Stockholder
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Indemnified Party for, any and all Losses sustained or incurred by any
Stockholder Indemnified Party relating to, resulting from, arising out of or
otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made herein or in any document or other instrument delivered hereunder by
CenterPoint or any action, demand or claim by any third party against or
affecting any Stockholder Indemnified Party which, if successful, would
give rise to a breach of any such representation or warranty;
(b) any failure by CenterPoint to observe or perform any of its
covenants and agreements set forth herein or in any document or other
instrument delivered hereunder;
(c) any liability under the 1933 Act, the 1934 Act or other Federal or
state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to CenterPoint or any of the Other Founding Companies
contained in any preliminary prospectus relating to the IPO, the
Registration Statements or any proxy statement or prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material
fact relating to CenterPoint or any of the Other Founding Companies
required to be stated therein or necessary to make the statements therein
not misleading; and
(d) any liability under the 1933 Act, the 1934 Act, or other federal
or state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to the Company or the Stockholders, contained in any
preliminary prospectus relating to the IPO, the Registration Statements or
any proxy statement or prospectus forming a part thereof, or any amendment
thereof or supplement thereto, or arising out of or based upon any omission
to state therein a material fact relating to the Company or the
Stockholders required to be stated therein or necessary to make the
statements therein not misleading, to the extent such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and (i) the Company or the
Stockholders provided, in writing, corrected information to CenterPoint or
its counsel for inclusion in the final prospectus prior to distributing
such prospectus, and such information was not so included, or (ii)
CenterPoint did not provide the Company and its counsel with the
information required to be provided pursuant to Section 8.2.2, and such
information is the basis for the untrue statement or omission (or alleged
untrue statement or omission) giving rise to the liability under this
Section 9.2(d).
9.3 Indemnification Procedure for Third Party Claims.
9.3 In the event that subsequent to the Closing any Person entitled
to indemnification under this Agreement (an "Indemnified Party") receives
notice of the assertion of any claim, issuance of any order or the commencement
of any action or proceeding by any Person who is not a party to this Agreement
or an Affiliate of a party, including, without limitation, any
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domestic or foreign court or Governmental Authority (a "Third Party Claim"),
against such Indemnified Party, against which a party to this Agreement is
required to provide indemnification under this Agreement (an "Indemnifying
Party"), the Indemnified Party shall give written notice thereof together with a
statement of any available information regarding such claim to the Indemnifying
Party within thirty (30) days after learning of such claim (or within such
shorter time as may be necessary, in the Indemnified Party's reasonable
judgment, to give the Indemnifying Party a reasonable opportunity to respond to
and defend such claim). The Indemnifying Party shall have the right, upon
written notice to the Indemnified Party (the "Defense Notice") within ten days
(10) after receipt from the Indemnified Party of notice of such claim, to
conduct at its expense the defense against such claim in its own name, or if
necessary in the name of the Indemnified Party; provided, however, that the
Indemnified Party shall have the right to approve the defense counsel selected
by the Indemnifying Party, which approval shall not be unreasonably withheld,
and in the event the Indemnifying Party and the Indemnified Party cannot agree
upon such counsel within ten (10) days after the Defense Notice is provided,
then the Indemnifying Party shall propose an alternate defense counsel, who
shall be subject again to the Indemnified Party's approval.
9.3.2 In the event that the Indemnifying Party shall fail to timely
give the Defense Notice, it shall be deemed to have elected not to conduct the
defense of the subject claim, and in such event the Indemnified Party shall have
the right to conduct such defense in good faith at the cost and expense of the
Indemnifying Party and the Indemnifying Party shall reimburse the Indemnified
Party for all costs, expenses and settlement amounts actually paid in connection
therewith; provided, however, that under no circumstances shall the Indemnified
Party compromise or settle any Third Party Claim without the prior written
consent of the Indemnifying Party (which, in the case of the Signing
Stockholders, may be granted by the Stockholder Representative (as defined in
Section 9.13)), which consent shall not be unreasonably withheld or delayed.
9.3.3 In the event that the Indemnifying Party does elect to conduct
the defense of the subject claim, the Indemnified Party will cooperate with and
make available to the Indemnifying Party such assistance and materials as may be
reasonably requested by it, all at the expense of the Indemnifying Party, and
the Indemnified Party shall have the right at its expense to participate in the
defense assisted by counsel of its own choosing, provided that the Indemnified
Party shall have the right to compromise and settle the claim only with the
prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. Without the prior written consent of the
Indemnified Party, the Indemnifying Party will not enter into any settlement of
any Third Party Claim or cease to defend against such claim, if pursuant to or
as a result of such settlement or cessation, (i) injunctive or other equitable
relief would be imposed against the Indemnified Party, or (ii) such settlement
or cessation would lead to liability or create any financial or other obligation
on the part of the Indemnified Party for which the Indemnified Party is not
entitled to indemnification hereunder, or (iii) such settlement includes a
written admission of guilt. The Indemnifying Party shall not be entitled to
control, and the Indemnified Party shall be entitled to have sole control over,
the defense or settlement of any claim (A) to the extent that claim seeks an
order, injunction or other equitable relief against the Indemnified Party which,
if successful, could materially interfere with the business, operations, assets,
condition (financial or otherwise) or prospects of the Indemnified Party or (B)
in a proceeding to which the Indemnifying Party is also
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a party and the Indemnified Party determines in good faith that joint
representation would be inappropriate (and in each case the cost of such defense
shall constitute an amount for which the Indemnified Party is entitled to
indemnification hereunder). If an offer is made to settle a Third Party Claim
which all parties to such Third Party Claim (including the Indemnifying Party)
are prepared to settle and which offer the Indemnifying Party is permitted to
settle under this Section 9.3.3 only upon the prior written consent of the
Indemnified Party, the Indemnifying Party will give prompt written notice to the
Indemnified Party to that effect. If the Indemnified Party fails to consent to
such firm offer within (30) calendar days after its receipt of such notice, the
Indemnified Party may continue to contest or defend such Third Party Claim and,
in such event, the maximum liability of the Indemnifying Party as to such Third
Party Claim will not exceed the amount of such settlement offer, plus costs and
expenses paid or incurred by the Indemnified Party through the end of such (30)
day period.
9.3.4 Any judgment entered, order issued or settlement agreed upon in
the manner provided herein shall be binding upon the Indemnifying Party, and
shall conclusively be deemed to be an obligation with respect to which the
Indemnified Party is entitled to prompt indemnification hereunder.
9.4 Direct Claims. It is the intent of the parties hereto that all direct
claims by an Indemnified Party against a party hereto not arising out of Third
Party Claims shall be subject to and benefit from the terms of this Article IX.
Any claim under this Article IX by an Indemnified Party for indemnification
other than indemnification against a Third Party Claim, (a "Direct Claim")
will be asserted by giving the Indemnifying Party reasonably prompt written
notice thereof, together with a statement of any available information regarding
such claim, and the Indemnifying Party will have a period of thirty (30)
calendar days within which to satisfy such Direct Claim. If the Indemnifying
Party does not so respond within such thirty (30) calendar day period, the
Indemnifying Party will be deemed to have rejected such claim, in which event
the Indemnified Party will be free to pursue such remedies as may be available
to the Indemnified Party under this Article IX.
9.5 Failure to Give Timely Notice. A failure by an Indemnified Party to
give timely, complete or accurate notice as provided in Section 9.3 or 9.4 will
not affect the rights or obligations of any party hereunder except and only to
the extent that, as a result of such failure, any party entitled to receive such
notice was deprived of its right to recover any payment under any applicable
insurance coverage, or deprived of its right to assert any claim because of
expiration of the applicable statute of limitations, or was otherwise directly
and materially damaged as a result of such failure to give timely notice.
9.6 Reduction of Loss. To the extent any Loss of an Indemnified Party is
reduced by receipt of payment (i) under insurance policies (net of any
retroactive adjustment or other reimbursement to the insurer in respect of such
payment), (ii) from third parties not affiliated with the Indemnified Party, or
(iii) the amount of any tax benefit to the CenterPoint Indemnified Parties, such
payments and/or tax benefits (net of the expenses of the recovery thereof) shall
be credited against such Loss. The pendency of such payments shall not delay or
reduce the obligation of the Indemnifying Party to make payment to the
Indemnified Party in respect of such Loss, and the
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Indemnified Party shall not have any obligation, hereunder or otherwise, to
pursue payment under or from any insurer or third party in respect of such Loss.
The Indemnified Party shall cooperate, at no expense to the Indemnified Party,
in any reasonable efforts of the Indemnifying Party in pursuing such payments,
including expressly acknowledging the Indemnifying Party's right and standing to
pursue such payments, and the Indemnified Party will use its customary efforts
short of litigating with an insurer or third party to collect amounts due from
such insurer or third party. If any insurance or third party reimbursement is
obtained subsequent to payment by an Indemnifying Party in respect of a Loss,
such reimbursement (to the extent of amounts theretofore paid by the
Indemnifying Party on account of such Loss) shall be promptly paid over to the
Indemnifying Party.
9.7 Limitation on Indemnities.
9.7.1 Threshold for a Signing Stockholder. With respect to
representations and warranties, each Signing Stockholder shall not have any
liability pursuant to Section 9.1.1(a) or Section 9.1.1(b) hereof unless and
until and only to the extent that the aggregate amount of Losses accrued
pursuant to Sections 9.1.1(a) and Section 9.1.1(b) exceeds 1% of Aggregate Basic
Purchase Consideration; provided, however, that this threshold shall not apply
to Losses arising out of breaches of representations or warranties contained in
Sections 5.1.1, 5.1.2 and the representation and warranty under 5.2 relating to
the representation and warranty of the Company set forth in Section 4.16, and
the Signing Stockholders shall indemnify the CenterPoint Indemnified Parties for
any Losses accruing thereunder in accordance with this Article IX without regard
to such threshold.
9.7.2 Threshold for CenterPoint. With respect to representations and
warranties, CenterPoint shall not have any liability pursuant to Section 9.2(a)
hereof unless and until and only to the extent that the aggregate amount of the
Losses accrued pursuant to Section 9.2(a) exceeds 1% of Aggregate Basic Purchase
Consideration; provided, however, that this threshold shall not apply to Losses
arising out of the breach of representations or warranties contained in Section
6.2 and CenterPoint shall indemnify the Stockholder Indemnified Parties from any
Losses occurring thereunder in accordance with this Article IX without regard to
such threshold.
9.7.3 Limitations on Claims Against the Signing Stockholders. The
liability of each Signing Stockholder under Sections 9.1.1(a), 9.1.1(b),
9.1.1(d), 9.1.1(e) and 9.1.1(f) shall not, taken together, exceed the sum of (i)
the Aggregate Basic Purchase Consideration allocable to such Signing
Stockholder, and (ii) the Contingent Payment received, if any, directly or
indirectly (including as a result of being a participant in the Company's
savings and retirement program (401(k) or employee stock ownership plan or
similar plan or program), by such Signing Stockholder; provided, however, that
any such limitations in this Section 9.7.3 shall not apply to Losses arising out
of breaches of representations and warranties contained in Sections 5.1.1 and
5.1.2.
9.7.4 Limitation on Claims Against CenterPoint. The liability of
CenterPoint under Sections 9.2(a), 9.2(b), 9.2(c) and 9.2(d) shall be limited to
100% of the sum of (i) the Aggregate Basic Purchase Consideration, and (ii) the
Contingent Payment received, if any, by the Stockholders; provided, however,
that this limitation shall not apply to Losses arising out of breaches of
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representations or warranties in Section 6.2 and any Losses accruing thereunder
shall not count towards such limitation.
9.8 Survival of Representations, Warranties and Covenants of the Signing
Stockholders and the Company; Time Limits on Indemnification Obligations.
Notwithstanding any right of CenterPoint to fully investigate the affairs of the
Stockholders, the Company, the Company Subsidiaries and the Business, and
notwithstanding any Knowledge of facts determined or determinable by CenterPoint
pursuant to such investigation or right of investigation, CenterPoint has the
right to rely fully upon the representations, warranties, covenants and
agreements of the Signing Stockholders and the Company contained in this
Agreement or in any certificate delivered pursuant to any of the foregoing. All
such representations, warranties, covenants and agreements of the Signing
Stockholders and the Company shall survive the execution and delivery of this
Agreement and the Closing hereunder; provided, however, (i) that the Signing
Stockholders' obligations pursuant to Sections 9.1.1(a) and (b), shall expire
one (1) year after the Closing, except with respect to obligations arising under
or relating to Section 4.16 hereof as it relates to federal, state, local and
foreign income taxation, which shall survive until the earlier of (A) five
years, (B) the expiration of the applicable periods (including any extensions)
of the respective statutes of limitation applicable to the payment of the Taxes
or (C) the completion of the final audit and determinations by the applicable
taxing authority and final disposition of any deficiency resulting therefrom;
and (ii) the obligations under Sections 9.1.1(c), (d), (e), (f) and 9.1.2 shall
survive until the earlier of (i) five years, or (ii) the expiration of any
applicable statute of limitations with respect to such claims.
9.9 Survival of Representations, Warranties and Covenants of CenterPoint;
Time Limits on Indemnification Obligations. All representations, warranties,
covenants and agreements of CenterPoint shall survive the execution and delivery
of this Agreement and the Closing hereunder; provided, however, that
CenterPoint' obligations under Section 9.2, other than those relating to
covenants and agreements to be performed by CenterPoint after the Closing, shall
expire one year after Closing, except that, solely to the extent that the
Stockholders actually incur liability under the 1933 Act or the 1934 Act, the
obligations under Sections 9.2(c) or (d) above shall survive until the
expiration of any applicable statute of limitations with respect to such claims.
9.10 Defense of Claims; Control of Proceedings. Notwithstanding anything
in this Agreement to the contrary, to the extent any Loss subject to
indemnification hereunder would exceed the Indemnifying Party's indemnity
obligations under this Agreement, the Indemnified Party shall be entitled to
control the defense of such claim or management of such proceeding with respect
to such excess Loss.
9.11 Fraud; Exclusive Remedy. The limitations set forth in this Article IX
shall not apply to fraud by any party. In the absence of fraud and
notwithstanding any law to the contrary and any rights that would otherwise be
available thereunder, the indemnification provisions of this Article IX set
forth the sole and exclusive remedy of the CenterPoint Indemnified Parties
following the Closing against the Signing Stockholders and of the Stockholder
Indemnified Parties following the Closing against CenterPoint and its affiliates
with respect to any claim for relief resulting from, arising out of or otherwise
by virtue of this Agreement and the transactions contemplated hereby.
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9.12 Manner of Satisfying Indemnification Obligations. Subsequent to the
Closing, the Signing Stockholders may satisfy their respective obligations, if
any, under this Article IX by tendering to the CenterPoint Indemnified Parties
Escrowed Shares, cash or shares of CenterPoint Common Stock that are
transferable in accordance with Section 12.2, all such shares to be valued at
the Market Price. All Escrowed Shares available for indemnification shall be
exhausted before the Signing Stockholders shall be obligated to pay cash or
tender transferable shares of CenterPoint Common Stock. "Market Price" shall
mean the average closing (last) price for a share of CenterPoint Common Stock
(as reported on the exchange or market on which such shares are then listed or
traded) for the most recent twenty (20) days that such shares have traded ending
on the date two (2) days prior to the date tendered pursuant to clause (i) of
the preceding sentence, or, if such shares are not then listed or traded on an
exchange or other market, the fair market value of such shares as determined by
an appraiser reasonably agreed to by the parties.
9.13 Certain Set-Off Rights. The Stockholder Representative may set-off
against any amounts finally determined to be payable to any CenterPoint
Indemnified Parties under this Article IX any amounts finally determined to be
due and payable in connection with the Contingent Payment, if any, calculated
pursuant to Section 2.2.
ARTICLE X
CLOSING CONDITIONS
10.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have been
executed and the closing of the sale of CenterPoint Common Stock to the
Underwriters pursuant thereto shall have occurred simultaneously with the
Closing hereunder;
(b) the closings of the transactions contemplated under each of the
Other Agreements shall have occurred simultaneously with the Closing
hereunder, unless terminated in accordance with Section 7.3 of the
applicable Other Agreement;
(c) the Registration Statements shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect
and no proceeding for that purpose shall have been instituted by the SEC or
any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or decree
shall be pending or issued by any federal or state court which seeks to
prevent or prevents the consummation of the IPO, the Merger or any of the
Other Mergers shall have been issued and remain in effect;
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(e) the minimum condition set forth in line X on Schedule 2.1 shall
have been satisfied;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the
consummation of the Merger or any of the Other Mergers or make the
consummation of the Merger or any of the Other Mergers illegal;
(g) all material governmental and third party waivers, consents and
approvals required for the consummation of the Merger or any of the Other
Mergers and the transactions contemplated hereby and by the Other
Agreements (including, without limitation, any consents listed on Schedules
4.3.2 or 4.12) shall have been obtained and be in effect;
(h) no action, suit or proceeding with respect to the Merger has been
filed or threatened by a third party and remains threatened or remains
pending before any court, Governmental Authority or regulatory Person;
(i) this Agreement, the Merger and the transactions contemplated
hereby shall have been approved and adopted by the Stockholders in the
manner required by any applicable Law and the Company's Organizational
Documents; and
(j) CenterPoint shall have entered into one or more credit facilities
providing for aggregate commitments of not less than $75 million.
10.2 Conditions to Obligation of the Stockholders and the Company to
Effect the Merger. Unless waived by the Company, the obligation of the
Stockholders and the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Closing of the following additional conditions:
(a) CenterPoint, Mergersub and each of the Other Founding Companies
shall have performed in all material respects their agreements contained in
this Agreement and each Other Agreement required to be performed on or
prior to the Closing Date (including, without limitation, the obligations
set forth in Section 8.12) and the representations and warranties of
CenterPoint contained in this Agreement and each Other Agreement shall be
true and correct in all material respects on and as of the date made and on
and as of the Closing Date as if made at and as of such date, and the
Company shall have received a certificate of the Chief Executive Officer or
President of CenterPoint to that effect;
(b) no Governmental Authority shall have promulgated or formally
proposed any statute, rule or regulation which, when taken together with
all such promulgations, would materially impair the value to the
Stockholders of the Merger;
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(c) the Company shall have received an opinion from Katten Muchin &
Zavis, dated as of the Closing Date, containing the substantive opinions
set forth in Exhibit 10.2(c), the final form of such opinion to be in form
and substance reasonably acceptable to the Company and Stockholders;
(d) Each of Thomas W. Corbett, Jerold D. Hall and P. Gregory Zimmer
shall have been afforded the opportunity to enter into an employment
agreement (the "Employment Agreements") with the Company substantially in
the form attached hereto as Exhibit 10.2(d)(i), with respect to Thomas W.
Corbett, Exhibit 10.2(d)(ii) with respect to Jerold D. Hall, and Exhibit
10.2(d)(iii) with respect to P. Gregory Zimmer;
(e) CenterPoint shall have delivered to the Company and the
Stockholders a certificate, dated as of a date no later than ten days prior
to the Closing Date, duly issued by the Delaware Secretary of State,
showing that CenterPoint is in good standing;
(f) each of the Stockholders, the partners, the members and the
stockholders of the other Founding Companies who are to receive shares of
CenterPoint Common Stock pursuant to the Other Agreements, and the other
stockholders of CenterPoint other than those acquiring stock in the IPO
shall have entered into an agreement (the "Stockholders Agreement")
substantially in the form attached hereto as Exhibit 10.2(f);
(g) all conditions to the Other Mergers of the other Founding
Companies, on substantially the same terms as provided herein, shall have
been satisfied or waived by the applicable party and the Company;
(h) the Company shall have received an opinion of Katten Muchin &
Zavis, dated as of the Closing Date and based upon certain factual
representations and assumptions that for federal income tax purposes there
will be no gain or loss recognized with respect to the CenterPoint Common
Stock received for their Company Stock in the Merger pursuant to Section
351 of the Code, as amended , the final form of such opinion to be in form
and substance reasonably acceptable to the Company and the Stockholders;
10.3 Conditions to Obligation of CenterPoint to Effect the Merger. Unless
waived by CenterPoint, the obligation of CenterPoint and Mergersub to effect the
Merger shall be subject to the fulfillment at or prior to the Closing of the
additional following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects on and as of the date made and on and as of the Closing Date as if
made at and as of such date, and CenterPoint and the Underwriters shall
have received a Certificate of the Chief Executive Officer or President of
the Company to that effect;
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(b) the Signing Stockholders shall have performed in all material
respects their agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of the Signing Stockholders contained in this Agreement shall be
true and correct in all material respects on and as of the date made and on
and as of the Closing Date as if made at and as of such date, and
CenterPoint and the Underwriters shall have received a Certificate of each
Signing Stockholder to that effect;
(c) CenterPoint and the Underwriters shall have received an opinion
from Musick, Peeler & Garrett, counsel to the Company, dated the Closing
Date, in the form attached hereto as Exhibit 10.3(c), the final form of
such opinion to be in form and substance reasonably acceptable to the
Underwriters and CenterPoint;
(d) Thomas W. Corbett, Jerold D. Hall and P. Gregory Zimmer shall have
executed and delivered their respective Employment Agreement referred to
in Section 10.2(d);
(e) CenterPoint and the Underwriters shall have received "Comfort"
letters in customary form from the Company's independent public
accountants, dated the effective date of the Form S-1 and the Closing Date
(or such other date reasonably acceptable to 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
stockholders' equity, total revenues and the total and per share amounts of
net income;
(f) the Company shall have delivered to CenterPoint and the
Underwriters a certificate, dated as of a date no later than ten days prior
to the Closing Date, duly issued by the appropriate Governmental Authority
in the state of organization of the Company and each Company Subsidiary
and, unless waived by CenterPoint, in each state in which the Company or
any Company Subsidiary is authorized to do business, showing the Company or
Company Subsidiary (as applicable) is in good standing, authorized to do
business and/or in compliance with all laws and regulations, whichever is
applicable;
(g) no Governmental Authority shall have promulgated or formally
proposed any statute, rule, regulation or bulletin, or otherwise
promulgated a policy pursuant to its authority under any statute, which,
when taken together with all such promulgations, would materially impair
the value to CenterPoint of the Merger;
(h) the Stockholders shall have executed the Stockholders Agreement;
(i) the Stockholders shall have executed the Escrow Agreement;
(j) the Signing Stockholders shall have delivered to CenterPoint an
instrument in the form attached hereto as Exhibit 10.3(j), dated the
Closing Date, releasing the Company and the Company Subsidiaries from any
and all claims of the Stockholders against the
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Company and the Company Subsidiaries and obligations of the Company and the
Company Subsidiaries to the Stockholders;
(k) Reserved;
(l) the Company and the Stockholders, as applicable, shall have
terminated or have caused the termination of any voting trusts, proxies or
other agreements or understandings to which the Company or any Stockholder
is a party or is bound with respect to any shares of capital stock or other
equity interests of the Company shall have provided CenterPoint evidence of
such termination that is acceptable to CenterPoint's counsel;
(m) to the extent the Company's and each Company Subsidiary's
contracts and agreements with insurance carriers, insurance producers, risk
retention groups and purchasing groups (as defined under 65 U.S.C. 3901 et
seq.) bonafide associations and group programs (collectively referred to as
"Insurance Entities") will be terminated as a result of this Agreement or
the transactions contemplated herein, the Company and each Company
Subsidiary shall have: (i) entered into new contracts with each of the
Insurance Entities under the same material terms and conditions as the
previous contracts and agreements terminated as a result of this Agreement
or the transactions contemplated herein; or (ii) obtained amendments or
waivers of the contracts and agreement with each of Insurance Entities such
that the contracts and agreements will not terminate as a result of this
Agreement or the transactions contemplated herein, provided that such
amendments or waivers do not modify the material terms of such contracts or
agreements;
(n) the Company has provided to CenterPoint certified copies of all
Licenses necessary for the Company and each Company Subsidiary to conduct
their Business, and the Company and each Company Subsidiary has modified or
amended the information given the relevant Government Authorities in
obtaining such licenses and registrations necessary to prevent this
Agreement or the transactions contemplated herein from canceling or
terminating such licenses and registrations;
(o) the Company shall have presented evidence satisfactory to
CenterPoint of its compliance with the provision of Section 7.1.3 hereof;
(p) the Stockholders and/or the Company shall have delivered to
CenterPoint a payoff letter including a statement of per diem interest
amounts and other applicable release documents from all lenders or
creditors regarding the payment in full of indebtedness to such lenders and
creditors at Closing, in each case in form and substance satisfactory to
CenterPoint (including, without limitation, applicable UCC-3 termination
statements);
(q) each of the Stockholders other than the Signing Stockholders shall
be bound by a form of confidentiality, non-disclosure and non-solicitation
agreement in form and substance reasonably acceptable to CenterPoint;
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(r) each of the Stockholders other than the Signing Stockholders shall
be bound by a lock-up agreement containing provision substantially similar
to those binding the Signing Stockholders in Article XII hereof; and
(s) the secretary of the Company shall have delivered certified copies
of the resolutions of the board of directors and shareholders of the
Company approving execution and delivery of this Agreement, the Merger and
the other actions, agreements and documents necessary or desirable to
complete the transactions contemplated herein.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) pursuant to Section 7.3;
(b) by the Company,
(i) if the Merger is not completed by August 31, 1999 other
than on account of delay or default on the part of the Company or the
Stockholders or any of their affiliates or associates;
(ii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of the Company or any
of the Stockholders or any of their affiliates or associates;
(iii) if CenterPoint (A) fails to perform in any material respect
any of its material covenants in this Agreement and (B) does not cure such
default in all material respects within thirty (30) days after written
notice of such default is given to CenterPoint; or
(c) by CenterPoint,
(i) 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;
(ii) if the Merger is enjoined by a final, unappealable 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;
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(iii) if the Company (A) fails to perform in any material respect
any of its material covenants in this Agreement and (B) does not cure such
default in all material respects within thirty (30) days after written
notice of such default is given to the Company by CenterPoint;
(iv) if the Stockholders (A) fail to perform in any material
respect any of their material covenants in this 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 Stockholder Representative
by CenterPoint; or
(d) by mutual consent of the Boards of Directors of the Company and
CenterPoint.
11.2 Effect of Termination. In the event of termination of this Agreement
by either CenterPoint or the Company, as provided in Section 11.1, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of the Company, the Stockholders, CenterPoint, Mergersub or their
respective officers or directors (except the obligations set forth in Sections
8.1, 8.3 and 8.5, all of which shall survive the termination). Nothing in this
Section 11.2 shall relieve any party from liability for any willful breach of
this Agreement and Section 9.1.1(c), Section 9.1.1(f)(i) (as it relates to the
Signing Stockholders) and Section 9.1.2 shall survive the termination with
respect to any such willful breach.
11.3 Amendment. This Agreement may not be amended except by action taken
by the parties' respective Boards of Directors of CenterPoint and the Company or
duly authorized committees thereof and then only by an instrument in writing
signed on behalf of each of the parties hereto and in compliance with applicable
law. CenterPoint covenants and agrees that it shall not amend, modify or
supplement the material terms of any Other Agreement following the Closing
without the prior written consent of at least two thirds (2/3rds) of the members
of CenterPoint's Board of Directors; provided that no waiver of any restriction
set forth in Article XII shall be of any effect unless consented to by a
majority of the members of CenterPoint's Board of Directors who do not at the
time of such proposed waiver hold Restricted Shares within the meaning of this
Agreement, any Other Agreement or the Stockholders Agreement.
11.4 Waiver. At any time prior to the Closing Date, the parties hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant thereto
and (c) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
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ARTICLE XII
TRANSFER RESTRICTIONS
12.1 Transfer Restrictions, Generally. Except as provided in Section 12.2,
for a period of forty-two (42) months from the Closing, the Signing Stockholders
shall not (a) sell, assign, exchange, transfer, distribute or otherwise dispose
of, in whole or in part, (i) any shares of CenterPoint Common Stock received by
the Signing Stockholders in the Merger (the "Restricted Shares"), or (ii) any
interest (including, without limitation, an option to buy or sell) in any
Restricted Shares; or (b) engage in any transaction, whether or not with respect
to any Restricted Shares or any interest therein, the intent or effect of which
is to reduce the risk of owning the Restricted Shares (including, without
limitation, engaging in put, call, short-sale, derivative, straddle or similar
market transactions).
12.2 Release of Restrictions. Effective eighteen (18) months following the
Closing, and every six (6) months thereafter, until all of such Signing
Stockholder's Restricted Shares shall have been released from such restrictions,
20% of the original numbers of Restricted Shares of each Stockholder shall no
longer be subject to the restrictions set forth in Section 12.1 and shall no
longer be deemed Restricted Shares for any purposes of this Agreement; provided,
that, if a Stockholder's employment with CenterPoint or its subsidiaries is
terminated within 30 months of Closing other than through death, disability,
retirement, or for a Signing Stockholder with an employment agreement, without
Cause or within 60 days of a Constructive Termination (such terms as defined in
such Signing Stockholder's employment agreement, if any, with the Company of
even date) or circumstances approved by the Company's management or reasonably
approved by CenterPoint's Chief Executive Officer, the Restricted Shares held by
such Stockholder shall remain subject to the restrictions set forth in Section
12.1 until the fifth anniversary of the Closing Date. Notwithstanding the
foregoing and Section 12.1, a Signing Stockholder may (x) at any time pledge or
encumber all or part of such Signing Stockholder's Restricted Shares, provided
that the pledgee or secured party agrees in writing to be bound by the
provisions contained in Article XII, (y) at any time transfer all or part of
such Signing Stockholder's Restricted Shares to another Stockholder or to an
immediate family member (or trust or other estate planning Person), provided,
that any such Signing Stockholder, family member or other Person agrees in
writing to be bound by the provisions contained in Article XII, and (z) transfer
or cause to be transferred such Stockholder's Restricted Shares upon such
Stockholder's disability or death. As used in this Section 12.2, the terms
"disability" and "retirement" shall have the meaning ascribed to them in
CenterPoint's Employee Incentive Plan.
12.3 Legend. The certificates evidencing the CenterPoint Common Stock
delivered to the Stockholders pursuant to Article II of this Agreement shall
bear a legend substantially in the form set forth below and containing such
other information as CenterPoint may deem necessary or appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE DISPOSITION
THEREOF ARE SUBJECT TO THE
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TERMS OF A MERGER AGREEMENT DATED MARCH 31, 1999. A COPY OF SUCH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION AND
MAY BE INSPECTED BY THE REGISTERED OWNER OF THIS CERTIFICATE OR A DULY
AUTHORIZED REPRESENTATIVE OF SUCH OWNER UPON REQUEST DURING NORMAL
BUSINESS HOURS.
Upon request from any Signing Stockholder (or a permitted transferee)
following the expiration of either all or a part of the restrictions on the
transfer of CenterPoint Common Stock set forth in this Article XII, CenterPoint
shall immediately notify its transfer agent that the applicable shares of
CenterPoint Common Stock are no longer restricted shares and shall direct the
transfer agent to reissue certificates of CenterPoint Common Stock which do not
contain a restrictive legend in place of the applicable restricted shares. In
the event a Signing Stockholder's request to remove the restrictive legend
coincides with his request to sell the CenterPoint Common Stock, CenterPoint
shall take such actions as are required by its transfer agent to allow the
transfer agent to transfer the unrestricted CenterPoint Common Stock free of any
restrictive legend.
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ARTICLE XII
NONCOMPETITION
13.1 Prohibited Activities. Each Signing Stockholder (excluding Hales
Capital Advisors LLC, R. Joseph De Briyn and The 1818 Mezzanine Fund, L.P.)
agrees severally and not jointly, that such Signing Stockholder will not, for a
period of three (3) years following the Closing Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other Person:
(a) engage, directly or indirectly, as an officer, director,
shareholder, owner, partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant or advisor, or
as a sales representative, in, or otherwise own, operate, manage, control,
engage in, participate in, act as a representative, agent, consultant or
advisor to, or render services for (alone or in association with any
person, firm corporation or other entity, including through agents, brokers
or surplus line brokers), any business selling or providing any products or
services in direct competition with the Company, within any business market
where the Company conducted or conducts business at any time;
(b) sell or provide, directly or indirectly, any competitive products
or services to, or solicit for the purpose of selling or providing any
competitive products or services to, or otherwise accept commissions from,
any Person that was a customer of the Company or any Company Subsidiary
(including any agents or brokers that produce insurance through the Company
or any affiliate or subsidiary thereof) at any time during the preceding
one-year period or that was known by Stockholder to have been actively
being solicited by the Company or any Company Subsidiary to become a
customer at any time during such period, including any Policyholders,
Premium Finance Customers;
(c) call upon any Person who is, at that time, an employee of
CenterPoint (including the subsidiaries and affiliates thereof) for the
purpose or with the intent of enticing such employee away from or out of
the employ of CenterPoint (including the subsidiaries and affiliates
thereof), or hire such Person;
(d) enter into, or call upon or request non-public information for the
purpose of entering into, an Acquisition Transaction (as hereinafter
defined) with any Person with respect to which CenterPoint or any
subsidiary or affiliate thereof has made an offer or proposal for, or
entered into discussions or negotiations for, or evaluated with the intent
of making a proposal for, an Acquisition Transaction, within the preceding
one-year period; or
(e) disclose the identity of (i) any agents, brokers or surplus lines
brokers that produce or finance insurance through the Company or a
subsidiary or affiliate thereof or (ii) any Policyholder or Prospective
Policyholder, or any part thereof, to any person, firm, corporation,
association or other entity, for any reason or purpose whatsoever.
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For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination. Notwithstanding the above, the
foregoing covenant shall not be deemed to prohibit any Stockholder from
acquiring as an investment not more than one percent (1%) of the capital stock
of a competing business whose stock is traded on a national securities exchange
or over-the-counter so long as the Signing Stockholder does not consult with or
is not employed by such competitor. "Acquisition Transaction" does not mean or
include exercise of any right of first refusal or other transaction permitted un
the terms of any agreement between any one or more Signing Stockholder and
CenterPoint, whether as of or after the date hereof. For the purpose of this
Agreement, "Policyholder" means any person, firm, corporation or entity that was
issued any insurance policy by CenterPoint or the Company or an agent or broker
which placed such insurance coverage through CenterPoint or any subsidiary or
affiliate thereof. For the purpose of this Agreement, "Prospective Policyholder"
means any person, firm, corporation or entity contacted or solicited by
CenterPoint or any subsidiary or affiliate thereof, or an agent or broker which
places insurance through CenterPoint or any subsidiary or affiliate thereof
(whether directly or indirectly) or who contacted CenterPoint or any subsidiary
or affiliate thereof, or an agent or broker which places insurance through
CenterPoint or any subsidiary or affiliate thereof (whether directly or
indirectly) for the purpose of having such persons, firms, corporations or
entities become policyholders of CenterPoint or any subsidiary or affiliate
thereof.
13.2 Damages. Because of the difficulty of measuring economic losses to
CenterPoint as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to CenterPoint for
which it would have no other adequate remedy, each Stockholder agrees that the
foregoing covenant may be enforced by CenterPoint in the event of breach by such
Stockholder, by injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Article XIII impose a reasonable restraint on the
Signing Stockholders in light of the activities and business of CenterPoint
(including the subsidiaries thereof) on the date of the execution of this
Agreement and the current plans of CenterPoint; but it is also the intent of
CenterPoint and the Signing Stockholders that such covenants be construed and
enforced in accordance with the changing activities and business of CenterPoint
(including the subsidiaries thereof) throughout the term of this covenant.
It is further agreed by the parties hereto that, in the event that any
Signing Stockholder who has entered into an employment agreement, incentive
compensation agreement or other similar agreement with CenterPoint and/or any
subsidiary thereof as set forth herein shall thereafter cease to be employed
thereunder, and such Signing Stockholder shall enter into a business or pursue
other activities not in competition with CenterPoint and/or any subsidiary
thereof, or similar activities or business in locations the operations of which,
under such circumstances, does not violate this Article XIII and in any event
such new business, activities or location are not in violation of this Article
XIII or of such Signing Stockholder's obligations under this Article XIII, such
Stockholder shall not be chargeable with a violation of this Article XIII if
CenterPoint and/or any subsidiary thereof shall
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thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
13.4 Severability; Reformation. The covenants in this Article XIII are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Article XIII shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Signing
Stockholder against CenterPoint (including the subsidiaries thereof), whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by CenterPoint of such covenants. It is specifically agreed that
the period of three (3) years stated at the beginning of this Article XIII,
during which the agreements and covenants of each Signing Stockholder made in
this Article XIII shall be effective, shall be computed by excluding from such
computation any time during which such Stockholder is in violation of any
provision of this Article XIII; provided, however, in all events, CenterPoint
shall initiate proceedings to enforce this Article XIII within four (4) years of
the Closing Date. The covenants contained in Article XIII shall not be affected
by any breach of any other provision hereof by any party hereto and shall have
no effect if the transactions contemplated by this Agreement are not
consummated.
13.6 Materiality. The Company and the Signing Stockholders hereby agree
that this covenant is a material and substantial part of this transaction.
ARTICLE XIV
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 Signing Stockholders' Covenant. The Signing Stockholders recognize
and acknowledge that they had in the past, currently have, and in the future may
possibly have, access to certain confidential information of the Company, the
other Founding Companies, the Company Subsidiaries and/or CenterPoint, such as
strategic plans, systems, operational policies, marketing plans, relationships
with policyholders and premium finance customers, relationships with brokers,
agents and surplus line brokers, sales and marketing techniques, customer lists
and potential customer lists, expiration data and pricing and cost policies that
are valuable, special and unique assets of the Company's, the other Founding
Companies', the Company Subsidiaries' and/or CenterPoint's respective
businesses. The Signing Stockholders agree that they will not disclose such
confidential information to any Person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except
(a) to authorized representatives of CenterPoint,
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(b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties to
CenterPoint, and
(c) to counsel and other advisers, provided that such advisers (other
than counsel) agree to the confidentiality provisions of this Section 14.1,
unless
(i) such information becomes known to the public generally
through no fault of the Stockholders,
(ii) disclosure is required by law or the order of any
governmental authority under color of law, provided that prior to
disclosing any information pursuant to this clause (ii), the
Stockholder shall, if possible, give prior written notice thereof to
CenterPoint and provide CenterPoint with the opportunity to contest
such disclosure, or
(iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit
against the disclosing party.
In the event of a breach or threatened breach by any of the Signing Stockholders
of the provisions of this Section 14.1, CenterPoint shall be entitled to an
injunction restraining such Stockholders from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
CenterPoint from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.2 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1, and because of
the immediate and irreparable damage that would be caused for which they would
have no other adequate remedy, the parties hereto agree that, in the event of a
breach by any of them of the foregoing covenants, the covenant may be enforced
against the other parties by injunction and restraining orders.
14.3 Survival. The obligations of the parties under this Article XIV shall
survive the termination of this Agreement.
ARTICLE XV
GENERAL PROVISIONS
15.1 Brokers. Each of the Company and the Signing Stockholders represents
and warrants that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee (except for the fee described in Schedule 15.1)
or commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company.
CenterPoint represents and warrants that no broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the
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transactions contemplated by this Agreement based upon arrangements made by or
on behalf of CenterPoint or its stockholders (other than underwriting discounts
and commission to be paid in connection with the IPO).
15.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
given in accordance with this Section):
15.2.1 If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert Basten
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
15.2.2 If to the Company, to:
Robert F. Driver Co., Inc.
1620 Fifth Avenue
San Diego, California 92101
Attn: Jerold D. Hall
Facsimile No.: (616) 699-1329
with a copy to:
Musick, Peeler & Garrett
624 S. Grand Avenue
Los Angeles, CA 90017
Attn: Leonard E. Castro, Esq.
Facsimile No.: (213) 624-1376
15.2.3 If to the Escrow Holder, to:
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Jerold D. Hall
1620 5th Avenue
San Diego, CA 92101
Facsimile No.: (619) 699-1329
15.2.4 If to the Stockholder Representative or the Stockholders, as
applicable, addressed to the addresses set forth on Schedule 15.2.3, with copies
to such counsel as is set forth with respect to each Stockholder on such
Schedule 15.2.3, as applicable.
15.3 Interpretation. The table of contents and headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
15.4 Certain Definitions. As used in this Agreement, (i) the term "Person"
shall mean any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated association, corporation, entity, firm, association,
organization or other business in any form whatsoever or government (whether
Federal, state, county, city or otherwise, including, without limitation, any
instrumentality, division, agency or department thereof) and, (ii) the term
"Affiliate" shall have the meaning given for that term in Rule 405 under the
Securities Act, and shall include each past and present Affiliate of a Person
and the members of such Affiliate's immediate family or their spouses or
children and any trust the beneficiaries of which are such individuals or
relatives, and (iii) an individual will be deemed to have "Knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or matter, or (b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the existence of
such fact or other matter and a prudent individual would conduct such
investigation; a Person, other than an individual, will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is a
shareholder of such Person or who is otherwise serving, or who has served, as a
director, officer, partner, member or trustee (or any capacity) of such Person
has, or at any time had, knowledge of such fact or other matter.
15.5 Entire Agreement; Assignment. This Agreement (including the documents
and instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof and
(b) shall not be assigned by operation of law or otherwise, except that
CenterPoint may assign this Agreement to any wholly-owned subsidiary of
CenterPoint.
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15.6 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Illinois applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
15.7 Counterparts. This Agreement may be executed via facsimile or
otherwise in two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
15.8 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and their respective successors,
permitted assigns, heirs, legal representatives and executors and except as
expressly set forth in herein, nothing in this Agreement, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
* * *
---------------------
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of
the date first written above.
CENTERPOINT ADVISORS, INC.
By: /s/ Robert C. Basten
---------------------------------------------
Name: Robert C. Basten
-------------------------------------------
Its: President and Chief Executive Officer
-------------------------------------------
RFD MERGERSUB INC.
By: /s/ Robert C. Basten
---------------------------------------------
Name: Robert C. Basten
-------------------------------------------
Its: President and Chief Executive Officer
-------------------------------------------
ROBERT F. DRIVER CO., INC.
By: /s/ Thomas W. Corbett
---------------------------------------------
Name: Thomas W. Corbett
-------------------------------------------
Its: Chief Executive Officer
-------------------------------------------
STOCKHOLDERS
THE 1818 MEZZANINE FUND, L.P.
By: Brown Brothers Harriman & Co.,
General Partner
By: /s/ Robert Gould
--------------------------------------
Robert Gould, Partner
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HALES CAPITAL ADVISORS LLC
By:
------------------------------------
Name:
------------------------------
Its:
-------------------------------
/s/ Roger G. Combe
-------------------
Roger G. Combe
/s/ Thomas W. Corbett
----------------------
Thomas W. Corbett
CORBETT FAMILY TRUST
By: /s/ Thomas W. Corbett
----------------------
Thomas W. Corbett, Co-Trustee
By: /s/ Carolyn Corbett
--------------------
Carolyn Corbett, Co-Trustee
/s/ David R. Cranmer
---------------------
David R. Cranmer
/s/ Robert A. D'Angelo
-----------------------
Robert A. D'Angelo
/s/ Ted E. Davidson
--------------------
Ted E. Davidson
/s/ R. Joseph De Briyn
-----------------------
R. Joseph De Briyn
/s/ Gordon B. DesCombes
----------------------
Gordon B. DesCombes
/s/ Michael E. Driver
----------------------
Michael E. Driver
/s/ Richard B. Gulley
----------------------
Richard B. Gulley
/s/ Jerold D. Hall
-------------------
Jerold D. Hall
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/s/ Ralph S. Hurst
-------------------
Ralph S. Hurst
/s/ Richard C. Mattingley
--------------------------
Richard C. Mattingley
/s/ Donald H. McClean, Jr.
---------------------------
Donald H. McClean, Jr.
McCLEAN FAMILY TRUST
By: /s/ Donald H. McClean, Jr.
---------------------------
Donald H. McClean, Jr.
Co-Trustee
By: /s/ Lou Ann McClean
--------------------
Lou Ann McClean,
Co-Trustee
/s/ Sharon W. Nash
-------------------
Sharon W. Nash
/s/ Richard A. Parrent
-----------------------
Richard A. Parrent
/s/ Michael L. Simmons
-----------------------
Michael L. Simmons
/s/ Ronald J. Stewart
----------------------
Ronald J. Stewart
/s/ John T. Warnock
--------------------
John T. Warnock
/s/ Lawrence A. Weitzen
------------------------
Lawrence A. Weitzen
WEITZEN FAMILY TRUST
By: /s/ Lawrence A. Weitzen
-------------------------
Lawrence A. Weitzen,
Co-Trustee
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By: /s/ Mary Lynn Weitzen
----------------------
Mary Lynn Weitzen,
Co-Trustee
/s/ Paul Gregory Zimmer, Jr.
-----------------------------
Paul Gregory Zimmer, Jr.
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Exhibit 2.12
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated as of March 31, 1999 (the
"Effective Date"), is by and among CenterPoint Advisors, Inc., a Delaware
corporation ("CenterPoint"), and the individuals listed on the signature pages
hereof (each, a "Member" and collectively, the "Members").
PREAMBLE
A. Concurrently herewith, CenterPoint, Reznick Fedder & Silverman,
Certified Public Accountants, A Professional Corporation (the "Company"),
Reznick Mergersub Inc., a Delaware corporation and a direct wholly-owned
subsidiary of CenterPoint ("Mergersub"), Reznick Fedder & Silverman, C.P.A.s,
L.L.C., a Maryland limited liability company ("Seller"), and the members of
Seller are entering into a Merger Agreement (as amended from time to time, the
"Merger Agreement"; capitalized terms used but not otherwise defined herein have
the meanings assigned in the Merger Agreement) pursuant to which Mergersub will
be merged with and into the Company, with the Company continuing as the
surviving corporation and as a direct wholly-owned subsidiary of CenterPoint
(the "Merger").
B. Seller owns all of the issued and outstanding capital stock of the
Company.
C. Each Member owns the equity interest and percentage of Seller's total
outstanding equity interests set forth opposite such Member's name and signature
on the signature pages hereof (each, an "Interest").
D. As an inducement and a condition to entering into the Merger Agreement,
CenterPoint has required that the Members agree, and the Members have agreed, to
enter into this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CenterPoint and the Members agree as follows:
1. Provisions Concerning Interests. Each Member hereby agrees that
during the period commencing on the Effective Date and continuing until the
first to occur of (a) the Effective Time or (b) the termination of the Merger
Agreement in accordance with its terms, at any meeting of the members of Seller,
however called, or in connection with any written consent of the members of
Seller, such Member shall vote (or cause to be voted) the Interest held of
record or Beneficially Owned (as defined below) by such Member, whether
heretofore owned or hereafter acquired, including without limitation by voting
such Interest in favor of Seller voting its shares of capital stock of the
Company, as follows: (i) in favor of approval of the Merger, the Merger
Agreement, the transactions contemplated by the Merger Agreement and any actions
required in
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furtherance hereof and thereof; (ii) against any action or agreement
that would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of the Company, Seller or any
Member under the Merger Agreement; and (iii) except as otherwise agreed to in
writing in advance by CenterPoint, against the following actions (other than the
Merger and the agreements and transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving Seller, the Company or any
Company Subsidiary; (B) a sale, lease or transfer of a material amount of assets
of Seller, the Company or any Company Subsidiary, or a reorganization,
recapitalization, dissolution or liquidation of Seller, the Company or any
Company Subsidiary; (C) (1) any change in a majority of the individuals who
constitute the operating committee, board of directors or similar governing body
of Seller, the Company or any Company Subsidiary; (2) any change in the present
capitalization of Seller, the Company or any Company Subsidiary or any amendment
of Organizational Documents of Seller, the Company or any Company Subsidiary;
(3) any other material change in Seller's, the Company's or any Company
Subsidiary's corporate structure or business; or (4) any other action which is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, or materially and adversely affect the Merger and the transactions
contemplated by this Agreement and the Merger Agreement. Such Member shall not
enter into any agreement or understanding with any Person the effect of which
would be inconsistent or violative of the provisions and agreements contained in
Section 1 or 2 of this Agreement. For purposes of this Agreement, "Beneficially
Own", "Beneficially Owned" or "Beneficial Ownership" (or any other derivative of
such terms) with respect to any securities shall mean having "beneficial
ownership" of such securities as determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including,
without limitation, pursuant to any agreement, arrangement or understanding,
whether or not in writing. Without duplicative counting of the same securities
by the same holder, securities Beneficially Owned by a Person shall include
securities Beneficially Owned by all other Persons with whom such Person would
constitute a "group" within the meaning of Section 13(d)(3) of the Exchange Act.
2. Other Covenants, Representations and Warranties. Each Member hereby
represents and warrants to CenterPoint as follows:
(a) Ownership of Interests. Such Member is the record and Beneficial
Owner of the Interest as set forth opposite such Member's name and
signature on the signature pages hereof. Such Interest, together with the
Interests set forth opposite each other Member's name and signature on the
signature pages hereof, represent the requisite percentage of membership
interests required to cause Seller to approve the Merger, the Merger
Agreement, the transactions contemplated by the Merger Agreement and any
actions required in furtherance hereof and thereof, and otherwise to act
and cause the Company to act as provided in Section 1 above. On the
Effective Date, the Interest set forth opposite such Member's name and
signature on the signature pages hereof constitutes the entire membership
interest in Seller owned of record or Beneficially Owned by such Member or
as to which such Member has voting power by proxy, voting agreement, voting
trust or other similar instrument. Such Member has sole voting power and
sole power to issue instructions with respect to the matters set forth in
Section 1 of this Agreement, sole
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<PAGE>
power of disposition, sole power of conversion, sole power to demand
appraisal rights and sole power to agree to all of the matters set forth in
this Agreement, in each case with respect to the entire Interest as set
forth opposite such Member's name and signature on the signature pages
hereof, with no limitations, qualifications or restrictions on such rights.
(b) Power; Binding Agreement. Such Member has the legal capacity,
power and authority to enter into and perform all of such Member's
obligations under this Agreement. The execution, delivery and performance
of this Agreement by such Member will not violate any other agreement to
which such Member is a party including, without limitation, any voting
agreement, stockholders agreement, operating agreements, voting trust,
trust or similar agreement. This Agreement has been duly and validly
executed and delivered by such Member and constitutes a valid and binding
agreement of such Member, enforceable against such Member in accordance
with its terms. There is no beneficiary or holder of a voting trust
certificate or other interest of any trust of which such Member is trustee
whose consent is required for the execution and delivery of this Agreement
or the consummation by such Member of the transactions contemplated hereby.
If such Member is married and such Member's Interest constitutes community
property, this Agreement has been duly authorized, executed and delivered
by, and constitutes a valid and binding agreement of, such Member's spouse,
enforceable against such person in accordance with its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Member and the
consummation by such Member of the transactions contemplated hereby and (B)
none of the execution and delivery of this Agreement by such Member, the
consummation by such Member of the transactions contemplated by this
Agreement or compliance by such Member with any of the provisions of this
Agreement shall (1) result in a violation or breach of, or constitute (with
or without notice or lapse of time or both) a default (or give rise to any
third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which such Member is a party or by which such Member or any of such
Member's properties or assets may be bound, or (2) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable
to such Member or any of such Member's properties or assets (other than to
the extent any of the foregoing relates to regulating, licensing or
permitting the practice of public accountancy).
(d) Accredited Investor. Each of the Members identified as an
"accredited investor" on the signature pages hereof, represents and
warrants to Mergersub and CenterPoint that such Member (i) is an
"accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) is able to bear the economic risk of an investment in
the CenterPoint Common Stock acquired pursuant to the Merger Agreement and
can afford to sustain a total loss of such investment, (iii) has such
knowledge and experience in financial and business matters that such Member
is capable of evaluating the
-3-
<PAGE>
merits and risks of the proposed investment in the CenterPoint Common Stock
and (iv) has had an adequate opportunity to ask questions and receive
answers from the officers of CenterPoint concerning all matters relating to
the transactions contemplated herein and in the Merger Agreement including,
without limitation, the background and experience of the current and
proposed officers and directors of CenterPoint, and the plans for the
business and operation of CenterPoint.
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Member shall not, directly or indirectly: (i) except as contemplated by the
Merger Agreement, offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to or consent to the offer for
sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of such Member's Interest or any interest
therein; (ii) except as contemplated by this Agreement, grant any proxies
or powers of attorney, deposit any part of such Interest into a voting
trust or enter into a voting agreement with respect to any part of such
Interest; or (iii) take any action that would make any representation or
warranty of such Member contained herein untrue or incorrect or have the
effect of preventing or disabling such Member from performing such Member's
obligations under this Agreement.
(f) Reliance by CenterPoint. Such Member understands and acknowledges
that CenterPoint is entering into the Merger Agreement in reliance upon
such Member's execution and delivery of this Agreement.
3. Further Assurances. From time to time, at CenterPoint's request and
without further consideration, each Member shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. Each Member agrees with, and covenants to, CenterPoint
that such Member shall not request that Seller register the transfer (book-entry
or otherwise) of any certificate or uncertificated interest representing any
part of such Member's Interest, unless such transfer is made in compliance with
this Agreement. Without limiting the covenants in Section 1, in the event of a
change in the outstanding interests of Seller for any reason, including without
limitation any exchange of equity interests or the like, the term "Interest"
shall be deemed to refer to and include the Interest as well as all such other
equity interests into which or for which any or all of the Interest may be
changed or exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Interest shall terminate upon
the earlier of (a) termination of the Merger Agreement in accordance with its
terms or (b) the Effective Time.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, the Merger Agreement and the
other agreements contemplated herein or therein constitute the entire
agreement between the
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<PAGE>
parties with respect to the subject matter hereof and thereof and supersede
all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement.
(b) Certain Events. Each Member agrees that this Agreement and the
obligations hereunder shall attach to such Member's Interest and shall be
binding upon any person or entity to which legal or Beneficial Ownership of
such Interest shall pass, whether by operation of law or otherwise,
including, without limitation, such Member's heirs, guardians,
administrators or successors. Notwithstanding any such transfer of
Interest, the transferor shall remain liable for the performance of all
obligations of the transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties
hereto, provided that CenterPoint may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly owned
subsidiary of CenterPoint, but no such assignment shall relieve CenterPoint
of its obligations hereunder if such assignee does not perform such
obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Members, except upon the execution and delivery
of a written agreement executed by the parties hereto; provided, that any
-------- ----
member of Seller who agrees to be bound by the terms of this Agreement may
become a signatory hereto without the agreement of any other party hereto,
and thereafter such added member shall be treated as a "Member" for all
purposes of this Agreement.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
nationally recognized expedited delivery service providing proof of
delivery or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by notice given in accordance
with this Section):
If to a Member: At the address set forth
opposite such Member's
name on the signature pages hereof
with a copy to:
Long Aldrige & Norman
1 Peachtree Center
303 Peachtree Street
Suite 5300
Atlanta, Georgia 30308
Attn: Jeff Haidet
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<PAGE>
If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert S. Basten
Scott H. Lang
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision of this Agreement in
such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any of
such rights, powers or remedies by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof,
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<PAGE>
shall not constitute a waiver by such party of its right to exercise any
such or other right, power or remedy or to demand such compliance.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the same
agreement.
(n) Recovery of Attorney's Fees. In the event of any litigation
between the parties relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs
(including court costs) from the non-prevailing party, provided that if
both parties prevail in part, the reasonable attorney's fees and costs
shall be awarded by the court in such manner as it deems equitable to
reflect the relative amounts and merits of the parties' claims.
* * *
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<PAGE>
IN WITNESS WHEREOF, CenterPoint and the Members have caused this Agreement
to be duly executed as of the Effective Date.
CENTERPOINT ADVISORS, INC.
By: /s/ Robert C. Basten
--------------------
Robert C. Basten,
Chief Executive Officer
PERCENTAGE
EQUITY AND VOTING
INTEREST
MEMBERS: "ACCREDITED" ADDRESS BENEFICIALLY
(Yes/No) OWNED
/s/ David Reznick
- ----------------------------
David Reznick YES
/s/ Stuart M. Fedder
- ----------------------------
Stuart M. Fedder YES
/s/ Ivan B. Silverman
- ----------------------------
Ivan B. Silverman YES
/s/ William T. Riley, Jr.
- ----------------------------
William T. Riley, Jr. YES
/s/ Craig Birmingham
- ----------------------------
Craig Birmingham YES
/s/ Wallace L. Scruggs Jr.
- ----------------------------
Wallace L. Scruggs, Jr. YES
/s/ Jeffrey D. Barsky
- ----------------------------
Jeffrey D. Barsky YES
/s/ Lester A. Kanis
- ----------------------------
Lester A. Kanis YES
/s/ Renee G. Scruggs
- ----------------------------
Renee G. Scruggs YES
/s/ Lee Isaacson
- ----------------------------
Lee Isaacson YES
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<PAGE>
PERCENTAGE
EQUITY AND VOTING
INTEREST
MEMBERS: "ACCREDITED" ADDRESS BENEFICIALLY
(Yes/No) OWNED
/s/ Gary Perlow
- ----------------------------
Gary Perlow YES
/s/ Gary C. Pokrant
- ------------------------------
Gary C. Pokrant YES
/s/ Leslie A. Mostow
- ----------------------------
Leslie A. Mostow YES
/s/ Kenneth J. Shapiro
- ----------------------------
Kenneth J. Shapiro YES
/s/ Edward Ryan
- ----------------------------
Edward Ryan YES
/s/ Mark J. Einstein
- ----------------------------
Mark J. Einstein YES
/s/ Harry L. Silverman
- ----------------------------
Harry L. Silverman YES
/s/ Kenneth E. Baggett
- ----------------------------
Kenneth E. Baggett YES
/s/ Leonard A. Sacks
- ----------------------------
Leonard A. Sacks YES
/s/ Timothy McGibney
- ----------------------------
Timothy McGibney YES
/s/ Patrick Trotta
- ----------------------------
Patrick Trotta YES
/s/ Kirk T. Rogers
- ----------------------------
Kirk T. Rogers YES
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<PAGE>
Exhibit 2.13
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated March 31, 1999 (the
"Effective Date"), is by and among CenterPoint Advisors, Inc., a Delaware
corporation ("CenterPoint"), and the individuals and entities listed on the
signature pages hereof (each, a "Stockholder" and collectively, the
"Stockholders").
PREAMBLE
A. Concurrently herewith, CenterPoint, Robert F. Driver Co., Inc. (the
"Company") and RFD Mergersub Inc., a Delaware corporation and a direct wholly-
owned subsidiary of CenterPoint ("Mergersub"), are entering into a Merger
Agreement (as amended from time to time, the "Merger Agreement"; capitalized
terms used but not otherwise defined herein have the meanings assigned in the
Merger Agreement) pursuant to which Mergersub will be merged with and into the
Company, with the Company continuing as the surviving corporation and as a
direct wholly-owned subsidiary of CenterPoint (the "Merger").
B. Each Stockholder owns shares, par value $.01 per share, of Class A
common stock of the Company (the "Shares" or "Company Common Stock") in the
amounts set forth opposite such Stockholder's name and signature on the
signature pages hereof.
C. As an inducement and a condition to entering into the Merger Agreement,
CenterPoint has required that the Stockholders agree, and the Stockholders have
agreed, to enter into this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CenterPoint and the Stockholders agree as follows:
1. Provisions Concerning Company Common Stock. Each Stockholder hereby
agrees that during the period commencing on the Effective Date and continuing
until the first to occur of (a) the Effective Time or (b) termination of the
Merger Agreement in accordance with its terms, at any meeting of the holders of
Company Common Stock, however called, or in connection with any written consent
of the holders of Company Common Stock, such Stockholder shall vote (or cause to
be voted) the Shares held of record or Beneficially Owned (as defined below) by
such Stockholder, whether heretofore owned or hereafter acquired: (i) in favor
of approval of the Merger, the Merger Agreement, the transactions contemplated
by the Merger Agreement and any actions required in furtherance hereof and
thereof; (ii) against any action or agreement that would result in a breach in
any respect of any covenant, representation or warranty or any other obligation
or agreement of the Company or any Stockholder under the Merger Agreement; and
(iii) except as otherwise agreed to in writing in advance by CenterPoint,
against the following
<PAGE>
actions (other than the Merger Agreement and the agreements and transactions
contemplated by the Merger Agreement): (A) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or any Company Subsidiary; (B) a sale, lease or transfer
of a material amount of assets of the Company or any Company Subsidiary, or a
reorganization, recapitalization, dissolution or liquidation of the Company or
any Company Subsidiary; (C) (1) any change in a majority of the individuals who
constitute the board of directors of the Company or any Company Subsidiary; (2)
any change in the present capitalization of the Company or any Company
Subsidiary or any amendment of Organizational Documents of the Company or any
Company Subsidiary; (3) any other material change in the Company's or any
Company Subsidiary's corporate structure or business; or (4) any other action
which is intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, or materially and adversely affect the Merger and the
transactions contemplated by this Agreement and the Merger Agreement. Such
Stockholder shall not enter into any agreement or understanding with any Person
the effect of which would be inconsistent or violative of the provisions and
agreements contained in Section 1 or 2 of this Agreement. For purposes of this
Agreement, "Beneficially Own", "Beneficially Owned" or "Beneficial Ownership"
(or any other derivative of such terms) with respect to any securities shall
mean having "beneficial ownership" of such securities as determined pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including, without limitation, pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all other Persons with whom such
Person would constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act.
2. Other Covenants, Representations and Warranties. Each Stockholder,
severally and not jointly, hereby represents and warrants to CenterPoint as
follows:
(a) Ownership of Shares. Such Stockholder is the record and
Beneficial Owner of the number of Shares as set forth opposite such
Stockholder's name on the signature pages hereof. Such Shares, together
with the number of Shares set forth opposite each other Stockholder's name
on the signature pages hereof, represent and on the record dates
established with respect to the Merger will represent at least a majority
of the outstanding Shares of the Company. On the Effective Date, the
Shares set forth opposite such Stockholder's name on the signature pages
hereof constitute all of the Shares owned of record or Beneficially Owned
by such Stockholder or as to which such Stockholder has voting power by
proxy, voting agreement, voting trust or other similar instrument. Such
Stockholder has sole voting power and sole power to issue instructions with
respect to the matters set forth in Section 1 of this Agreement, sole power
of disposition, sole power of conversion, sole power to demand appraisal
rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of the Shares as set forth
opposite such Stockholder's name on the signature pages hereof, with no
limitations, qualifications or restrictions on such rights.
(b) Power; Binding Agreement. Such Stockholder has the legal
capacity, power and authority to enter into and perform all of such
Stockholder's obligations under
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<PAGE>
this Agreement. The execution, delivery and performance of this Agreement
by such Stockholder will not violate any other agreement to which such
Stockholder is a party including, without limitation, any voting agreement,
stockholders agreement, voting trust, trust or similar agreement. This
Agreement has been duly and validly executed and delivered by such
Stockholder and constitutes a valid and binding agreement of such
Stockholder, enforceable against such Stockholder in accordance with its
terms. There is no beneficiary or holder of a voting trust certificate or
other interest of any trust of which such Stockholder is trustee whose
consent is required for the execution and delivery of this Agreement or the
consummation by such Stockholder of the transactions contemplated hereby.
If such Stockholder is married and such Stockholder's Shares constitute
community property, this Agreement has been duly authorized, executed and
delivered by, and constitutes a valid and binding agreement of, such
Stockholder's spouse, enforceable against such person in accordance with
its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
consummation by such Stockholder of the transactions contemplated hereby
and (B) none of the execution and delivery of this Agreement by such
Stockholder, the consummation by such Stockholder of the transactions
contemplated by this Agreement or compliance by such Stockholder with any
of the provisions of this Agreement shall (1) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both)
a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or
other instrument or obligation of any kind to which such Stockholder is a
party or by which such Stockholder or any of such Stockholder's properties
or assets may be bound, or (2) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to such Stockholder
or any of such Stockholder's properties or assets.
(d) Accredited Investor. Each of the Stockholders identified as an
"accredited investor" on the signature pages hereof, represents and
warrants to Mergersub and CenterPoint that such Stockholder (i) is an
"accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) is able to bear the economic risk of an investment in
the CenterPoint Common Stock acquired pursuant to the Merger Agreement and
can afford to sustain a total loss of such investment, (iii) has such
knowledge and experience in financial and business matters that such
Stockholder is capable of evaluating the merits and risks of the proposed
investment in the CenterPoint Common Stock and (iv) has had an adequate
opportunity to ask questions and receive answers from the officers of
CenterPoint concerning all matters relating to the transactions
contemplated herein and in the Merger Agreement including, without
limitation, the background and experience of the current and proposed
officers and directors of CenterPoint, and the plans for the business and
operation of CenterPoint.
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<PAGE>
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Stockholder shall not, directly or indirectly: (i) except as contemplated
by the Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent to
the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment
or other disposition of, any or all of such Stockholder's Shares or any
interest therein; (ii) except as contemplated by this Agreement, grant any
proxies or powers of attorney, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or (iii) take any
action that would make any representation or warranty of such Stockholder
contained herein untrue or incorrect or have the effect of preventing or
disabling such Stockholder from performing such Stockholder's obligations
under this Agreement.
(f) Reliance by CenterPoint. Such Stockholder understands and
acknowledges that CenterPoint is entering into the Merger Agreement in
reliance upon such Stockholder's execution and delivery of this Agreement.
3. Further Assurances. From time to time, at CenterPoint's request and
without further consideration, each Stockholder shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. Each Stockholder agrees with, and covenants to,
CenterPoint that such Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of such Stockholder's Shares, unless such transfer is
made in compliance with this Agreement. Without limiting the covenants in
Section 1, in the event of a stock dividend or distribution, or any change in
Company Stock by reason of any stock dividend, split-up, recapitalization,
combination, exchange of shares or other equity interests or the like, the term
"Shares" shall be deemed to refer to and include the Shares as well as all such
stock dividends and distributions and any shares or other equity interests into
which or for which any or all of the Shares may be changed or exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon the
earlier of (a) termination of the Merger Agreement in accordance with its terms
or (b) the Effective Time.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, the Merger Agreement and the
other agreements contemplated herein or therein constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of
this Agreement.
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<PAGE>
(b) Certain Events. Each Stockholder agrees that this Agreement and
the obligations hereunder shall attach to such Stockholder's Shares and
shall be binding upon any person or entity to which legal or Beneficial
Ownership of such Shares shall pass, whether by operation of law or
otherwise, including, without limitation, such Stockholder's heirs,
guardians, administrators or successors. Notwithstanding any such transfer
of Shares, the transferor shall remain liable for the performance of all
obligations of the transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties
hereto, provided that CenterPoint may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly owned
subsidiary of CenterPoint, but no such assignment shall relieve CenterPoint
of its obligations hereunder if such assignee does not perform such
obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Stockholders, except upon the execution and
delivery of a written agreement executed by the parties hereto; provided,
--------
that any Stockholder of the Company who agrees to be bound by the terms of
----
this Agreement may become a signatory hereto without the agreement of any
other party hereto, and thereafter such added Stockholder shall be treated
as a "Stockholder" for all purposes of this Agreement.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
nationally recognized expedited delivery service providing proof of
delivery or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by notice given in accordance
with this Section):
If to a Stockholder: At the address set forth opposite such
Stockholder's name on the signature pages
hereof
with a copy to:
Musick, Peeler & Garrett
624 S. Grand Avenue
Los Angeles, CA 90017
Attention: Leonard E. Castro, Esq.
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<PAGE>
If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert S. Basten
Scott H. Lang
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision of this Agreement in
such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any of
such rights, powers or remedies by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof,
-6-
<PAGE>
shall not constitute a waiver by such party of its right to exercise any
such or other right, power or remedy or to demand such compliance.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to
the principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the same
agreement.
(n) Recovery of Attorney's Fees. In the event of any litigation
between the parties relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs
(including court costs) from the non-prevailing party, provided that if
both parties prevail in part, the reasonable attorney's fees and costs
shall be awarded by the court in such manner as it deems equitable to
reflect the relative amounts and merits of the parties' claims.
* * *
-7-
<PAGE>
IN WITNESS WHEREOF, CenterPoint and the Stockholders have caused this
Agreement to be duly executed as of the Effective Date.
CENTERPOINT
ADVISORS, INC.
By: /s/ Robert S. Basten
--------------------
Robert S. Basten,
Chief Executive Officer
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF
(Yes/No) BENEFICIALLY
OWNED SHARES
Corbett Family Trust Yes 196,204
/s/ Thomas W. Corbett
- ---------------------
Thomas W. Corbett, Co-Trustee
/s/ Caroline Corbett
- ---------------------
Caroline Corbett, Co-Trustee
61,475
/s/ Jerold D. Hall
- ------------------ Yes
Jerold D. Hall
Weitzen Family Trust Uncertain
60,000
/s/ Lawrence A. Weitzen
- -----------------------
Lawrence A. Weitzen, Co-Trustee
/s/ Mary Lynn Weitzen
- ---------------------
Mary Lynn Weitzen, Co-Trustee
60,000
/s/ Paul Gregory Zimmer, Jr.
- ---------------------------- Yes
Paul Gregory Zimmer, Jr.
55,556
/s/ Michael D. Driver
- --------------------- Yes
Michael D. Driver
-8-
<PAGE>
/s/ Ralph S. Hurst
- ------------------ Yes 49,189
Ralph S. Hurst
/s/ Ronald J. Stewart
- --------------------- Yes 48,672
Ronald J. Stewart
/s/ Gordon B. Des Combes
- ------------------------ Yes 46,522
Gordon B. Des Combes
/s/ Richard B. Gulley
- --------------------- Yes 37,705
Richard B. Gulley
/s/ John T. Warnock
- ------------------- Yes 23,068
John T. Warnock
/s/ Roger G. Combe
- ------------------ Yes 10,826
Roger G. Combe
-9-
<PAGE>
Exhibit 2.14
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated March 31, 1999 (the
"Effective Date"), is by and among CenterPoint Advisors, Inc., a Delaware
corporation ("CenterPoint"), and the individuals listed on the signature pages
hereof (each, a "Stockholder" and collectively, the "Stockholders").
PREAMBLE
A. Concurrently herewith, CenterPoint, Follmer Rudzewicz & Co., P.C., a
Michigan professional corporation (the "Company") and FRC Mergersub Inc., a
Michigan corporation and a direct wholly-owned subsidiary of CenterPoint
("Mergersub"), are entering into a Merger Agreement (as amended from time to
time, the "Merger Agreement"; capitalized terms used but not otherwise defined
herein have the meanings assigned in the Merger Agreement) pursuant to which
Mergersub will be merged with and into the Company, with the Company continuing
as the surviving corporation and as a direct wholly-owned subsidiary of
CenterPoint (the "Merger").
B. Each Stockholder owns shares, par value $0.01 per share, of Class A
common stock of the Company (the "Shares" or "Company Common Stock") in the
amounts set forth opposite such Stockholder's name and signature on the
signature pages hereof.
C. As an inducement and a condition to entering into the Merger Agreement,
CenterPoint has required that the Stockholders agree, and the Stockholders have
agreed, to enter into this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CenterPoint and the Stockholders agree as follows:
1. Provisions Concerning Company Common Stock. Each Stockholder hereby
agrees that during the period commencing on the Effective Date and continuing
until the first to occur of (a) the Effective Time or (b) the termination of the
Merger Agreement in accordance with its terms, at any meeting of the holders of
Company Common Stock, however called, or in connection with any written consent
of the holders of Company Common Stock, such Stockholder shall vote (or cause to
be voted) the Shares held of record or Beneficially Owned (as defined below) by
such Stockholder, whether heretofore owned or hereafter acquired: (i) in favor
of approval of the Merger, the Merger Agreement, the transactions contemplated
by the Merger Agreement and any actions required in furtherance hereof and
thereof; (ii) against any action or agreement that would result in a breach in
any respect of any covenant, representation or warranty or any other obligation
or agreement of the Company or any Stockholder under the Merger Agreement; and
(iii) except as otherwise agreed to in writing in advance by CenterPoint,
against the following actions (other than the Merger Agreement and the
agreements and transactions
<PAGE>
contemplated by the Merger Agreement): (A) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or any Company Subsidiary; (B) a sale, lease or transfer
of a material amount of assets of the Company or any Company Subsidiary, or a
reorganization, recapitalization, dissolution or liquidation of the Company or
any Company Subsidiary; (C) (1) any change in a majority of the individuals who
constitute the board of directors of the Company or any Company Subsidiary; (2)
any change in the present capitalization of the Company or any Company
Subsidiary or any amendment of Organizational Documents of the Company or any
Company Subsidiary; (3) any other material change in the Company's or any
Company Subsidiary's corporate structure or business; or (4) any other action
which is intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, or materially and adversely affect the Merger and the
transactions contemplated by this Agreement and the Merger Agreement. Such
Stockholder shall not enter into any agreement or understanding with any Person
the effect of which would be inconsistent or violative of the provisions and
agreements contained in Section 1 or 2 of this Agreement. For purposes of this
Agreement, "Beneficially Own", "Beneficially Owned" or "Beneficial Ownership"
(or any other derivative of such terms) with respect to any securities shall
mean having "beneficial ownership" of such securities as determined pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including, without limitation, pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all other Persons with whom such
Person would constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act.
2. Other Covenants, Representations and Warranties. Each Stockholder
hereby represents and warrants to CenterPoint as follows:
(a) Ownership of Shares. Such Stockholder is the record and
Beneficial Owner of the number of Shares as set forth opposite such
Stockholder's name and signature on the signature pages hereof. Such
Shares, together with the number of Shares set forth opposite each other
Stockholder's name and signature on the signature pages hereof, represent
the requisite number of shares required to approve the Merger, the Merger
Agreement, the transactions contemplated by the Merger Agreement and any
actions required in furtherance hereof and thereof. On the Effective Date,
the Shares set forth opposite such Stockholder's name and signature on the
signature pages hereof constitute all of the Shares owned of record or
Beneficially Owned by such Stockholder or as to which such Stockholder has
voting power by proxy, voting agreement, voting trust or other similar
instrument. Such Stockholder has sole voting power and sole power to issue
instructions with respect to the matters set forth in Section 1 of this
Agreement, sole power of disposition, sole power of conversion, sole power
to demand appraisal rights and sole power to agree to all of the matters
set forth in this Agreement, in each case with respect to all of the Shares
as set forth opposite such Stockholder's name and signature on the
signature pages hereof, with no limitations, qualifications or restrictions
on such rights.
(b) Power; Binding Agreement. Such Stockholder has the legal
capacity, power and authority to enter into and perform all of such
Stockholder's obligations under
-2-
<PAGE>
this Agreement. The execution, delivery and performance of this Agreement
by such Stockholder will not violate any other agreement to which such
Stockholder is a party including, without limitation, any voting agreement,
stockholders agreement, voting trust, trust or similar agreement. This
Agreement has been duly and validly executed and delivered by such
Stockholder and constitutes a valid and binding agreement of such
Stockholder, enforceable against such Stockholder in accordance with its
terms. There is no beneficiary or holder of a voting trust certificate or
other interest of any trust of which such Stockholder is trustee whose
consent is required for the execution and delivery of this Agreement or the
consummation by such Stockholder of the transactions contemplated hereby.
If such Stockholder is married and such Stockholder's Shares constitute
community property, this Agreement has been duly authorized, executed and
delivered by, and constitutes a valid and binding agreement of, such
Stockholder's spouse, enforceable against such person in accordance with
its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
consummation by such Stockholder of the transactions contemplated hereby
and (B) none of the execution and delivery of this Agreement by such
Stockholder, the consummation by such Stockholder of the transactions
contemplated by this Agreement or compliance by such Stockholder with any
of the provisions of this Agreement shall (1) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both)
a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or
other instrument or obligation of any kind to which such Stockholder is a
party or by which such Stockholder or any of such Stockholder's properties
or assets may be bound, or (2) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to such Stockholder
or any of such Stockholder's properties or assets (other than to the extent
any of the foregoing relates to regulating, licensing or permitting the
practice of public accountancy).
(d) Accredited Investor. Each of the Stockholders identified as an
"accredited investor" on the signature pages hereof, represents and
warrants to Mergersub and CenterPoint that such Stockholder (i) is an
"accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) is able to bear the economic risk of an investment in
the CenterPoint Common Stock acquired pursuant to the Merger Agreement and
can afford to sustain a total loss of such investment, (iii) has such
knowledge and experience in financial and business matters that such
Stockholder is capable of evaluating the merits and risks of the proposed
investment in the CenterPoint Common Stock and (iv) has had an adequate
opportunity to ask questions and receive answers from the officers of
-3-
<PAGE>
CenterPoint concerning all matters relating to the transactions
contemplated herein and in the Merger Agreement including, without
limitation, the background and experience of the current and proposed
officers and directors of CenterPoint, and the plans for the business and
operation of CenterPoint.
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Stockholder shall not, directly or indirectly: (i) except as contemplated
by the Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent to
the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment
or other disposition of, any or all of such Stockholder's Shares or any
interest therein; (ii) except as contemplated by this Agreement, grant any
proxies or powers of attorney, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or (iii) take any
action that would make any representation or warranty of such Stockholder
contained herein untrue or incorrect or have the effect of preventing or
disabling such Stockholder from performing such Stockholder's obligations
under this Agreement.
(f) Reliance by CenterPoint. Such Stockholder understands and
acknowledges that CenterPoint is entering into the Merger Agreement in
reliance upon such Stockholder's execution and delivery of this Agreement.
3. Further Assurances. From time to time, at CenterPoint's request and
without further consideration, each Stockholder shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. Each Stockholder agrees with, and covenants to,
CenterPoint that such Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of such Stockholder's Shares, unless such transfer is
made in compliance with this Agreement. Without limiting the covenants in
Section 1, in the event of a stock dividend or distribution, or any change in
Company Stock by reason of any stock dividend, split-up, recapitalization,
combination, exchange of shares or other equity interests or the like, the term
"Shares" shall be deemed to refer to and include the Shares as well as all such
stock dividends and distributions and any shares or other equity interests into
which or for which any or all of the Shares may be changed or exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon the
earlier of (a) the termination of the Merger Agreement in accordance with its
terms or (b) the Effective Time.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, the Merger Agreement and the
other agreements contemplated herein or therein constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of
this Agreement.
-4-
<PAGE>
(b) Certain Events. Each Stockholder agrees that this Agreement and
the obligations hereunder shall attach to such Stockholder's Shares and
shall be binding upon any person or entity to which legal or Beneficial
Ownership of such Shares shall pass, whether by operation of law or
otherwise, including, without limitation, such Stockholder's heirs,
guardians, administrators or successors. Notwithstanding any such transfer
of Shares, the transferor shall remain liable for the performance of all
obligations of the transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties
hereto, provided that CenterPoint may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly-owned
subsidiary of CenterPoint, but no such assignment shall relieve CenterPoint
of its obligations hereunder if such assignee does not perform such
obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Stockholders, except upon the execution and
delivery of a written agreement executed by the parties hereto; provided,
--------
that, any stockholder of the Company who agrees to be bound by the terms of
----
this Agreement may become a signatory hereto without the agreement of any
other party hereto, and thereafter such added Stockholder shall be treated
as a "Stockholder" for all purposes of this Agreement.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
nationally recognized expedited delivery service providing proof of
delivery or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by notice given in accordance
with this Section):
If to a Stockholder: At the address set forth
opposite such Stockholder's
name on the signature pages hereof
with a copy to:
Young & Associates
26200 American Drive
Suite 305
Southfield, Michigan 48034
Attn: Rodger Young, Esq.
-5-
<PAGE>
If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert S. Basten
Scott H. Lang
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision of this Agreement in
such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any of
such rights, powers or remedies by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof,
-6-
<PAGE>
shall not constitute a waiver by such party of its right to exercise any
such or other right, power or remedy or to demand such compliance.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Michigan, without giving effect to
the principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the same
agreement.
(n) Recovery of Attorney's Fees. In the event of any litigation
between the parties relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs
(including court costs) from the non-prevailing party, provided that if
both parties prevail in part, the reasonable attorney's fees and costs
shall be awarded by the court in such manner as it deems equitable to
reflect the relative amounts and merits of the parties' claims.
* * *
-7-
<PAGE>
IN WITNESS WHEREOF, CenterPoint and the Stockholders have caused this
--------------------------------
Agreement to be duly executed as of the Effective Date.
CENTERPOINT ADVISORS, INC.
By: /s/ Robert S. Basten
-----------------------
Robert S. Basten,
Chief Executive Officer
<TABLE>
<CAPTION>
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF BENEFICIALLY
(Yes/No) OWNED CLASS A SHARES
<S> <C> <C> <C>
/s/ Gordon R. Follmer
- -------------------------
Gordon R. Follmer Yes
/s/ John J. Rudzewicz
- -------------------------
John J. Rudzewicz Yes
</TABLE>
-8-
<PAGE>
Exhibit 2.15
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated March 31, 1999 (the
"Effective Date"), is by and among CenterPoint Advisors, Inc., a Delaware
corporation ("CenterPoint"), and the individuals listed on the signature pages
hereof (each, a "Stockholder" and collectively, the "Stockholders").
PREAMBLE
A. Concurrently herewith, CenterPoint, Mann Frankfort Stein & Lipp, P.C.,
a Texas professional corporation (together with its permitted successors and
assigns, the "Company") and MFSL Mergersub Inc., a Delaware corporation and a
direct wholly-owned subsidiary of CenterPoint ("Mergersub"), are entering into a
Merger Agreement (as amended from time to time, the "Merger Agreement";
capitalized terms used but not otherwise defined herein have the meanings
assigned in the Merger Agreement) pursuant to which Mergersub will be merged
with and into the Company, with the Company continuing as the surviving
corporation and as a direct wholly-owned subsidiary of CenterPoint (the
"Merger").
B. Each Stockholder owns shares, par value $0.01 per share, of common
stock of the Company (the "Shares" or "Company Common Stock") in the amounts set
forth opposite such Stockholder's name and signature on the signature pages
hereof.
C. As an inducement and a condition to entering into the Merger Agreement,
CenterPoint has required that the Stockholders agree, and the Stockholders have
agreed, to enter into this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CenterPoint and the Stockholders agree as follows:
1. Provisions Concerning Company Common Stock. Each Stockholder hereby
agrees that during the period commencing on the Effective Date and continuing
until the first to occur of (a) the Effective Time or (b) the termination of the
Merger Agreement in accordance with its terms, at any meeting of the holders of
Company Common Stock, however called, or in connection with any written consent
of the holders of Company Common Stock, such Stockholder shall vote (or cause to
be voted) the Shares held of record or Beneficially Owned (as defined below) by
such Stockholder, whether heretofore owned or hereafter acquired: (i) in favor
of approval of the Merger, the Merger Agreement, the transactions contemplated
by the Merger Agreement and any actions required in furtherance hereof and
thereof; (ii) against any action or agreement that would result in a breach in
any respect of any covenant, representation or warranty or any other obligation
or agreement of the Company or any Stockholder under the Merger Agreement; and
(iii) except as otherwise agreed to in writing in advance by CenterPoint,
against the following actions (other than the Merger Agreement and the
agreements and transactions
<PAGE>
contemplated by the Merger Agreement): (A) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or any Company Subsidiary; (B) a sale, lease or transfer
of a material amount of assets of the Company or any Company Subsidiary, or a
reorganization, recapitalization, dissolution or liquidation of the Company or
any Company Subsidiary; (C) (1) any change in a majority of the individuals who
constitute the board of directors of the Company or any Company Subsidiary; (2)
any change in the present capitalization of the Company or any Company
Subsidiary or any amendment of Organizational Documents of the Company or any
Company Subsidiary; (3) any other material change in the Company's or any
Company Subsidiary's corporate structure or business; or (4) any other action
which is intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, or materially and adversely affect the Merger and the
transactions contemplated by this Agreement and the Merger Agreement. Such
Stockholder shall not enter into any agreement or understanding with any Person
the effect of which would be inconsistent or violative of the provisions and
agreements contained in Section 1 or 2 of this Agreement. For purposes of this
Agreement, "Beneficially Own", "Beneficially Owned" or "Beneficial Ownership"
(or any other derivative of such terms) with respect to any securities shall
mean having "beneficial ownership" of such securities as determined pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including, without limitation, pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all other Persons with whom such
Person would constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act.
2. Other Covenants, Representations and Warranties. Each Stockholder
hereby represents and warrants to CenterPoint as follows:
(a) Ownership of Shares. Such Stockholder is the record and
Beneficial Owner of the number of Shares as set forth opposite such
Stockholder's name and signature on the signature pages hereof. Such
Shares, together with the number of Shares set forth opposite each other
Stockholder's name and signature on the signature pages hereof, represent
the requisite number of shares required to approve the Merger, the Merger
Agreement, the transactions contemplated by the Merger Agreement and any
actions required in furtherance hereof and thereof. On the Effective Date,
the Shares set forth opposite such Stockholder's name and signature on the
signature pages hereof constitute all of the Shares owned of record or
Beneficially Owned by such Stockholder or as to which such Stockholder has
voting power by proxy, voting agreement, voting trust or other similar
instrument. Such Stockholder has sole voting power and sole power to issue
instructions with respect to the matters set forth in Section 1 of this
Agreement, sole power of disposition, sole power of conversion, sole power
to demand appraisal rights and sole power to agree to all of the matters
set forth in this Agreement, in each case with respect to all of the Shares
as set forth opposite such Stockholder's name and signature on the
signature pages hereof, with no limitations, qualifications or restrictions
on such rights.
(b) Power; Binding Agreement. Such Stockholder has the legal
capacity, power and authority to enter into and perform all of such
Stockholder's obligations under
-2-
<PAGE>
this Agreement. The execution, delivery and performance of this Agreement
by such Stockholder will not violate any other agreement to which such
Stockholder is a party including, without limitation, any voting agreement,
stockholders agreement, voting trust, trust or similar agreement. This
Agreement has been duly and validly executed and delivered by such
Stockholder and constitutes a valid and binding agreement of such
Stockholder, enforceable against such Stockholder in accordance with its
terms. There is no beneficiary or holder of a voting trust certificate or
other interest of any trust of which such Stockholder is trustee whose
consent is required for the execution and delivery of this Agreement or the
consummation by such Stockholder of the transactions contemplated hereby.
If such Stockholder is married and such Stockholder's Shares constitute
community property, this Agreement has been duly authorized, executed and
delivered by, and constitutes a valid and binding agreement of, such
Stockholder's spouse, enforceable against such person in accordance with
its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
consummation by such Stockholder of the transactions contemplated hereby
and (B) none of the execution and delivery of this Agreement by such
Stockholder, the consummation by such Stockholder of the transactions
contemplated by this Agreement or compliance by such Stockholder with any
of the provisions of this Agreement shall (1) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both)
a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or
other instrument or obligation of any kind to which such Stockholder is a
party or by which such Stockholder or any of such Stockholder's properties
or assets may be bound, or (2) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to such Stockholder
or any of such Stockholder's properties or assets (other than to the extent
any of the foregoing relates to regulating, licensing or permitting the
practice of public accountancy).
(d) Accredited Investor. Each of the Stockholders identified as an
"accredited investor" on the signature pages hereof, represents and
warrants to Mergersub and CenterPoint that such Stockholder (i) is an
"accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) is able to bear the economic risk of an investment in
the CenterPoint Common Stock acquired pursuant to the Merger Agreement and
can afford to sustain a total loss of such investment, (iii) has such
knowledge and experience in financial and business matters that such
Stockholder is capable of evaluating the merits and risks of the proposed
investment in the CenterPoint Common Stock and (iv) has had an adequate
opportunity to ask questions and receive answers from the officers of
CenterPoint concerning all matters relating to the transactions
contemplated herein and in the Merger Agreement including, without
limitation, the background and experience of the current and proposed
officers and directors of CenterPoint, and the plans for the business and
operation of CenterPoint.
-3-
<PAGE>
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Stockholder shall not, directly or indirectly: (i) except as contemplated
by the Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent to
the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment
or other disposition of, any or all of such Stockholder's Shares or any
interest therein; (ii) except as contemplated by this Agreement, grant any
proxies or powers of attorney, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or (iii) take any
action that would make any representation or warranty of such Stockholder
contained herein untrue or incorrect or have the effect of preventing or
disabling such Stockholder from performing such Stockholder's obligations
under this Agreement.
(f) Reliance by CenterPoint. Such Stockholder understands and
acknowledges that CenterPoint is entering into the Merger Agreement in
reliance upon such Stockholder's execution and delivery of this Agreement.
3. Further Assurances. From time to time, at CenterPoint's request and
without further consideration, each Stockholder shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. Each Stockholder agrees with, and covenants to,
CenterPoint that such Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of such Stockholder's Shares, unless such transfer is
made in compliance with this Agreement. Without limiting the covenants in
Section 1, in the event of a stock dividend or distribution, or any change in
Company Stock by reason of any stock dividend, split-up, recapitalization,
combination, exchange of shares or other equity interests or the like, the term
"Shares" shall be deemed to refer to and include the Shares as well as all such
stock dividends and distributions and any shares or other equity interests into
which or for which any or all of the Shares may be changed or exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon the
earlier of (a) the termination of the Merger Agreement in accordance with its
terms or (b) the Effective Time.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, the Merger Agreement and the
other agreements contemplated herein or therein constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of
this Agreement.
-4-
<PAGE>
(b) Certain Events. Each Stockholder agrees that this Agreement and
the obligations hereunder shall attach to such Stockholder's Shares and
shall be binding upon any person or entity to which legal or Beneficial
Ownership of such Shares shall pass, whether by operation of law or
otherwise, including, without limitation, such Stockholder's heirs,
guardians, administrators or successors. Notwithstanding any such transfer
of Shares, the transferor shall remain liable for the performance of all
obligations of the transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties
hereto, provided that CenterPoint may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly-owned
subsidiary of CenterPoint, but no such assignment shall relieve CenterPoint
of its obligations hereunder if such assignee does not perform such
obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Stockholders, except upon the execution and
delivery of a written agreement executed by the parties hereto; provided,
--------
that, any stockholder of the Company who agrees to be bound by the terms of
----
this Agreement may become a signatory hereto without the agreement of any
other party hereto, and thereafter such added Stockholder shall be treated
as a "Stockholder" for all purposes of this Agreement.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
nationally recognized expedited delivery service providing proof of
delivery or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by notice given in accordance
with this Section):
If to a Stockholder: At the address set forth
opposite such Stockholder's
name on the signature pages hereof
with a copy to:
Hirsch & Westheimer, P.C.
700 Louisiana
25/th/ Floor
Houston, Texas 77002-2728
Attn: Michael Wilk, Esq.
-5-
<PAGE>
If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert S. Basten
Scott H. Lang
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision of this Agreement in
such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any of
such rights, powers or remedies by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof,
-6-
<PAGE>
shall not constitute a waiver by such party of its right to exercise any
such or other right, power or remedy or to demand such compliance.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Texas, without giving effect to
the principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the same
agreement.
(n) Recovery of Attorney's Fees. In the event of any litigation
between the parties relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs
(including court costs) from the non-prevailing party, provided that if
both parties prevail in part, the reasonable attorney's fees and costs
shall be awarded by the court in such manner as it deems equitable to
reflect the relative amounts and merits of the parties' claims.
* * *
-7-
<PAGE>
IN WITNESS WHEREOF, CenterPoint and the Stockholders have caused this
Agreement to be duly executed as of the Effective Date.
CENTERPOINT
ADVISORS, INC.
By: /s/Robert C. Basten
--------------------
Robert C. Basten,
Chief Executive Officer
<PAGE>
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF
(and Spouse, if any) (Yes/No) BENEFICIALLY
OWNED SHARES
/s/Milton Frankfort Yes 12 Greenway Plaza 321.8190
- ----------------------- 8/th/ Floor
Milton Frankfort Houston, Texas 77046
Spouse:
____________________
Name:______________
<PAGE>
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF
(and Spouse, if any) (Yes/No) BENEFICIALLY
OWNED SHARES
/s/Mike Richter Yes 12 Greenway Plaza 313.7965
- ----------------------- 8/th/ Floor
Mike Richter Houston, Texas 77046
Spouse:
____________________
Name:_______________
<PAGE>
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF
(and Spouse, if any) (Yes/No) BENEFICIALLY
OWNED SHARES
/s/Arnold Lipp Yes 12 Greenway Plaza 267.4085
- ----------------------- 8/th/ Floor
Arnold Lipp Houston, Texas 77046
Spouse:
____________________
Name:_______________
<PAGE>
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF
(and Spouse, if any) (Yes/No) BENEFICIALLY
OWNED SHARES
/s/Richard Stein Yes 12 Greenway Plaza 277.4085
- ----------------------- 8/th/ Floor
Richard Stein Houston, Texas 77046
Spouse:
____________________
Name:_______________
<PAGE>
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF
(and Spouse, if any) (Yes/No) BENEFICIALLY
OWNED SHARES
/s/Saul Solomon Yes 12 Greenway Plaza 70.9898
- ----------------------- 8/th/ Floor
Saul Solomon Houston, Texas 77046
Spouse:
____________________
Name:_______________
<PAGE>
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF
(and Spouse, if any) (Yes/No) BENEFICIALLY
OWNED SHARES
/s/Laura Rice Yes 12 Greenway Plaza 42.1000
- ----------------------- 8/th/ Floor
Laura Rice Houston, Texas 77046
Spouse:
____________________
Name:_______________
<PAGE>
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF
(and Spouse, if any) (Yes/No) BENEFICIALLY
OWNED SHARES
/s/Suhrid Thakore Yes 12 Greenway Plaza 35.7447
- ----------------------- 8/th/ Floor
Suhrid Thakore Houston, Texas 77046
Spouse:
____________________
Name:_______________
<PAGE>
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF
(and Spouse, if any) (Yes/No) BENEFICIALLY
OWNED SHARES
/s/Paul Mueller Yes 12 Greenway Plaza 61.7414
- ----------------------- 8/th/ Floor
Paul Mueller Houston, Texas 77046
Spouse:
____________________
Name:_______________
<PAGE>
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF
(and Spouse, if any) (Yes/No) BENEFICIALLY
OWNED SHARES
/s/Bruce Layer Yes 12 Greenway Plaza 35.7447
- ----------------------- 8/th/ Floor
Bruce Layer Houston, Texas 77046
Spouse:
____________________
Name:_______________
<PAGE>
Exhibit 2.16
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated as of March 31, 1999 (the
"Effective Date"), is by and among CenterPoint Advisors, Inc., a Delaware
corporation ("CenterPoint"), and the individuals listed on the signature pages
hereof (each, a "Member" and collectively, the "Members").
PREAMBLE
A. Concurrently herewith, CenterPoint, Berry, Dunn, McNeil & Parker,
Chartered (the "Company"), Berry Dunn Mergersub Inc., a Delaware corporation and
a direct wholly-owned subsidiary of CenterPoint ("Mergersub"), BDM&P Holdings,
L.L.C., a Maine limited liability company ("Seller"), and certain members of
Seller are entering into a Merger Agreement (as amended from time to time, the
"Merger Agreement"; capitalized terms used but not otherwise defined herein have
the meanings assigned in the Merger Agreement) pursuant to which Mergersub will
be merged with and into the Company, with the Company continuing as the
surviving corporation and as a direct wholly-owned subsidiary of CenterPoint
(the "Merger").
B. Each Member owns the number of shares of the Company's common stock, no
par value per share ("Company Common Stock"), set forth opposite such Member's
name and signature on the signature pages hereof (the "Shares").
C. Each Member owns the equity interest and percentage of Seller's total
outstanding equity interests set forth opposite such Member's name and signature
on the signature pages hereof (each, an "Interest").
D. Pursuant to the terms of the Merger Agreement, each of the Members will
contribute the Shares held by such Member to Seller.
E. As an inducement and a condition to entering into the Merger Agreement,
CenterPoint has required that the Members agree, and the Members have agreed, to
enter into this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CenterPoint and the Members agree as follows:
1. Provisions Concerning the Shares and the Interests. Each Member
hereby agrees that during the period commencing on the Effective Date and
continuing until the first to occur of (a) the Effective Time or (b) the
termination of the Merger Agreement in accordance with its terms, at any meeting
of the holders of Company Common Stock or the members of Seller, however called,
or in connection with any written consent of the holders of Company Common Stock
or the members of Seller, such Member shall vote (or cause to be voted) the
Shares or Interest, as applicable, held of record or Beneficially Owned (as
defined below) by such Member,
<PAGE>
whether heretofore owned or hereafter acquired, including without limitation by
voting such Interest in favor of Seller voting its shares of capital stock of
the Company, as follows: (i) in favor of approval of the Merger, the Merger
Agreement, the transactions contemplated by the Merger Agreement and any actions
required in furtherance hereof and thereof; (ii) against any action or agreement
that would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of the Company, Seller or any
Member under the Merger Agreement. Such Member shall not enter into any
agreement or understanding with any Person the effect of which would be
inconsistent or violative of the provisions and agreements contained in Section
1 or 2 of this Agreement. For purposes of this Agreement, "Beneficially Own",
"Beneficially Owned" or "Beneficial Ownership" (or any other derivative of such
terms) with respect to any securities shall mean having "beneficial ownership"
of such securities as determined pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including, without
limitation, pursuant to any agreement, arrangement or understanding, whether or
not in writing. Without duplicative counting of the same securities by the same
holder, securities Beneficially Owned by a Person shall include securities
Beneficially Owned by all other Persons with whom such Person would constitute a
"group" within the meaning of Section 13(d)(3) of the Exchange Act. Without
limiting the covenants in this Section 1, in the event of a stock dividend or
distribution, or any change in the Company's outstanding capital stock or the
outstanding interests of Seller for any reason, including without limitation any
split-up, recapitalization, combination, or exchange of equity interests, the
terms "Shares" and "Interest" shall be deemed to refer to and include the Shares
and Interest, as applicable, as well as all such shares of capital stock or
other equity interests into which or for which any or all of the Shares or the
Interest may be changed or exchanged.
2. Other Covenants, Representations and Warranties. Each Member
severally hereby represents and warrants to CenterPoint as follows:
(a) Ownership of Shares and Interests. Such Member is the record and
Beneficial Owner of the number of Shares and the Interest as set forth
opposite such Member's name and signature on the signature pages hereof.
Such Shares and Interest, together with the Shares and Interests set forth
opposite each other Member's name and signature on the signature pages
hereof, represent the requisite number of shares of the Company's capital
stock and percentage of Seller's membership interests required to approve
and/or cause Seller to approve the Merger, the Merger Agreement, the
transactions contemplated by the Merger Agreement and any actions required
in furtherance hereof and thereof, and otherwise to act and cause Seller
and the Company to act as provided in Section 1 above. On the Effective
Date, the number of Shares and the Interest set forth opposite such
Member's name and signature on the signature pages hereof constitute all of
the shares of the Company's capital stock and the entire membership
interest in Seller owned of record or Beneficially Owned by such Member or
as to which such Member has voting power by proxy, voting agreement, voting
trust or other similar instrument. Such Member has sole voting power and
sole power to issue instructions with respect to the matters set forth in
Section 1 of this Agreement, sole power of disposition, sole power of
conversion, sole power to demand dissenters' rights and sole power to agree
-2-
<PAGE>
to all of the matters set forth in this Agreement, in each case with
respect to all of the Shares and the entire Interest as set forth opposite
such Member's name and signature on the signature pages hereof.
(b) Power; Binding Agreement. Such Member has the legal capacity,
power and authority to enter into and perform all of such Member's
obligations under this Agreement. The execution, delivery and performance
of this Agreement by such Member will not violate any other agreement to
which such Member is a party including, without limitation, any voting
agreement, stockholders agreement, operating agreements, voting trust,
trust or similar agreement. This Agreement has been duly and validly
executed and delivered by such Member and constitutes a valid and binding
agreement of such Member, enforceable against such Member in accordance
with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and
(ii) general equitable principles. There is no beneficiary or holder of a
voting trust certificate or other interest of any trust of which such
Member is trustee whose consent is required for the execution and delivery
of this Agreement or the consummation by such Member of the transactions
contemplated hereby. If such Member is married and such Member's Shares
and Interest constitutes community property, this Agreement has been duly
authorized, executed and delivered by, and constitutes a valid and binding
agreement of, such Member's spouse, enforceable against such person in
accordance with its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Member and the
consummation by such Member of the transactions contemplated hereby and (B)
none of the execution and delivery of this Agreement by such Member, the
consummation by such Member of the transactions contemplated by this
Agreement or compliance by such Member with any of the provisions of this
Agreement shall (1) result in a violation or breach of, or constitute (with
or without notice or lapse of time or both) a default (or give rise to any
third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which such Member is a party or by which such Member or any of such
Member's properties or assets may be bound, or (2) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable
to such Member or any of such Member's Shares or Interests (other than to
the extent any of the foregoing relates to regulating, licensing or
permitting the practice of public accountancy).
(d) Accredited Investor. Each of the Members identified as an
"accredited investor" on the signature pages hereof, represents and
warrants to Mergersub and CenterPoint that such Member (i) is an "1
accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) is able to bear the economic risk of an investment in
the CenterPoint Common Stock acquired pursuant to the Merger Agreement and
can afford to sustain a total loss of such investment, (iii) has such
knowledge and
-3-
<PAGE>
experience in financial and business matters that such Member is capable of
evaluating the merits and risks of the proposed investment in the
CenterPoint Common Stock and (iv) has had an adequate opportunity to ask
questions and receive answers from the officers of CenterPoint concerning
all matters relating to the transactions contemplated herein and in the
Merger Agreement including, without limitation, the background and
experience of the current and proposed officers and directors of
CenterPoint, and the plans for the business and operation of CenterPoint.
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Member shall not, directly or indirectly: (i) except as contemplated by the
Merger Agreement, offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to or consent to the offer for
sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of such Member's Shares or Interest or any
interest therein; (ii) except as contemplated by this Agreement, grant any
proxies or powers of attorney, deposit any of such Shares or part of such
Interest into a voting trust or enter into a voting agreement with respect
to any of such Shares or part of such Interest; or (iii) take any action
that would make any representation or warranty of such Member contained
herein untrue or incorrect or have the effect of preventing or disabling
such Member from performing such Member's obligations under this Agreement.
(f) Reliance by CenterPoint. Such Member understands and acknowledges
that CenterPoint is entering into the Merger Agreement in reliance upon
such Member's execution and delivery of this Agreement.
3. Further Assurances. From time to time, at CenterPoint's request and
without further consideration, each Member shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. [Reserved]
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares and the Interest shall
terminate upon the earlier of (a) termination of the Merger Agreement in
accordance with its terms or (b) the Effective Time.
6. Miscellaneous.
(a) Entire Agreement. This Agreement and the Merger Agreement
(including the documents and instruments referred to therein) constitute
the entire agreement between the parties with respect to the subject matter
hereof and thereof and supersede all other prior agreements and
understandings, both written and oral, between the parties with respect to
the subject matter of this Agreement.
-4-
<PAGE>
(b) Certain Events. Each Member agrees that this Agreement and the
obligations hereunder shall attach to such Member's Shares and Interest and
shall be binding upon any person or entity to which legal or Beneficial
Ownership of any such Shares or Interest shall pass, whether by operation
of law or otherwise, including, without limitation, such Member's heirs,
guardians, administrators or successors. Notwithstanding any such transfer
of Shares or Interest, the transferor shall remain liable for the
performance of all obligations of the transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties
hereto.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Members, except upon the execution and delivery
of a written agreement executed by the parties hereto; provided, that any
-------- ----
stockholder of the Company or member of Seller who agrees to be bound by
the terms of this Agreement may become a signatory hereto without the
agreement of any other party hereto, and thereafter such added stockholder
or member shall be treated as a "Member" for all purposes of this
Agreement.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
nationally recognized expedited delivery service providing proof of
delivery or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by notice given in accordance
with this Section):
If to a Member: At the address set forth
opposite such Member's
name on the signature pages hereof
with a copy to:
Jensen Baird Gardner& Henry
10 Free Street
P.O. Box 4510
Portland, Maine 04112
Attn: Frank Frye
If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert S. Basten
Scott H. Lang
-5-
<PAGE>
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision of this Agreement in
such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any of
such rights, powers or remedies by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or
other right, power or remedy or to demand such compliance.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Maine, without giving effect to
the principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT.
-6-
<PAGE>
(l) [Reserved].
(m) Counterparts. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the same
agreement.
(n) Recovery of Attorney's Fees. In the event of any litigation
between the parties relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs
(including court costs) from the non-prevailing party, provided that if
both parties prevail in part, the reasonable attorney's fees and costs
shall be awarded by the court in such manner as it deems equitable to
reflect the relative amounts and merits of the parties' claims.
* * *
-7-
<PAGE>
IN WITNESS WHEREOF, CenterPoint and the Members have caused this
Agreement to be duly executed as of the Effective Date.
CENTERPOINT ADVISORS, INC.
By: /S/ Robert S. Basten
--------------------
Robert S. Basten,
Chief Executive Officer
<TABLE>
<CAPTION>
PERCENTAGE
EQUITY AND NUMBER OF
VOTING INTEREST BENEFICIALLY
MEMBERS: "ACCREDITED" ADDRESS BENEFICIALLY OWNED
(Yes/No) OWNED SHARES
<S> <C> <C> <C> <C>
/S/ Edward G. Asherman,
- --------------------------
Edward G. Asherman, Jr. YES
/S/ J. Maurice L. Bisson
- --------------------------
J. Maurice L. Bisson YES
/S/ John M. Chandler
- --------------------------
John M. Chandler YES
/S/ Richard A. Charpentier
- --------------------------
Richard A. Charpentier YES
/S/ Lee J. Chick
- --------------------------
Lee J. Chick YES
/S/ Raymond L. Cunliffe
- --------------------------
Raymond L. Cunliffe YES
/S/ Richard R. Gosselin
- --------------------------
Richard R. Gosselin YES
/S/ Rodney F. Irish
- --------------------------
Rodney F. Irish YES
/S/ John H. Jackson, Jr.
- --------------------------
John H. Jackson, Jr. YES
/S/ Francis P. Johnson
- --------------------------
Francis P. Johnson YES
/S/ Elliot D. Lerner
- --------------------------
Elliot D. Lerner YES
/S/ James R. Maynard
- --------------------------
James R. Maynard YES
/S/ Michael T. McNeil
- --------------------------
Michael T. McNeil YES
</TABLE>
<PAGE>
<TABLE>
<S> <C>
/S/ Harry E. Meyer
- ---------------------------
Harry E. Meyer YES
/S/ Lawrence E. Parker, Jr.
- ---------------------------
Lawrence E. Parker, Jr. YES
/S/ Charles H. Roscoe
- ---------------------------
Charles H. Roscoe YES
/S/ Drew E. Swenson
- ---------------------------
Drew E. Swenson YES
/S/ Christopher T. Tyson
- ---------------------------
Christopher T. Tyson YES
/S/ Erick L. Worden
- ---------------------------
Erick L. Worden YES
/S/ John T. Gurley
- ---------------------------
John T. Gurley YES
/S/ Jancie D. Latulippe
- ---------------------------
Janice D. Latulippe NO
</TABLE>
<PAGE>
Exhibit 2.17
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated March 31, 1999 (the
"Effective Date"), is by and among CenterPoint Advisors, Inc., a Delaware
corporation ("CenterPoint"), and the individuals and entities listed on the
signature pages hereof (each, a "Stockholder" and collectively, the
"Stockholders").
PREAMBLE
A. Concurrently herewith, CenterPoint, Urbach, Kahn & Werlin, P.C., a New
York professional corporation (together with its permitted successors and
assigns, the "Company"), Urbach, Kahn & Werlin, P.C., a Massachusetts
professional corporation, UKW Management LLC, a Delaware limited liability
company ("Management"), and UKW Mergersub Inc., a Delaware corporation and a
direct wholly-owned subsidiary of CenterPoint ("Mergersub"), are entering into a
Merger Agreement (as amended from time to time, the "Merger Agreement";
capitalized terms used but not otherwise defined herein have the meanings
assigned in the Merger Agreement) pursuant to which Mergersub will be merged
with and into the Company, with the Company continuing as the surviving
corporation and as a direct wholly-owned subsidiary of CenterPoint (the
"Merger").
B. Each Stockholder owns shares, par value $0.01 per share, of common
stock of the Company (the "Shares" or "Company Common Stock") in the amounts set
forth opposite such Stockholder's name and signature on the signature pages
hereof.
C. In anticipation of the transactions contemplated by the Merger
Agreement, Management will acquire all of the issued and outstanding Company
Common Stock in exchange (the "Exchange") for issuing the Stockholders
proportionate membership interests in Management (the "Interests").
D. As an inducement and a condition to entering into the Merger Agreement,
CenterPoint has required that the Stockholders agree, and the Stockholders have
agreed, to enter into this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CenterPoint and the Stockholders agree as follows:
1. Provisions Concerning Company Common Stock and the Interests. Each
Stockholder hereby agrees that during the period commencing on the Effective
Date and continuing until the first to occur of (a) the Effective Time or (b)
the termination of the Merger Agreement in accordance with its terms, at any
meeting of the holders of Company Common Stock
<PAGE>
or the Interests, however called, or in connection with any written consent of
the holders of Company Common Stock or the Interests, such Stockholder shall
vote (or cause to be voted) the Shares or Interests held of record or
Beneficially Owned (as defined below) by such Stockholder, whether heretofore
owned or hereafter acquired: (i) in favor of approval of the Merger, the Merger
Agreement, the transactions contemplated by the Merger Agreement and any actions
required in furtherance hereof and thereof; (ii) against any action or agreement
that would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of Management, the Company, any
Company Subsidiary or any Stockholder under the Merger Agreement; and (iii)
except as otherwise agreed to in writing in advance by CenterPoint, against the
following actions (other than the Merger and the agreements and transactions
contemplated by the Merger Agreement): (A) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving Management, the Company or any Company Subsidiary; (B) a sale, lease
or transfer of a material amount of assets of Management, the Company or any
Company Subsidiary, or a reorganization, recapitalization, dissolution or
liquidation of Management, the Company or any Company Subsidiary; (C) (1) any
change in a majority of the individuals who constitute the operating committee
or the board of directors of each of Management, the Company or any Company
Subsidiary; (2) any change in the present capitalization of Management, the
Company or any Company Subsidiary or any amendment of Organizational Documents
of Management, the Company or any Company Subsidiary; (3) any other material
change in Holding's, the Company's or any Company Subsidiary's corporate
structure or business; or (4) any other action which is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, or
materially and adversely affect the Merger and the transactions contemplated by
this Agreement and the Merger Agreement. Such Stockholder shall not enter into
any agreement or understanding with any Person the effect of which would be
inconsistent or violative of the provisions and agreements contained in Section
1 or 2 of this Agreement. For purposes of this Agreement, "Beneficially Own",
"Beneficially Owned" or "Beneficial Ownership" (or any other derivative of such
terms) with respect to any securities shall mean having "beneficial ownership"
of such securities as determined pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including, without
limitation, pursuant to any agreement, arrangement or understanding, whether or
not in writing. Without duplicative counting of the same securities by the same
holder, securities Beneficially Owned by a Person shall include securities
Beneficially Owned by all other Persons with whom such Person would constitute a
"group" within the meaning of Section 13(d)(3) of the Exchange Act.
2. Other Covenants, Representations and Warranties. Each Stockholder
hereby represents and warrants to CenterPoint as follows:
(a) Ownership of Shares and Interests. Such Stockholder is the record
and Beneficial Owner of the number of Shares and Interests as set forth
opposite such Stockholder's name and signature on the signature pages
hereof. Such Shares and Interests, together with the number of Shares and
Interests set forth opposite each other Stockholder's name and signature on
the signature pages hereof, represent the requisite number of shares and
percentage of membership interests required to approve the Merger, the
Merger Agreement, the transactions contemplated by the Merger Agreement and
any
-2-
<PAGE>
actions required in furtherance hereof and thereof. On the Effective
Date, the Shares set forth opposite such Stockholder's name and signature
on the signature pages hereof constitute all of the Shares owned of record
or Beneficially Owned by such Stockholder or as to which such Stockholder
has voting power by proxy, voting agreement, voting trust or other similar
instrument and the Interests set forth opposite such Stockholder's name and
signature on the signature pages hereof constitute all of the Interests to
be Beneficially Owned by such Stockholder upon completion of the Exchange.
Such Stockholder has sole voting power and sole power to issue instructions
with respect to the matters set forth in Section 1 of this Agreement, sole
power of disposition, sole power of conversion, sole power to demand
appraisal rights and sole power to agree to all of the matters set forth in
this Agreement, in each case with respect to all of the Shares and
Interests as set forth opposite such Stockholder's name and signature on
the signature pages hereof, with no limitations, qualifications or
restrictions on such rights.
(b) Power; Binding Agreement. Such Stockholder has the legal
capacity, power and authority to enter into and perform all of such
Stockholder's obligations under this Agreement. The execution, delivery
and performance of this Agreement by such Stockholder will not violate any
other agreement to which such Stockholder is a party including, without
limitation, any voting agreement, stockholders agreement, voting trust,
trust or similar agreement. This Agreement has been duly and validly
executed and delivered by such Stockholder and constitutes a valid and
binding agreement of such Stockholder, enforceable against such Stockholder
in accordance with its terms. There is no beneficiary or holder of a
voting trust certificate or other interest of any trust of which such
Stockholder is trustee whose consent is required for the execution and
delivery of this Agreement or the consummation by such Stockholder of the
transactions contemplated hereby. If such Stockholder is married and such
Stockholder's Shares constitute community property, this Agreement has been
duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Stockholder's spouse, enforceable against such
person in accordance with its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
consummation by such Stockholder of the transactions contemplated hereby
and (B) none of the execution and delivery of this Agreement by such
Stockholder, the consummation by such Stockholder of the transactions
contemplated by this Agreement or compliance by such Stockholder with any
of the provisions of this Agreement shall (1) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both)
a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or
other instrument or obligation of any kind to which such Stockholder is a
party or by which such Stockholder or any of such Stockholder's properties
or assets may be bound, or (2) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to such Stockholder
or any
-3-
<PAGE>
of such Stockholder's properties or assets (other than to the extent
any of the foregoing relates to regulating, licensing or permitting the
practice of public accountancy).
(d) Accredited Investor. Each of the Stockholders identified as an
"accredited investor" on the signature pages hereof, represents and
warrants to Mergersub and CenterPoint that such Stockholder (i) is an
"accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) is able to bear the economic risk of an investment in
the CenterPoint Common Stock acquired pursuant to the Merger Agreement and
can afford to sustain a total loss of such investment, (iii) has such
knowledge and experience in financial and business matters that such
Stockholder is capable of evaluating the merits and risks of the proposed
investment in the CenterPoint Common Stock and (iv) has had an adequate
opportunity to ask questions and receive answers from the officers of
CenterPoint concerning all matters relating to the transactions
contemplated herein and in the Merger Agreement including, without
limitation, the background and experience of the current and proposed
officers and directors of CenterPoint, and the plans for the business and
operation of CenterPoint.
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Stockholder shall not, directly or indirectly: (i) except as contemplated
by the Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent to
the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment
or other disposition of, any or all of such Stockholder's Shares or
Interests or any interest therein; (ii) except as contemplated by this
Agreement, grant any proxies or powers of attorney, deposit any Shares or
Interests into a voting trust or enter into a voting agreement with respect
to any Shares or Interests; or (iii) take any action that would make any
representation or warranty of such Stockholder contained herein untrue or
incorrect or have the effect of preventing or disabling such Stockholder
from performing such Stockholder's obligations under this Agreement.
(f) Reliance by CenterPoint. Such Stockholder understands and
acknowledges that CenterPoint is entering into the Merger Agreement in
reliance upon such Stockholder's execution and delivery of this Agreement.
3. Further Assurances. From time to time, at Cornerstone's request and
without further consideration, each Stockholder shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. Each Stockholder agrees with, and covenants to,
CenterPoint that such Stockholder shall not request that the Company or
Management register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Stockholder's Shares or
Interests, unless such transfer is made in compliance with this Agreement.
Without limiting the covenants in Section 1, in the event of a stock dividend or
distribution, or any
-4-
<PAGE>
change in Company Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or other equity interests or
the like, the terms "Shares" and "Interests" shall be deemed to refer to and
include the Shares and Interests, as applicable, as well as all such stock
dividends and distributions and any shares or other equity interests into which
or for which any or all of the Shares or Interests may be changed or exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares and Interests shall
terminate upon the earlier of (a) the termination of the Merger Agreement in
accordance with its terms or (b) the Effective Time.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, the Merger Agreement and the
other agreements contemplated herein or therein constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of
this Agreement.
(b) Certain Events. Each Stockholder agrees that this Agreement and
the obligations hereunder shall attach to such Stockholder's Shares and
Interests and shall be binding upon any person or entity to which legal or
Beneficial Ownership of any such Shares or Interests shall pass, whether by
operation of law or otherwise, including, without limitation, such
Stockholder's heirs, guardians, administrators or successors.
Notwithstanding any such transfer of Shares or Interests, the transferor
shall remain liable for the performance of all obligations of the
transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties
hereto, provided that CenterPoint may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly-owned
subsidiary of CenterPoint, but no such assignment shall relieve CenterPoint
of its obligations hereunder if such assignee does not perform such
obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Stockholders, except upon the execution and
delivery of a written agreement executed by the parties hereto; provided,
--------
that, any stockholder of the Company or member of Management, who agrees to
----
be bound by the terms of this Agreement may become a signatory hereto
without the agreement of any other party hereto, and thereafter such added
Stockholder shall be treated as a "Stockholder" for all purposes of this
Agreement.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
nationally recognized expedited delivery service providing proof of
delivery or mailed by registered or certified mail
-5-
<PAGE>
(return receipt requested) to the parties at the following addresses (or at
such other address for a party as shall be specified by notice given in
accordance with this Section):
If to a Stockholder: At the address set forth
opposite such Stockholder's
name on the signature pages hereof
with a copy to:
Cooper, Erving, Savage, Nolan & Heller, LLP
39 North Pearl Street
Albany, New York 12207-2775
Attn: Mark Heller, Esq.
If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert C. Basten
Scott H. Lang
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision of this Agreement in
such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees
-6-
<PAGE>
that in the event of any such breach the aggrieved party shall be entitled
to the remedy of specific performance of such covenants and agreements and
injunctive and other equitable relief in addition to any other remedy to
which it may be entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any of
such rights, powers or remedies by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or
other right, power or remedy or to demand such compliance.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the same
agreement.
(n) Recovery of Attorney's Fees. In the event of any litigation
between the parties relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs
(including court costs) from the non-prevailing party, provided that if
both parties prevail in part, the reasonable attorney's fees and costs
shall be awarded by the court in such manner as it deems equitable to
reflect the relative amounts and merits of the parties' claims.
* * *
-7-
<PAGE>
IN WITNESS WHEREOF, CenterPoint and the Stockholders have caused this
-------------------------------
Agreement to be duly executed as of the Effective Date.
CENTERPOINT ADVISORS, INC.
By: /s/Robert S. Basten
--------------------
Robert S. Basten,
Chief Executive Officer
<TABLE>
<CAPTION>
NUMBER OR NUMBER OF
PERCENTAGE BENEFICIALLY
"STOCKHOLDERS" "ACCREDITED" ADDRESS OF INTERESTS OWNED
(Yes/No) TO BE OWNED SHARES
<S> <C> <C> <C> <C>
/s/William Chandler 23 Linton Street 7.51%
- --------------------- YES Selkirk, NY 12158 1,415
William Chandler
/s/Arthur Heisman 17069 Calahan St. 4.97%
- --------------------- YES Northridge, CA 91325 935
Arthur Heisman
/s/John Gijanto 25 North Road 6.9%
- ---------------------- YES Glens Falls, NY 1,300
John Gijanto 12801
/s/John Wolfgang 15 Harris Lane 7.78%
- ---------------------- YES Harrison, NY 10528 1,465
John Wolfgang
/s/Steven Fischer 23 Hills Road 7.97%
- ---------------------- YES Loudonville, NY 1,500
Steven Fischer 12211
/s/William Kahn 127 Chancellor Drive 5.82%
- ---------------------- YES Guilderland, NY 1,095
William Kahn 12084
/s/Richard Kotlow 52 Middlesex Drive 7.51%
- ----------------------- YES Slingerlands, NY 1,415
Richard Kotlow 12159
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER OR NUMBER OF
PERCENTAGE BENEFICIALLY
"STOCKHOLDERS" "ACCREDITED" ADDRESS OF INTERESTS OWNED
(Yes/No) TO BE OWNED SHARES
<S> <C> <C> <C> <C>
/s/Robert Fleming 2 Dutch Meadows Dr. 4.1144%
- ----------------------- NO Ballston Lake, NY 800
Robert Fleming 12019
/s/Marilyn 40 Loudonwood East 6.5007%
Pendergast YES Loudonville, NY 1,300
- ----------------------- 12211
Marilyn Pendergast
/s/Alan Schacter 44 Western Drive 7.1147%
- ----------------------- YES Ardsley, NY 10502 1,400
Alan Schacter
</TABLE>
<PAGE>
Exhibit 2.18
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated March 31, 1999 (the
"Effective Date"), is by and among CenterPoint Advisors, Inc., a Delaware
corporation ("CenterPoint"), and the individuals and entities listed on the
signature pages hereof (each, a "Stockholder" and collectively, the
"Stockholders").
PREAMBLE
A. Concurrently herewith, CenterPoint, Self Funded Benefits, Inc., d/b/a/
Insurance Design Administrators (the "Company") and IDA Mergersub Inc., a
Delaware corporation and a direct wholly-owned subsidiary of CenterPoint
("Mergersub"), are entering into a Merger Agreement (as amended from time to
time, the "Merger Agreement"; capitalized terms used but not otherwise defined
herein have the meanings assigned in the Merger Agreement) pursuant to which
Mergersub will be merged with and into the Company, with the Company continuing
as the surviving corporation and as a direct wholly-owned subsidiary of
CenterPoint (the "Merger").
B. Each Stockholder owns shares, no par value, of Class A and Class B
common stock of the Company (the "Shares" or "Company Common Stock") in the
amounts set forth opposite such Stockholder's name and signature on the
signature pages hereof.
C. As an inducement and a condition to entering into the Merger Agreement,
CenterPoint has required that the Stockholders agree, and the Stockholders have
agreed, to enter into this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CenterPoint and the Stockholders agree as follows:
1. Provisions Concerning Company Common Stock. Each Stockholder hereby
agrees that during the period commencing on the Effective Date and continuing
until the first to occur of (a) the Effective Time or (b) termination of the
Merger Agreement in accordance with its terms, at any meeting of the holders of
Company Common Stock, however called, or in connection with any written consent
of the holders of Company Common Stock, such Stockholder shall vote (or cause to
be voted) the Shares held of record or Beneficially Owned (as defined below) by
such Stockholder, whether heretofore owned or hereafter acquired: (i) in favor
of approval of the Merger, the Merger Agreement, the transactions contemplated
by the Merger Agreement and any actions required in furtherance hereof and
thereof; (ii) against any action or agreement that would result in a breach in
any respect of any covenant, representation or warranty or any other
<PAGE>
obligation or agreement of the Company or any Stockholder under the Merger
Agreement; and (iii) except as otherwise agreed to in writing in advance by
CenterPoint, against the following actions (other than the Merger Agreement and
the agreements and transactions contemplated by the Merger Agreement): (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or any Company Subsidiary; (B) a
sale, lease or transfer of a material amount of assets of the Company or any
Company Subsidiary, except as provided in the Merger Agreement, or a
reorganization, recapitalization, dissolution or liquidation of the Company or
any Company Subsidiary; (C) (1) any change in a majority of the individuals who
constitute the board of directors of the Company or any Company Subsidiary; (2)
any change in the present capitalization of the Company or any Company
Subsidiary or any amendment of Organizational Documents of the Company or any
Company Subsidiary; (3) any other material change in the Company's or any
Company Subsidiary's corporate structure or business; or (4) any other action
which is intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, or materially and adversely affect the Merger and the
transactions contemplated by this Agreement and the Merger Agreement. Such
Stockholder shall not enter into any agreement or understanding with any Person
the effect of which would be inconsistent or violative of the provisions and
agreements contained in Section 1 or 2 of this Agreement. For purposes of this
Agreement, "Beneficially Own", "Beneficially Owned" or "Beneficial Ownership"
(or any other derivative of such terms) with respect to any securities shall
mean having "beneficial ownership" of such securities as determined pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including, without limitation, pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all other Persons with whom such
Person would constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act.
2. Other Covenants, Representations and Warranties. Each Stockholder
hereby represents and warrants to CenterPoint as follows:
(a) Ownership of Shares. Such Stockholder is the record and
Beneficial Owner of the number of Shares as set forth opposite such
Stockholder's name on the signature pages hereof. Such Shares, together
with the number of Shares set forth opposite each other Stockholder's name
on the signature pages hereof, represent the requisite number of shares
required to approve the Merger, the Merger Agreement, the transactions
contemplated by the Merger Agreement and any actions required in
furtherance hereof and thereof. On the Effective Date, the Shares set
forth opposite such Stockholder's name on the signature pages hereof
constitute all of the Shares owned of record or Beneficially Owned by such
Stockholder or as to which such Stockholder has voting power by proxy,
voting agreement, voting trust or other similar instrument. Such
Stockholder has sole voting power and sole power to issue instructions with
respect to the matters set forth in Section 1 of this Agreement, sole power
of disposition, sole power of conversion, sole power to demand appraisal
rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of the Shares as set forth
opposite such
-2-
<PAGE>
Stockholder's name on the signature pages hereof, with no limitations,
qualifications or restrictions on such rights.
(b) Power; Binding Agreement. Such Stockholder has the legal
capacity, power and authority to enter into and perform all of such
Stockholder's obligations under this Agreement. The execution, delivery
and performance of this Agreement by such Stockholder will not violate any
other agreement to which such Stockholder is a party including, without
limitation, any voting agreement, stockholders agreement, voting trust,
trust or similar agreement. This Agreement has been duly and validly
executed and delivered by such Stockholder and constitutes a valid and
binding agreement of such Stockholder, enforceable against such Stockholder
in accordance with its terms. There is no beneficiary or holder of a
voting trust certificate or other interest of any trust of which such
Stockholder is trustee whose consent is required for the execution and
delivery of this Agreement or the consummation by such Stockholder of the
transactions contemplated hereby. If such Stockholder is married and such
Stockholder's Shares constitute community property, this Agreement has been
duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Stockholder's spouse, enforceable against such
person in accordance with its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
consummation by such Stockholder of the transactions contemplated hereby
and (B) except as set forth on the Schedules to the Merger Agreement, none
of the execution and delivery of this Agreement by such Stockholder, the
consummation by such Stockholder of the transactions contemplated by this
Agreement or compliance by such Stockholder with any of the provisions of
this Agreement shall (1) result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or give rise
to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which such Stockholder is a party or by which
such Stockholder or any of such Stockholder's properties or assets may be
bound, or (2) violate any order, writ, injunction, decree, judgment, order,
statute, rule or regulation applicable to such Stockholder or any of such
Stockholder's properties or assets.
(d) Accredited Investor. Each of the Stockholders identified as an
"accredited investor" on the signature pages hereof, represents and
warrants to Mergersub and CenterPoint that such Stockholder (i) is an
"accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) is able to bear the economic risk of an investment in
the CenterPoint Common Stock acquired pursuant to the Merger Agreement and
can afford to sustain a total loss of such investment, (iii) has such
knowledge and experience in financial and business matters that such
Stockholder is capable of evaluating the merits and risks of the proposed
investment in the CenterPoint Common Stock and (iv) has had an adequate
opportunity to ask questions and receive answers from the officers of
-3-
<PAGE>
CenterPoint concerning all matters relating to the transactions
contemplated herein and in the Merger Agreement including, without
limitation, the background and experience of the current and proposed
officers and directors of CenterPoint, and the plans for the business and
operation of CenterPoint.
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Stockholder shall not, directly or indirectly: (i) except as contemplated
by the Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent to
the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment
or other disposition of, any or all of such Stockholder's Shares or any
interest therein; (ii) except as contemplated by this Agreement, grant any
proxies or powers of attorney, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or (iii) take any
action that would make any representation or warranty of such Stockholder
contained herein untrue or incorrect or have the effect of preventing or
disabling such Stockholder from performing such Stockholder's obligations
under this Agreement.
(f) Reliance by CenterPoint. Such Stockholder understands and
acknowledges that CenterPoint is entering into the Merger Agreement in
reliance upon such Stockholder's execution and delivery of this Agreement.
3. Further Assurances. From time to time, at CenterPoint's request and
without further consideration, each Stockholder shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. Each Stockholder agrees with, and covenants to,
CenterPoint that such Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of such Stockholder's Shares, unless such transfer is
made in compliance with this Agreement. Without limiting the covenants in
Section 1, in the event of a stock dividend or distribution, or any change in
Company Stock by reason of any stock dividend, split-up, recapitalization,
combination, exchange of shares or other equity interests or the like, the term
"Shares" shall be deemed to refer to and include the Shares as well as all such
stock dividends and distributions and any shares or other equity interests into
which or for which any or all of the Shares may be changed or exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon the
earlier of (a) termination of the Merger Agreement in accordance with its terms
or (b) the Effective Time.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, the Merger Agreement and the
other agreements contemplated herein or therein constitute the entire
agreement between the
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<PAGE>
parties with respect to the subject matter hereof and thereof and supersede
all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement.
(b) Certain Events. Each Stockholder agrees that this Agreement and
the obligations hereunder shall attach to such Stockholder's Shares and
shall be binding upon any person or entity to which legal or Beneficial
Ownership of such Shares shall pass, whether by operation of law or
otherwise, including, without limitation, such Stockholder's heirs,
guardians, administrators or successors. Notwithstanding any such transfer
of Shares, the transferor shall remain liable for the performance of all
obligations of the transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties
hereto, provided that CenterPoint may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly owned
subsidiary of CenterPoint, but no such assignment shall relieve CenterPoint
of its obligations hereunder if such assignee does not perform such
obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Stockholders, except upon the execution and
delivery of a written agreement executed by the parties hereto; provided,
--------
that any Stockholder of the Company who agrees to be bound by the terms of
----
this Agreement may become a signatory hereto without the agreement of any
other party hereto, and thereafter such added Stockholder shall be treated
as a "Stockholder" for all purposes of this Agreement.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
nationally recognized expedited delivery service providing proof of
delivery or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by notice given in accordance
with this Section):
If to a Stockholder: At the address set forth opposite such
Stockholder's name on the signature pages
hereof
with a copy to:
Cole, Schotz, Meisel, Forman & Leonard
Court Plaza North
25 Main Street
Hackensack, New Jersey 07602-0800
Attention: Henry M. Matri, Esq.
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<PAGE>
If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert S. Basten
Scott H. Lang
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision of this Agreement in
such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any of
such rights, powers or remedies by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof,
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<PAGE>
shall not constitute a waiver by such party of its right to exercise any
such or other right, power or remedy or to demand such compliance.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New Jersey, without giving effect
to the principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the same
agreement.
(n) Recovery of Attorney's Fees. In the event of any litigation
between the parties relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs
(including court costs) from the non-prevailing party, provided that if
both parties prevail in part, the reasonable attorney's fees and costs
shall be awarded by the court in such manner as it deems equitable to
reflect the relative amounts and merits of the parties' claims.
* * *
-7-
<PAGE>
IN WITNESS WHEREOF, CenterPoint and the Stockholders have caused this
Agreement to be duly executed as of the Effective Date.
CENTERPOINT ADVISORS, INC.
By: /s/ Robert S. Basten
--------------------
Robert S. Basten,
Chief Executive Officer
<TABLE>
<CAPTION>
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF NUMBER OF
(Yes/No) BENEFICIALLY BENEFICIALLY
OWNED CLASS OWNED CLASS
A SHARES B SHARES
<S> <C> <C> <C> <C>
Yes 549 Hampton 75 7,425
Hill Road
/s/ Robert F. Gallo Franklin Lakes,
- ------------------------ New Jersey
Robert F. Gallo 07417
Yes 208 Franklin 74 7,235
Farm Court
Franklin Lakes,
/s/ Russell P. Minetti New Jersey
- ------------------------ 07417
Russell P. Minetti
</TABLE>
-8-
<PAGE>
Exhibit 2.19
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated March 31, 1999 (the
"Effective Date"), is by and among CenterPoint Advisors, Inc., a Delaware
corporation ("CenterPoint"), and the individuals and entities listed on the
signature pages hereof each such individual a "Seller" and collectively, the
"Sellers").
PREAMBLE
A. Concurrently herewith, CenterPoint, Holthouse Carlin and Van Trigt
LLP, a California limited liability partnership ("HCVT"), the partners of HCVT
which are corporations (the "Corporate Partners"), the stockholders of such
Corporate Partners (the "Stockholders"), the limited liability company (the
"LLC"), the partner of HCVT who is an individual ("Pass" and, collectively with
the Corporate Partners, the "Partners"), the member of the LLC (the "Member"),
seven wholly-owned transitory merger subsidiaries of CenterPoint (each a
"Mergersub" and collectively, the "Mergersubs") and Pass Mergersub LLC, a
limited liability company and wholly-owned subsidiary of CenterPoint ("Pass
Mergersub") are entering into a Merger Agreement (as amended from time to time,
the "Merger Agreement"; capitalized terms used but not otherwise defined herein
have the meanings assigned in the Merger Agreement) pursuant to which each
Mergersub will be merged with and into the corresponding Corporate Partner of
the Company, with such Corporate Partner continuing as the surviving corporation
and as a direct wholly-owned subsidiary of CenterPoint, and Pass will transfer
her HCVT Interests to the LLC which will be merged with and into Pass Mergersub
with Pass Mergersub being the surviving limited liability company and a direct
wholly-owned subsidiary of CenterPoint (collectively, the "Merger").
B. Pursuant to the Merger Agreement, HCVT will complete the Asset
Transfer to a newly formed Delaware limited liability company ("Newco" or the
"Company"), the Partners will dissolve HCVT and, in exchange for each of their
HCVT Interests, will receive allocated interests in the Company (the "Company
Interests").
C. Each Corporate Partner owns all of the issued and outstanding shares
of capital stock of his Corporate Partner (the "Shares" or "Corporate Partner
Stock") as set forth opposite such Stockholder's name and signature on the
signature page hereof. Such Stockholder's Corporate Partner is the Beneficial
Owner of the percentage of the issued and outstanding HCVT Interests set forth
opposite such Stockholder's name and signature on the signature page hereof. The
Member owns all of the limited liability company interests of the LLC (the "LLC
Interests") as set forth opposite her name. Pass owns the percentage of HCVT
Interests set forth opposite her name and signature on the signature pages
hereof.
D. As an inducement and a condition to entering into the Merger
Agreement, CenterPoint has required that the Sellers agree, and the Sellers have
agreed, to enter into this Agreement.
<PAGE>
STATEMENT OF AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CenterPoint and the Sellers agree as follows:
1. Provisions Concerning Corporate Partner Stock and LLC Interests. Each
Seller hereby agrees that during the period commencing on the Effective Date and
continuing until the first to occur of (a) the Effective Time or (b) the
termination of the Merger Agreement in accordance with its terms, at any meeting
of the holders of Corporate Partner Stock , LLC Interests or HCVT Interests,
however called, or in connection with any written consent of the holders of
Corporate Partner Stock, LLC Interests or HCVT Interests, such Seller shall vote
(or cause to be voted) the Corporate Partner Stock, LLC Interests, Company
Interests and HCVT Interests, as applicable, held of record or Beneficially
Owned (as defined below) by such Stockholder and/or his Corporate Partner, such
Member and/or her LLC Partner or by Pass individually, whether heretofore owned
or hereafter acquired: (i) in favor of approval of the Merger, the Merger
Agreement, the transactions contemplated by the Merger Agreement and any actions
required in furtherance hereof and thereof; (ii) against any action or agreement
that would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of HCVT, the Company, any Company
Subsidiary, any Corporate Partner, any Stockholder, the LLC, the Member or Pass
under the Merger Agreement; and (iii) except as otherwise agreed to in writing
in advance by CenterPoint, against the following actions (other than the Merger
and the agreements and transactions contemplated by the Merger Agreement): (A)
any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving HCVT, the Company, any Corporate Partner,
the LLC or any Company Subsidiary; (B) a sale, lease or transfer of a material
amount of assets of HCVT, the Company, any Corporate Partner, the LLC or any
Company Subsidiary, or a reorganization, recapitalization, dissolution or
liquidation of HCVT, the Company, any Corporate Partner, the LLC or any Company
Subsidiary; (C) (1) any change in a majority of the individuals who constitute
the board of directors of HCVT, the Company, any Corporate Partner, the LLC or
any Company Subsidiary; (2) any change in the present capitalization of HCVT,
the Company, any Corporate Partner, the LLC or any Company Subsidiary or any
amendment of Organizational Documents of HCVT, the Company, any Corporate
Partner, the LLC or any Company Subsidiary; (3) any other material change in
HCVT's, the Company's, any Corporate Partner's, the LLC's or any Company
Subsidiary's corporate structure or business; or (4) any other action which is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, or materially and adversely affect the Merger and the transactions
contemplated by this Agreement and the Merger Agreement. Such Seller shall not
enter into any agreement or understanding with any Person the effect of which
would be inconsistent or violative of the provisions and agreements contained in
Section 1 or 2 of this Agreement. For purposes of this Agreement, "Beneficially
Own", "Beneficially Owned" or "Beneficial Ownership" (or any other derivative of
such terms) with respect to any securities shall mean having "beneficial
ownership" of such securities as determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including,
without limitation, pursuant to any agreement, arrangement or understanding,
whether or not in writing. Without duplicative counting of the same securities
by the same holder, securities Beneficially Owned by a Person shall include
securities Beneficially
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<PAGE>
Owned by all other Persons with whom such Person would constitute a "group"
within the meaning of Section 13(d)(3) of the Exchange Act.
2. Other Covenants, Representations and Warranties. Each Stockholder (on
behalf of himself and the Corporate Partner of which he is sole shareholder) and
Pass (on behalf of herself and the LLC of which she is the sole member), as
applicable, hereby represents and warrants to CenterPoint as follows:
(a) Ownership of Corporate Partner Stock, LLC Interests and HCVT
Interests. Such Stockholder is the sole record and Beneficial Owner of all
of the issued and outstanding Corporate Partner Stock as set forth opposite
such Stockholder's name on the signature pages hereof. Such LLC Partner is
the sole record and Beneficial Owner of all of the LLC Interests as set
forth opposite such Member's name on the signature pages hereof. Such
Stockholder's Corporate Partner is the Beneficial Owner of the percentage
of the issued and outstanding HCVT Interests set forth opposite such
Stockholder's name on the signature pages hereof. Pass is the Beneficial
Owner of the percentage of the issued and outstanding HCVT Interests set
forth opposite her name on the signature pages hereof. Such HCVT Interests,
together with the number of HCVT Interests set forth opposite each other
Stockholder's Corporate Partner or Pass' name on the signature pages
hereof, represent the requisite number of HCVT Interests required to
approve the Merger, the Merger Agreement, the transactions contemplated by
the Merger Agreement and any actions required in furtherance hereof and
thereof. On the Effective Date, the Shares, LLC Interests and HCVT
Interests set forth opposite such Seller's name on the signature pages
hereof constitute all of the Shares, LLC Interests and HCVT Interests owned
of record or Beneficially Owned by Pass or such Stockholder or his
Corporate Partner or such Member or the LLC or as to which Pass or such
Stockholder or his Corporate Partner or such Member or the LLC has voting
power by proxy, voting agreement, voting trust or other similar instrument.
Pass or such Stockholder or such Stockholder's Corporate Partner or such
Member or the LLC has sole voting power and sole power to issue
instructions with respect to the matters set forth in Section 1 of this
Agreement, sole power of disposition, sole power of conversion, sole power
to demand appraisal rights and sole power to agree to all of the matters
set forth in this Agreement, in each case with respect to all of the
Shares, LLC Interests and HCVT Interests as set forth opposite such
Stockholder's, such Stockholder's Corporate Partner's, such Member's,
such LLC Partner's or Pass' name on the signature pages hereof, with no
limitations, qualifications or restrictions on such rights.
(b) Power; Binding Agreement. Such Stockholder, such Stockholder's
Corporate Partner, such Member, such LLC Partner and Pass have the legal
capacity, power and authority to enter into and perform all of such
Stockholder's, such Stockholder's Corporate Partner's, such Member's, such
LLC Partner's and such individual's obligations under this Agreement. The
execution, delivery and performance of this Agreement by such Stockholder,
such Stockholder's Corporate Partner, such Member, such LLC Partner or
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<PAGE>
Pass will not violate any other agreement to which such Stockholder, such
Stockholder's Corporate Partner, such Member, such LLC Partner or Pass is
a party including, without limitation, any voting agreement, stockholders
agreement, voting trust, trust or similar agreement. This Agreement has
been duly and validly executed and delivered by such Stockholder, such
Stockholder's Corporate Partner, such Member, such LLC Partner and Pass
and constitutes a valid and binding agreement of such Stockholder, such
Stockholder's Corporate Partner, such Member, such LLC Partner, and Pass
enforceable against such Stockholder, such Stockholder's Corporate
Partner, such Member, such LLC Partner and Pass in accordance with its
terms. There is no beneficiary or holder of a voting trust certificate or
other interest of any trust of which such Stockholder, such Stockholder's
Corporate Partner, such Member, such LLC Partner or Pass is trustee whose
consent is required for the execution and delivery of this Agreement or the
consummation by such Stockholder, Member and Pass of the transactions
contemplated hereby. If such Stockholder, Member or Pass is married and
such Stockholder's Shares or Member's LLC Interests or Pass' HCVT Interests
constitute community property, this Agreement has been duly authorized,
executed and delivered by, and constitutes a valid and binding agreement
of, such Stockholder's, Member's or Pass' spouse, enforceable against such
person in accordance with its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder, such
Stockholder's Corporate Partner, such Member, such LLC Partner or Pass and
the consummation by such Stockholder, such Stockholder's Corporate Partner,
such Member, such LLC Partner or Pass of the transactions contemplated
hereby and (B) none of the execution and delivery of this Agreement by such
Stockholder, such Stockholder's Corporate Partner, such Member, such LLC
Partner, or Pass the consummation by such Stockholder, such Stockholder's
Corporate Partner, such Member, such LLC Partner or Pass of the
transactions contemplated by this Agreement or compliance by such
Stockholder, such Stockholder's Corporate Partner, such Member, such LLC
Partner or Pass with any of the provisions of this Agreement shall (1)
result in a violation or breach of, or constitute (with or without notice
or lapse of time or both) a default (or give rise to any third party right
of termination, cancellation, material modification or acceleration) under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which such
Stockholder, such Stockholder's Corporate Partner, such Member, such LLC
Partner or Pass is a party or by which such Stockholder's, such
Stockholder's Corporate Partner's, such Member's, such LLC Partner's or
Pass' properties or assets may be bound, or (2) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable
to such Stockholder, such Stockholder's Corporate Partner, such Member,
such LLC Partner or Pass or any of such Stockholder's, such Stockholder's
Corporate Partner's, such Member's, such LLC Partner's or Pass' properties
or assets.
(d) Accredited Investor. Each of the Sellers identified as an
"accredited investor" on the signature pages hereof, represents and
warrants to Mergersub and CenterPoint that such Seller (i) is an "1
accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) is able to bear the economic risk of an
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<PAGE>
investment in the CenterPoint Common Stock acquired pursuant to the Merger
Agreement and can afford to sustain a total loss of such investment, (iii)
has such knowledge and experience in financial and business matters that
such Seller is capable of evaluating the merits and risks of the proposed
investment in the CenterPoint Common Stock and (iv) has had an adequate
opportunity to ask questions and receive answers from the officers of
CenterPoint concerning all matters relating to the transactions
contemplated herein and in the Merger Agreement including, without
limitation, the background and experience of the current and proposed
officers and directors of CenterPoint, and the plans for the business and
operation of CenterPoint.
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Stockholder, such Stockholder's Corporate Partner, such Member, such LLC
Partner and Pass shall not, directly or indirectly: (i) except as
contemplated by the Merger Agreement, offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of such Stockholder's
Shares, such Stockholder's Corporate Partner's HCVT Interests, such
Member's LLC Interests or Pass's HCVT Interests or any interest therein;
(ii) except as contemplated by this Agreement, grant any proxies or powers
of attorney, deposit any Shares, LLC Interests or HCVT Interests into a
voting trust or enter into a voting agreement with respect to any Shares,
LLC Interests or HCVT Interests; or (iii) take any action that would make
any representation or warranty of such Stockholder, such Stockholder's
Corporate Partner, such Member, such LLC Partner or Pass contained herein
untrue or incorrect or have the effect of preventing or disabling such
Stockholder, such Stockholder's Corporate Partner, such Member, such LLC
Partner or Pass from performing such Stockholder's, such Corporate
Partner's, such Member's, such LLC Partner's or Pass' obligations under
this Agreement.
(f) Reliance by CenterPoint. Such Stockholder, such Stockholder's
Corporate Partner, such Member, such LLC Partner and Pass understand and
acknowledge that CenterPoint is entering into the Merger Agreement in
reliance upon such Stockholder's, such Stockholder's Corporate Partner's,
such Member's, such LLC Partner's and Pass' execution and delivery of this
Agreement.
3. Further Assurances. From time to time, at CenterPoint's request and
without further consideration, each Stockholder, each such Stockholder's
Corporate Partner, the Member, the LLC or Pass shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. Each Stockholder, each such Stockholder's Corporate
Partner , the Member, the LLC and Pass agrees with, and covenants to,
CenterPoint that neither such Stockholder, such Stockholder's Corporate Partner,
the Member, the LLC Partner nor Pass shall request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of such Stockholder's Shares, such Stockholder's
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<PAGE>
Corporate Partner's HCVT Interests, the Member's LLC Interests or the Pass' HCVT
Interests unless such transfer is made in compliance with this Agreement.
Without limiting the covenants in Section 1, in the event of a stock dividend or
distribution, or any change in Shares, LLC Interests or HCVT Interests by reason
of any stock dividend, split-up, recapitalization, combination, exchange of
shares or other equity interests or the like, the terms "Shares", "LLC
Interests" and "HCVT Interests" shall be deemed to refer to and include the
Shares, LLC Interests and HCVT Interests as well as all such stock dividends and
distributions and any shares or other equity interests into which or for which
any or all of the Shares, LLC Interests and HCVT Interests may be changed or
exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares, LLC Interests and HCVT
Interests shall terminate upon the earlier of (a) the termination of the Merger
Agreement in accordance with its terms or (b) the Effective Time.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, the Merger Agreement and the
other agreements contemplated herein or therein constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of
this Agreement.
(b) Certain Events. Each Stockholder, each such Stockholder's
Corporate Partner, the Member, the LLC and Pass agree that this Agreement
and the obligations hereunder shall attach to such Stockholder's Shares,
such Stockholder's Corporate Partners' HCVT Interests, such Member's LLC
Interests and Pass' HCVT Interests and shall be binding upon any person or
entity to which legal or Beneficial Ownership of such Shares, LLC Interests
or HCVT Interests shall pass, whether by operation of law or otherwise,
including, without limitation, such Stockholder's, such Stockholder's
Corporate Partner's, such Member's , such LLC Partners' or Pass' respective
heirs, guardians, administrators or permitted successors or assigns.
Notwithstanding any such transfer of Shares, LLC Interests or HCVT
Interests, the transferor shall remain liable for the performance of all
obligations of the transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties
hereto, provided that CenterPoint may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly owned
subsidiary of CenterPoint, but no such assignment shall relieve CenterPoint
of its obligations hereunder if such assignee does not perform such
obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Stockholders, such Stockholders' Corporate
Partners or the Member and the
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<PAGE>
LLC, except upon the execution and delivery of a written agreement executed
by the parties hereto; provided, that any partner of the Company who agrees
-------- ----
to be bound by the terms of this Agreement may become a signatory hereto
without the agreement of any other party hereto, and thereafter such added
partner shall be treated as a "Seller" for all purposes of this Agreement.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
nationally recognized expedited delivery service providing proof of
delivery or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by notice given in accordance
with this Section):
If to a Stockholder, such Stockholder's Corporate
Partner, the Member, the LLC or Pass:
At the address set forth
opposite such Stockholder's, Member's or Pass'
name on the signature pages hereof
with a copy to:
Christensen, Miller, Fink, Jacobs, Glaser
Weil & Shapiro
2121 Avenue of the Stars
18/th/ Floor
Los Angeles, California 90067
Attn: Gary Jacobs, Esq.
If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert S. Basten
Scott H. Lang
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
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<PAGE>
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision of this Agreement in
such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any of
such rights, powers or remedies by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or
other right, power or remedy or to demand such compliance.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California, without giving effect
to the principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
-8-
<PAGE>
(m) Counterparts. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the same
agreement.
(n) Recovery of Attorney's Fees. In the event of any litigation
between the parties relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs
(including court costs) from the non-prevailing party, provided that if
both parties prevail in part, the reasonable attorney's fees and costs
shall be awarded by the court in such manner as it deems equitable to
reflect the relative amounts and merits of the parties' claims.
* * *
-9-
<PAGE>
IN WITNESS WHEREOF, CenterPoint, Stockholders, the Corporate Partners,
--------------------------------
the Member, the LLC and Pass have caused this Agreement to be duly executed as
of the Effective Date.
CENTERPOINT ADVISORS, INC.
By: /s/ Robert S. Basten
-----------------------
Robert S. Basten,
Chief Executive Officer
<TABLE>
<CAPTION>
PERCENTAGE
OF HCVT
PARTNERSHIP
INTERESTS
STOCKHOLDERS NUMBER OF OWNED BY
AND CORPORATE ACCREDITED ADDRESS BENEFICIALLY CORPORATE CORPORATE
PARTNERS (Yes/No) OWNED SHARES PARTNER PARTNER
<S> <C> <C> <C> <C> <C>
/s/ Philip J. Holthouse
- -----------------------
Philip J. Holthouse in his Yes Philip J.
capacity as a Stockholder Holthouse, An
and as the duly Accountancy
authorized President of Corporation
the Corporate Partner
indicated
/s/ James S. Carlin
- ----------------------------
James S. Carlin in his Yes James S.
capacity as a Stockholder Carlin, An
and as the duly Accountancy
authorized President of Corporation
the Corporate Partner
indicated
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
OF HCVT
PARTNERSHIP
INTERESTS
STOCKHOLDERS NUMBER OF OWNED BY
AND CORPORATE ACCREDITED ADDRESS BENEFICIALLY CORPORATE CORPORATE
PARTNERS (Yes/No) OWNED SHARES PARTNER PARTNER
<S> <C> <C> <C> <C> <C>
/s/ Zachary G. Shuman
- ----------------------------
Zachary G. Shuman in Yes Zachary G.
his capacity as a Shuman, an
Stockholder and as the Accountancy
duly authorized President Corporation
of the Corporate Partner
indicated
/s/ Greggory J. Hutchins
- ----------------------------
Greggory J. Hutchins in Yes Greggory J.
his capacity as a Hutchins, an
Stockholder and as the Accountancy
duly authorized President Corporation
of the Corporate Partner
indicated
/s/ Blake E. Christian
- ----------------------------
Blake E. Christian in his Yes Blake E.
capacity as a Stockholder Christian, an
and as the duly Accountancy
authorized President of Corporation
the Corporate Partner
indicated
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
OF HCVT
PARTNERSHIP
INTERESTS
STOCKHOLDERS NUMBER OF OWNED BY
AND CORPORATE ACCREDITED ADDRESS BENEFICIALLY CORPORATE CORPORATE
PARTNERS (Yes/No) OWNED SHARES PARTNER PARTNER
<S> <C> <C> <C> <C> <C>
/s/ John E. Van Trigt
- ----------------------------
John E. Van Trigt in his John E. Van
capacity as a Stockholder Trigt, an
and as the duly Accountancy
authorized President of Corporation
the Corporate Partner
indicated
/s/ William Warburton
- ----------------------------
William Warburton in No William
his capacity as a Warburton, an
Stockholder and as the Accountancy
duly authorized President Corporation
of the Corporate Partner
indicated
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE
OF HCVT
PARTNERSHIP
MEMBER AND ACCREDITED PERCENTAGE OF INTERESTS
THE LLC Yes/No ADDRESS MEMBERSHIP OWNED BY
INTERESTS THE LLC THE LLC
<S> <C> <C> <C> <C> <C>
/s/ Janet L. Pass
- ----------------------------
Janet L. Pass No 100
in her capacity as a
Member of the LLC
</TABLE>
<TABLE>
<CAPTION>
PASS ACCREDITED ADDRESS PERCENTAGE
Yes/No OF HCVT
PARTNERSHIP
INTERESTS
OWNED BY
PASS
<S> <C> <C> <C>
/s/ Janet L. Pass
- ----------------------------
Janet L. Pass, No
individually
</TABLE>
-12-
<PAGE>
Exhibit 2.20
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated as of March 31, 1999 (the
"Effective Date"), is by and among CenterPoint Advisors, Inc., a Delaware
corporation ("CenterPoint"), and the individuals listed on the signature pages
hereof (each, a "Partner" and collectively, the "Partners").
PREAMBLE
A. Concurrently herewith, CenterPoint, Grace & Company, P.C. (the
"Company"), Grace Mergersub Inc., a Delaware corporation and a direct wholly-
owned subsidiary of CenterPoint ("Mergersub"), Grace Capital, LLP, a Missouri
limited liability partnership ("Seller"), and the partners of Seller are
entering into a Merger Agreement (as amended from time to time, the "Merger
Agreement"; capitalized terms used but not otherwise defined herein have the
meanings assigned in the Merger Agreement) pursuant to which Mergersub will be
merged with and into the Company, with the Company continuing as the surviving
corporation and as a direct wholly-owned subsidiary of CenterPoint (the
"Merger").
B. Seller owns all of the issued and outstanding capital stock of the
Company.
C. Each Partner owns the equity interest and percentage of Seller's total
outstanding equity interests set forth opposite such Partner's name and
signature on the signature pages hereof (each, an "Interest").
D. As an inducement and a condition to entering into the Merger Agreement,
CenterPoint has required that the Partners agree, and the Partners have agreed,
to enter into this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CenterPoint and the Partners agree as follows:
1. Provisions Concerning Interests. Each Partner hereby agrees that
during the period commencing on the Effective Date and continuing until the
first to occur of (a) the Effective Time or (b) the termination of the Merger
Agreement in accordance with its terms, at any meeting of the partners of
Seller, however called, or in connection with any written consent of the
partners of Seller, such Partner shall vote (or cause to be voted) the Interest
held of record or Beneficially Owned (as defined below) by such Partner, whether
heretofore owned or hereafter acquired, including without limitation by voting
such Interest in favor of Seller voting its shares of capital stock of the
Company, as follows: (i) in favor of approval of the Merger, the Merger
Agreement, the transactions contemplated by the Merger Agreement and any actions
required in furtherance hereof and thereof; (ii) against any action or agreement
that would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of the Company, Seller or any
Partner under the Merger Agreement; and (iii) except as otherwise agreed to in
<PAGE>
writing in advance by CenterPoint, against the following actions (other than the
Merger and the agreements and transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving Seller, the Company or any
Company Subsidiary; (B) a sale, lease or transfer of a material amount of assets
of Seller, the Company or any Company Subsidiary, or a reorganization,
recapitalization, dissolution or liquidation of Seller, the Company or any
Company Subsidiary; (C) (1) any change in a majority of the individuals who
constitute the operating committee, board of directors or similar governing body
of Seller, the Company or any Company Subsidiary; (2) any change in the present
capitalization of Seller, the Company or any Company Subsidiary or any amendment
of Organizational Documents of Seller, the Company or any Company Subsidiary;
(3) any other material change in Seller's, the Company's or any Company
Subsidiary's corporate structure or business; or (4) any other action which is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, or materially and adversely affect the Merger and the transactions
contemplated by this Agreement and the Merger Agreement. Such Partner shall not
enter into any agreement or understanding with any Person the effect of which
would be inconsistent or violative of the provisions and agreements contained in
Section 1 or 2 of this Agreement. For purposes of this Agreement, "Beneficially
Own", "Beneficially Owned" or "Beneficial Ownership" (or any other derivative of
such terms) with respect to any securities shall mean having "beneficial
ownership" of such securities as determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including,
without limitation, pursuant to any agreement, arrangement or understanding,
whether or not in writing. Without duplicative counting of the same securities
by the same holder, securities Beneficially Owned by a Person shall include
securities Beneficially Owned by all other Persons with whom such Person would
constitute a "group" within the meaning of Section 13(d)(3) of the Exchange Act.
2. Other Covenants, Representations and Warranties. Each Partner hereby
represents and warrants to CenterPoint as follows:
(a) Ownership of Interests. Such Partner is the record and Beneficial
Owner of the Interest as set forth opposite such Partner's name and
signature on the signature pages hereof. Such Interest, together with the
Interests set forth opposite each other Partner's name and signature on the
signature pages hereof, represent the requisite percentage of partnership
interests required to cause Seller to approve the Merger, the Merger
Agreement, the transactions contemplated by the Merger Agreement and any
actions required in furtherance hereof and thereof, and otherwise to act
and cause the Company to act as provided in Section 1 above. On the
Effective Date, the Interest set forth opposite such Partner's name and
signature on the signature pages hereof constitutes the entire partnership
interest in Seller owned of record or Beneficially Owned by such Partner or
as to which such Partner has voting power by proxy, voting agreement,
voting trust or other similar instrument. Such Partner has sole voting
power and sole power to issue instructions with respect to the matters set
forth in Section 1 of this Agreement, sole power of disposition, sole power
of conversion, sole power to demand appraisal rights and sole power to
agree to all of the matters set forth in this Agreement, in each case with
respect to the entire Interest as set forth opposite such Partner's name
and signature on the signature pages hereof, with no limitations,
qualifications or restrictions on such rights.
-2-
<PAGE>
(b) Power; Binding Agreement. Such Partner has the legal capacity,
power and authority to enter into and perform all of such Partner's
obligations under this Agreement. The execution, delivery and performance
of this Agreement by such Partner will not violate any other agreement to
which such Partner is a party including, without limitation, any voting
agreement, stockholders agreement, partnership agreements, voting trust,
trust or similar agreement. This Agreement has been duly and validly
executed and delivered by such Partner and constitutes a valid and binding
agreement of such Partner, enforceable against such Partner in accordance
with its terms. There is no beneficiary or holder of a voting trust
certificate or other interest of any trust of which such Partner is trustee
whose consent is required for the execution and delivery of this Agreement
or the consummation by such Partner of the transactions contemplated
hereby. If such Partner is married and such Partner's Interest constitutes
community property, this Agreement has been duly authorized, executed and
delivered by, and constitutes a valid and binding agreement of, such
Partner's spouse, enforceable against such person in accordance with its
terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Partner and the
consummation by such Partner of the transactions contemplated hereby and
(B) none of the execution and delivery of this Agreement by such Partner,
the consummation by such Partner of the transactions contemplated by this
Agreement or compliance by such Partner with any of the provisions of this
Agreement shall (1) result in a violation or breach of, or constitute (with
or without notice or lapse of time or both) a default (or give rise to any
third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which such Partner is a party or by which such Partner or any of such
Partner's properties or assets may be bound, or (2) violate any order,
writ, injunction, decree, judgment, order, statute, rule or regulation
applicable to such Partner or any of such Partner's properties or assets
(other than to the extent any of the foregoing relates to regulating,
licensing or permitting the practice of public accountancy).
(d) Accredited Investor. Each of the Partners identified as an
"accredited investor" on the signature pages hereof, represents and
warrants to Mergersub and CenterPoint that such Partner (i) is an
"accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) is able to bear the economic risk of an investment in
the CenterPoint Common Stock acquired pursuant to the Merger Agreement and
can afford to sustain a total loss of such investment, (iii) has such
knowledge and experience in financial and business matters that such
Partner is capable of evaluating the merits and risks of the proposed
investment in the CenterPoint Common Stock and (iv) has had an adequate
opportunity to ask questions and receive answers from the officers of
CenterPoint concerning all matters relating to the transactions
contemplated herein and in the Merger Agreement including, without
limitation, the background and experience of the current and proposed
officers and directors of CenterPoint, and the plans for the business and
operation of CenterPoint.
-3-
<PAGE>
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Partner shall not, directly or indirectly: (i) except as contemplated by
the Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent to
the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment
or other disposition of, any or all of such Partner's Interest or any
interest therein; (ii) except as contemplated by this Agreement, grant any
proxies or powers of attorney, deposit any part of such Interest into a
voting trust or enter into a voting agreement with respect to any part of
such Interest; or (iii) take any action that would make any representation
or warranty of such Partner contained herein untrue or incorrect or have
the effect of preventing or disabling such Partner from performing such
Partner's obligations under this Agreement.
(f) Reliance by CenterPoint. Such Partner understands and acknowledges
that CenterPoint is entering into the Merger Agreement in reliance upon
such Partner's execution and delivery of this Agreement.
3. Further Assurances. From time to time, at CenterPoint's request and
without further consideration, each Partner shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. Each Partner agrees with, and covenants to,
CenterPoint that such Partner shall not request that Seller register the
transfer (book-entry or otherwise) of any certificate or uncertificated interest
representing any part of such Partner's Interest, unless such transfer is made
in compliance with this Agreement. Without limiting the covenants in Section 1,
in the event of a change in the outstanding interests of Seller for any reason,
including without limitation any exchange of equity interests or the like, the
term "Interest" shall be deemed to refer to and include the Interest as well as
all such other equity interests into which or for which any or all of the
Interest may be changed or exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Interest shall terminate upon
the earlier of (a) termination of the Merger Agreement in accordance with its
terms or (b) the Effective Time.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, the Merger Agreement and the
other agreements contemplated herein or therein constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of
this Agreement.
(b) Certain Events. Each Partner agrees that this Agreement and the
obligations hereunder shall attach to such Partner's Interest and shall be
binding upon any person or entity to which legal or Beneficial Ownership of
such Interest shall pass, whether
-4-
<PAGE>
by operation of law or otherwise, including, without limitation, such
Partner's heirs, guardians, administrators or successors. Notwithstanding
any such transfer of Interest, the transferor shall remain liable for the
performance of all obligations of the transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties
hereto, provided that CenterPoint may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly owned
subsidiary of CenterPoint, but no such assignment shall relieve CenterPoint
of its obligations hereunder if such assignee does not perform such
obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Partners, except upon the execution and delivery
of a written agreement executed by the parties hereto; provided, that any
-------- ----
partner of Seller who agrees to be bound by the terms of this Agreement may
become a signatory hereto without the agreement of any other party hereto,
and thereafter such added partner shall be treated as a "Partner" for all
purposes of this Agreement.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
nationally recognized expedited delivery service providing proof of
delivery or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by notice given in accordance
with this Section):
If to a Partner: At the address set forth
opposite such Partner's
name on the signature pages hereof
with a copy to:
Jerome Mandelstamm, Esq.
1010 Market Street
Suite 1600
St. Louis, Missouri 63101-2082
If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert S. Basten
Scott H. Lang
-5-
<PAGE>
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision of this Agreement in
such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any of
such rights, powers or remedies by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or
other right, power or remedy or to demand such compliance.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Missouri, without giving effect to
the principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT.
-6-
<PAGE>
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the same
agreement.
(n) Recovery of Attorney's Fees. In the event of any litigation
between the parties relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs
(including court costs) from the non-prevailing party, provided that if
both parties prevail in part, the reasonable attorney's fees and costs
shall be awarded by the court in such manner as it deems equitable to
reflect the relative amounts and merits of the parties' claims.
* * *
-7-
<PAGE>
IN WITNESS WHEREOF, CenterPoint and the Partners have caused this
Agreement to be duly executed as of the Effective Date.
CENTERPOINT ADVISORS, INC.
By: /S/ Robert S. Basten
--------------------
Robert S. Basten,
Chief Executive Officer
PERCENTAGE
EQUITY AND
VOTING
INTEREST
"PARTNERS": "ACCREDITED" ADDRESS BENEFICIALLY
(Yes/No) OWNED
/S/ Wayne J. Grace Yes
- -------------------------
Wayne J. Grace
/S/ Frank H. Brandhorst Yes
- -------------------------
Frank H. Brandhorst
/S/ Paul E. Schiavo Yes
- -------------------------
Paul E. Schiavo
/S/ Patrick E. Stark Yes
- -------------------------
Patrick E. Stark
-8-
<PAGE>
Exhibit 2.21
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated March 31, 1999 (the
"Effective Date"), is by and among CenterPoint Advisors, Inc., a Delaware
corporation ("CenterPoint"), and the individuals and entities listed on the
signature pages hereof (each, a "Stockholder" and collectively, the
"Stockholders").
PREAMBLE
A. Concurrently herewith, CenterPoint, The Reppond Company, Inc.(the
"Company") and Reppond Mergersub Inc., a Delaware corporation and a direct
wholly-owned subsidiary of CenterPoint ("Mergersub"), are entering into a Merger
Agreement (as amended from time to time, the "Merger Agreement"; capitalized
terms used but not otherwise defined herein have the meanings assigned in the
Merger Agreement) pursuant to which Mergersub will be merged with and into the
Company, with the Company continuing as the surviving corporation and as a
direct wholly-owned subsidiary of CenterPoint (the "Merger").
B. Each Stockholder owns shares, par value $1.00 per share, of common
stock of the Company (the "Shares" or "Company Common Stock") in the amounts set
forth opposite such Stockholder's name and signature on the signature pages
hereof.
C. As an inducement and a condition to entering into the Merger Agreement,
CenterPoint has required that the Stockholders agree, and the Stockholders have
agreed, to enter into this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CenterPoint and the Stockholders agree as follows:
1. Provisions Concerning Company Common Stock. Each Stockholder hereby
agrees that during the period commencing on the Effective Date and continuing
until the first to occur of (a) the Effective Time or (b) termination of the
Merger Agreement in accordance with its terms, at any meeting of the holders of
Company Common Stock, however called, or in connection with any written consent
of the holders of Company Common Stock, such Stockholder shall vote (or cause to
be voted) the Shares held of record or Beneficially Owned (as defined below) by
such Stockholder, whether heretofore owned or hereafter acquired: (i) in favor
of approval of the Merger, the Merger Agreement, the transactions contemplated
by the Merger Agreement and any actions required in furtherance hereof and
thereof; (ii) against any action or agreement that would result in a breach in
any respect of any covenant, representation or warranty or any other obligation
or agreement of the Company or any Stockholder under the Merger Agreement; and
(iii) except as otherwise agreed to in writing in advance by CenterPoint,
against the following
<PAGE>
actions (other than the Merger Agreement and the agreements and transactions
contemplated by the Merger Agreement): (A) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or any Company Subsidiary; (B) a sale, lease or transfer
of a material amount of assets of the Company or any Company Subsidiary, or a
reorganization, recapitalization, dissolution or liquidation of the Company or
any Company Subsidiary; (C) (1) any change in a majority of the individuals who
constitute the board of directors of the Company or any Company Subsidiary; (2)
any change in the present capitalization of the Company or any Company
Subsidiary or any amendment of Organizational Documents of the Company or any
Company Subsidiary; (3) any other material change in the Company's or any
Company Subsidiary's corporate structure or business; or (4) any other action
which is intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, or materially and adversely affect the Merger and the
transactions contemplated by this Agreement and the Merger Agreement. Such
Stockholder shall not enter into any agreement or understanding with any Person
the effect of which would be inconsistent or violative of the provisions and
agreements contained in Section 1 or 2 of this Agreement. For purposes of this
Agreement, "Beneficially Own", "Beneficially Owned" or "Beneficial Ownership"
(or any other derivative of such terms) with respect to any securities shall
mean having "beneficial ownership" of such securities as determined pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including, without limitation, pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all other Persons with whom such
Person would constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act.
2. Other Covenants, Representations and Warranties. Each Stockholder
hereby represents and warrants to CenterPoint as follows:
(a) Ownership of Shares. Such Stockholder is the record and
Beneficial Owner of the number of Shares as set forth opposite such
Stockholder's name on the signature pages hereof. Such Shares, together
with the number of Shares set forth opposite each other Stockholder's name
on the signature pages hereof, represent the requisite number of shares
required to approve the Merger, the Merger Agreement, the transactions
contemplated by the Merger Agreement and any actions required in
furtherance hereof and thereof. On the Effective Date, the Shares set
forth opposite such Stockholder's name on the signature pages hereof
constitute all of the Shares owned of record or Beneficially Owned by such
Stockholder or as to which such Stockholder has voting power by proxy,
voting agreement, voting trust or other similar instrument. Such
Stockholder has sole voting power and sole power to issue instructions with
respect to the matters set forth in Section 1 of this Agreement, sole power
of disposition, sole power of conversion, sole power to demand appraisal
rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of the Shares as set forth
opposite such Stockholder's name on the signature pages hereof, with no
limitations, qualifications or restrictions on such rights.
-2-
<PAGE>
(b) Power; Binding Agreement. Such Stockholder has the legal
capacity, power and authority to enter into and perform all of such
Stockholder's obligations under this Agreement. The execution, delivery
and performance of this Agreement by such Stockholder will not violate any
other agreement to which such Stockholder is a party including, without
limitation, any voting agreement, stockholders agreement, voting trust,
trust or similar agreement. This Agreement has been duly and validly
executed and delivered by such Stockholder and constitutes a valid and
binding agreement of such Stockholder, enforceable against such Stockholder
in accordance with its terms. There is no beneficiary or holder of a
voting trust certificate or other interest of any trust of which such
Stockholder is trustee whose consent is required for the execution and
delivery of this Agreement or the consummation by such Stockholder of the
transactions contemplated hereby. If such Stockholder is married and such
Stockholder's Shares constitute community property, this Agreement has been
duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Stockholder's spouse, enforceable against such
person in accordance with its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
consummation by such Stockholder of the transactions contemplated hereby
and (B) none of the execution and delivery of this Agreement by such
Stockholder, the consummation by such Stockholder of the transactions
contemplated by this Agreement or compliance by such Stockholder with any
of the provisions of this Agreement shall (1) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both)
a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or
other instrument or obligation of any kind to which such Stockholder is a
party or by which such Stockholder or any of such Stockholder's properties
or assets may be bound, or (2) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to such Stockholder
or any of such Stockholder's properties or assets except such agreements as
will be amended or terminated prior to Closing.
(d) Accredited Investor. Each of the Stockholders identified as an
"accredited investor" on the signature pages hereof, represents and
warrants to Mergersub and CenterPoint that such Stockholder (i) is an
"accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) is able to bear the economic risk of an investment in
the CenterPoint Common Stock acquired pursuant to the Merger Agreement and
can afford to sustain a total loss of such investment, (iii) has such
knowledge and experience in financial and business matters that such
Stockholder is capable of evaluating the merits and risks of the proposed
investment in the CenterPoint Common Stock and (iv) has had an adequate
opportunity to ask questions and receive answers from the officers of
CenterPoint concerning all matters relating to the transactions
contemplated herein and in the Merger Agreement including, without
limitation, the background and experience of the
-3-
<PAGE>
current and proposed officers and directors of CenterPoint, and the plans
for the business and operation of CenterPoint.
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Stockholder shall not, directly or indirectly: (i) except as contemplated
by the Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent to
the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment
or other disposition of, any or all of such Stockholder's Shares or any
interest therein; (ii) except as contemplated by this Agreement, grant any
proxies or powers of attorney, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or (iii) take any
action that would make any representation or warranty of such Stockholder
contained herein untrue or incorrect or have the effect of preventing or
disabling such Stockholder from performing such Stockholder's obligations
under this Agreement.
(f) Reliance by CenterPoint. Such Stockholder understands and
acknowledges that CenterPoint is entering into the Merger Agreement in
reliance upon such Stockholder's execution and delivery of this Agreement.
3. Further Assurances. From time to time, at CenterPoint's request and
without further consideration, each Stockholder shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. Each Stockholder agrees with, and covenants to,
CenterPoint that such Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of such Stockholder's Shares, unless such transfer is
made in compliance with this Agreement. Without limiting the covenants in
Section 1, in the event of a stock dividend or distribution, or any change in
Company Stock by reason of any stock dividend, split-up, recapitalization,
combination, exchange of shares or other equity interests or the like, the term
"Shares" shall be deemed to refer to and include the Shares as well as all such
stock dividends and distributions and any shares or other equity interests into
which or for which any or all of the Shares may be changed or exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon the
earlier of (a) termination of the Merger Agreement in accordance with its terms
or (b) the Effective Time.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, the Merger Agreement and the
other agreements contemplated herein or therein constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all other prior
-4-
<PAGE>
agreements and understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement.
(b) Certain Events. Each Stockholder agrees that this Agreement and
the obligations hereunder shall attach to such Stockholder's Shares and
shall be binding upon any person or entity to which legal or Beneficial
Ownership of such Shares shall pass, whether by operation of law or
otherwise, including, without limitation, such Stockholder's heirs,
guardians, administrators or successors. Notwithstanding any such transfer
of Shares, the transferor shall remain liable for the performance of all
obligations of the transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties
hereto, provided that CenterPoint may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly owned
subsidiary of CenterPoint, but no such assignment shall relieve CenterPoint
of its obligations hereunder if such assignee does not perform such
obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Stockholders, except upon the execution and
delivery of a written agreement executed by the parties hereto; provided,
--------
that any Stockholder of the Company who agrees to be bound by the terms of
----
this Agreement may become a signatory hereto without the agreement of any
other party hereto, and thereafter such added Stockholder shall be treated
as a "Stockholder" for all purposes of this Agreement.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
nationally recognized expedited delivery service providing proof of
delivery or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by notice given in accordance
with this Section):
If to a Stockholder: At the address set forth opposite such
Stockholder's name on the signature pages
hereof
with a copy to:
Orrick, Herrington & Sutcliffe, LLP
400 Sansome Street
San Francisco, CA 94111
Attention: Geoffrey P. Leonard, Esq.
-5-
<PAGE>
If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert S. Basten
Scott H. Lang
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision of this Agreement in
such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any of
such rights, powers or remedies by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof,
-6-
<PAGE>
shall not constitute a waiver by such party of its right to exercise any
such or other right, power or remedy or to demand such compliance.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Washington, without giving effect
to the principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the same
agreement.
(n) Recovery of Attorney's Fees. In the event of any litigation
between the parties relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs
(including court costs) from the non-prevailing party, provided that if
both parties prevail in part, the reasonable attorney's fees and costs
shall be awarded by the court in such manner as it deems equitable to
reflect the relative amounts and merits of the parties' claims.
* * *
-7-
<PAGE>
IN WITNESS WHEREOF, CenterPoint and the Stockholders have caused this
Agreement to be duly executed as of the Effective Date.
CENTERPOINT
ADVISORS, INC.
By: /s/ Robert S. Basten
--------------------
Robert S. Basten,
Chief Executive Officer
<TABLE>
<CAPTION>
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF
(Yes/No) BENEFICIALLY
OWNED SHARES
<S> <C> <C> <C>
/s/ Ben W. Reppond
- ----------------------- 375
Ben W. Reppond
/s/ Louis R. Baransky
- ----------------------- 125
Louis R. Baransky
</TABLE>
-8-
<PAGE>
Exhibit 2.22
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated March 31, 1999 (the
"Effective Date"), is by and among CenterPoint Advisors, Inc., a Delaware
corporation ("CenterPoint"), and the individuals and entities listed on the
signature pages hereof (each, a "Member" and collectively, the "Members").
PREAMBLE
A. Concurrently herewith, CenterPoint, Reppond Administrators, L.L.C.(the
"Company") and RA Mergersub LLC, a Delaware limited liability company and a
direct wholly-owned subsidiary of CenterPoint ("Mergersub"), are entering into a
Merger Agreement (as amended from time to time, the "Merger Agreement";
capitalized terms used but not otherwise defined herein have the meanings
assigned in the Merger Agreement) pursuant to which Mergersub will be merged
with and into the Company, with the Company continuing as the surviving entity
and as a direct wholly-owned subsidiary of CenterPoint (the "Merger").
B. Each Member owns units of ownership interest of the Company (the
"Units" or "Company Units") in the amounts set forth opposite such Member's name
and signature on the signature pages hereof.
C. As an inducement and a condition to entering into the Merger Agreement,
CenterPoint has required that the Members agree, and the Members have agreed, to
enter into this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CenterPoint and the Members agree as follows:
1. Provisions Concerning Company Unit. Each Member hereby agrees that
during the period commencing on the Effective Date and continuing until the
first to occur of (a) the Effective Time or (b) termination of the Merger
Agreement in accordance with its terms, at any meeting of the holders of Company
Units, however called, or in connection with any written consent of the holders
of Company Units, such Member shall vote (or cause to be voted) the Units held
of record or Beneficially Owned (as defined below) by such Member, whether
heretofore owned or hereafter acquired: (i) in favor of approval of the Merger,
the Merger Agreement, the transactions contemplated by the Merger Agreement and
any actions required in furtherance hereof and thereof; (ii) against any action
or agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
or any Member under the Merger Agreement; and (iii) except as otherwise agreed
to in writing in advance by CenterPoint, against the following actions (other
than the Merger Agreement and the agreements and transactions contemplated by
the Merger Agreement): (A) any extraordinary
<PAGE>
corporate transaction, such as a merger, consolidation or other business
combination involving the Company or any Company Subsidiary; (B) a sale, lease
or transfer of a material amount of assets of the Company or any Company
Subsidiary, or a reorganization, recapitalization, dissolution or liquidation of
the Company or any Company Subsidiary; (C) (1) any change in a majority of the
individuals who constitute members of the Company or any Company Subsidiary; (2)
any change in the present capitalization of the Company or any Company
Subsidiary or any amendment of Organizational Documents of the Company or any
Company Subsidiary; (3) any other material change in the Company's or any
Company Subsidiary's structure or business; or (4) any other action which is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, or materially and adversely affect the Merger and the transactions
contemplated by this Agreement and the Merger Agreement. Such Member shall not
enter into any agreement or understanding with any Person the effect of which
would be inconsistent or violative of the provisions and agreements contained in
Section 1 or 2 of this Agreement. For purposes of this Agreement, "Beneficially
Own", "Beneficially Owned" or "Beneficial Ownership" (or any other derivative of
such terms) with respect to any securities shall mean having "beneficial
ownership" of such securities as determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including,
without limitation, pursuant to any agreement, arrangement or understanding,
whether or not in writing. Without duplicative counting of the same securities
by the same holder, securities Beneficially Owned by a Person shall include
securities Beneficially Owned by all other Persons with whom such Person would
constitute a "group" within the meaning of Section 13(d)(3) of the Exchange Act.
2. Other Covenants, Representations and Warranties. Each Member hereby
represents and warrants to CenterPoint as follows:
(a) Ownership of Units. Such Member is the record and Beneficial
Owner of the number of Units as set forth opposite such Member's name on
the signature pages hereof. Such Units, together with the number of Units
set forth opposite each other Member's name on the signature pages hereof,
represent the requisite number of Units required to approve the Merger, the
Merger Agreement, the transactions contemplated by the Merger Agreement and
any actions required in furtherance hereof and thereof. On the Effective
Date, the Units set forth opposite such Member's name on the signature
pages hereof constitute all of the Units owned of record or Beneficially
Owned by such Member or as to which such Member has voting power by proxy,
voting agreement, voting trust or other similar instrument. Such Member
has sole voting power and sole power to issue instructions with respect to
the matters set forth in Section 1 of this Agreement, sole power of
disposition, sole power of conversion, sole power to demand appraisal
rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of the Units as set forth
opposite such Member's name on the signature pages hereof, with no
limitations, qualifications or restrictions on such rights.
(b) Power; Binding Agreement. Such Member has the legal capacity,
power and authority to enter into and perform all of such Member's
obligations under this Agreement. The execution, delivery and performance
of this Agreement by such Member will not violate any other agreement to
which such Member is a party including, without
-2-
<PAGE>
limitation, any voting agreement, Members agreement, voting trust, trust or
similar agreement. This Agreement has been duly and validly executed and
delivered by such Member and constitutes a valid and binding agreement of
such Member, enforceable against such Member in accordance with its terms.
There is no beneficiary or holder of a voting trust certificate or other
interest of any trust of which such Member is trustee whose consent is
required for the execution and delivery of this Agreement or the
consummation by such Member of the transactions contemplated hereby. If
such Member is married and such Member's Units constitute community
property, this Agreement has been duly authorized, executed and delivered
by, and constitutes a valid and binding agreement of, such Member's spouse,
enforceable against such person in accordance with its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Member and the
consummation by such Member of the transactions contemplated hereby and (B)
none of the execution and delivery of this Agreement by such Member, the
consummation by such Member of the transactions contemplated by this
Agreement or compliance by such Member with any of the provisions of this
Agreement shall (1) result in a violation or breach of, or constitute (with
or without notice or lapse of time or both) a default (or give rise to any
third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which such Member is a party or by which such Member or any of such
Member's properties or assets may be bound, or (2) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable
to such Member or any of such Member's properties or assets.
(d) Accredited Investor. Each of the Members identified as an
"accredited investor" on the signature pages hereof, represents and
warrants to Mergersub and CenterPoint that such Member (i) is an
"accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) is able to bear the economic risk of an investment in
the CenterPoint Common Stock acquired pursuant to the Merger Agreement and
can afford to sustain a total loss of such investment, (iii) has such
knowledge and experience in financial and business matters that such Member
is capable of evaluating the merits and risks of the proposed investment in
the CenterPoint Common Stock and (iv) has had an adequate opportunity to
ask questions and receive answers from the officers of CenterPoint
concerning all matters relating to the transactions contemplated herein and
in the Merger Agreement including, without limitation, the background and
experience of the current and proposed officers and directors of
CenterPoint, and the plans for the business and operation of CenterPoint.
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Member shall not, directly or indirectly: (i) except as contemplated by the
Merger Agreement, offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or enter
-3-
<PAGE>
into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender,
pledge, encumbrance, assignment or other disposition of, any or all of such
Member's Units or any interest therein; (ii) except as contemplated by this
Agreement, grant any proxies or powers of attorney, deposit any Units into
a voting trust or enter into a voting agreement with respect to any Units;
or (iii) take any action that would make any representation or warranty of
such Member contained herein untrue or incorrect or have the effect of
preventing or disabling such Member from performing such Member's
obligations under this Agreement.
(f) Reliance by CenterPoint. Such Member understands and acknowledges
that CenterPoint is entering into the Merger Agreement in reliance upon
such Member's execution and delivery of this Agreement.
3. Further Assurances. From time to time, at CenterPoint's request and
without further consideration, each Member shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. Each Member agrees with, and covenants to, CenterPoint
that such Member shall not request that the Company register the transfer (book-
entry or otherwise) of any certificate or uncertificated interest representing
any of such Member's Units, unless such transfer is made in compliance with this
Agreement. Without limiting the covenants in Section 1, in the event of a stock
dividend or distribution, or any change in Company Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of Units or other
equity interests or the like, the term "Units" shall be deemed to refer to and
include the Units as well as all such stock dividends and distributions and any
Units or other equity interests into which or for which any or all of the Units
may be changed or exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Units shall terminate upon the
earlier of (a) termination of the Merger Agreement in accordance with its terms
or (b) the Effective Time.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, the Merger Agreement and the
other agreements contemplated herein or therein constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of
this Agreement.
(b) Certain Events. Each Member agrees that this Agreement and the
obligations hereunder shall attach to such Member's Units and shall be
binding upon any person or entity to which legal or Beneficial Ownership of
such Units shall pass, whether by operation of law or otherwise, including,
without limitation, such Member's heirs, guardians, administrators or
successors. Notwithstanding any such transfer of Units, the
-4-
<PAGE>
transferor shall remain liable for the performance of all obligations of
the transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties
hereto, provided that CenterPoint may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly owned
subsidiary of CenterPoint, but no such assignment shall relieve CenterPoint
of its obligations hereunder if such assignee does not perform such
obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Members, except upon the execution and delivery
of a written agreement executed by the parties hereto; provided, that any
-------- ----
Member of the Company who agrees to be bound by the terms of this Agreement
may become a signatory hereto without the agreement of any other party
hereto, and thereafter such added Member shall be treated as a "Member" for
all purposes of this Agreement.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
nationally recognized expedited delivery service providing proof of
delivery or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by notice given in accordance
with this Section):
If to a Member: At the address set forth
opposite such Member's
name on the signature pages hereof
with a copy to:
Orrick, Herrington & Sutcliffe, LLP
400 Sansome Street
San Francisco, CA 94111
Attention: Geoffrey P. Leonard, Esq.
If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert S. Basten
Scott H. Lang
-5-
<PAGE>
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision of this Agreement in
such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any of
such rights, powers or remedies by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or
other right, power or remedy or to demand such compliance.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Washington, without giving effect
to the principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT.
-6-
<PAGE>
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the same
agreement.
(n) Recovery of Attorney's Fees. In the event of any litigation
between the parties relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs
(including court costs) from the non-prevailing party, provided that if
both parties prevail in part, the reasonable attorney's fees and costs
shall be awarded by the court in such manner as it deems equitable to
reflect the relative amounts and merits of the parties' claims.
* * *
-7-
<PAGE>
IN WITNESS WHEREOF, CenterPoint and the Members have caused this Agreement
to be duly executed as of the Effective Date.
CENTERPOINT
ADVISORS, INC.
By: /s/ Robert S. Basten
--------------------
Robert S. Basten,
Chief Executive Officer
"Members" "ACCREDITED" ADDRESS NUMBER OF
(Yes/No) BENEFICIALLY
OWNED UNITS
247.5
/s/ Ben W. Reppond
- ------------------
Ben W. Reppond
247.5
/s/ Deborah Reppond
- -------------------
Deborah Reppond
5
/s/ Louis R. Baransky
- ---------------------
Louis R. Baransky
-8-
<PAGE>
Exhibit 2.23
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated March 31, 1999 (the
"Effective Date"), is by and among CenterPoint Advisors, Inc., a Delaware
corporation ("CenterPoint"), and the individuals and entities listed on the
signature pages hereof (each, a "Stockholder" and collectively, the
"Stockholders").
PREAMBLE
A. Concurrently herewith, CenterPoint, VeraSource Excess Risk Ltd. (the
"Company") and Verasource Mergersub Inc., a Delaware corporation and a direct
wholly-owned subsidiary of CenterPoint ("Mergersub"), are entering into a Merger
Agreement (as amended from time to time, the "Merger Agreement"; capitalized
terms used but not otherwise defined herein have the meanings assigned in the
Merger Agreement) pursuant to which Mergersub will be merged with and into the
Company, with the Company continuing as the surviving corporation and as a
direct wholly-owned subsidiary of CenterPoint (the "Merger").
B. Each Stockholder owns shares, par value $1.00 per share, of common
stock of the Company (the "Shares" or "Company Common Stock") in the amounts set
forth opposite such Stockholder's name and signature on the signature pages
hereof.
C. As an inducement and a condition to entering into the Merger Agreement,
CenterPoint has required that the Stockholders agree, and the Stockholders have
agreed, to enter into this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CenterPoint and the Stockholders agree as follows:
1. Provisions Concerning Company Common Stock. Each Stockholder hereby
agrees that during the period commencing on the Effective Date and continuing
until the first to occur of (a) the Effective Time or (b) termination of the
Merger Agreement in accordance with its terms, at any meeting of the holders of
Company Common Stock, however called, or in connection with any written consent
of the holders of Company Common Stock, such Stockholder shall vote (or cause to
be voted) the Shares held of record or Beneficially Owned (as defined below) by
such Stockholder, whether heretofore owned or hereafter acquired: (i) in favor
of approval of the Merger, the Merger Agreement, the transactions contemplated
by the Merger Agreement and any actions required in furtherance hereof and
thereof; (ii) against any action or agreement that would result in a breach in
any respect of any covenant, representation or warranty or any other obligation
or agreement of the Company or any Stockholder under the Merger Agreement; and
(iii) except as otherwise agreed to in writing in advance by CenterPoint,
against the following
<PAGE>
actions (other than the Merger Agreement and the agreements and transactions
contemplated by the Merger Agreement): (A) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or any Company Subsidiary; (B) a sale, lease or transfer
of a material amount of assets of the Company or any Company Subsidiary, or a
reorganization, recapitalization, dissolution or liquidation of the Company or
any Company Subsidiary; (C) (1) any change in a majority of the individuals who
constitute the board of directors of the Company or any Company Subsidiary; (2)
any change in the present capitalization of the Company or any Company
Subsidiary or any amendment of Organizational Documents of the Company or any
Company Subsidiary; (3) any other material change in the Company's or any
Company Subsidiary's corporate structure or business; or (4) any other action
which is intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, or materially and adversely affect the Merger and the
transactions contemplated by this Agreement and the Merger Agreement. Such
Stockholder shall not enter into any agreement or understanding with any Person
the effect of which would be inconsistent or violative of the provisions and
agreements contained in Section 1 or 2 of this Agreement. For purposes of this
Agreement, "Beneficially Own", "Beneficially Owned" or "Beneficial Ownership"
(or any other derivative of such terms) with respect to any securities shall
mean having "beneficial ownership" of such securities as determined pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including, without limitation, pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all other Persons with whom such
Person would constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act.
2. Other Covenants, Representations and Warranties. Each Stockholder
hereby represents and warrants to CenterPoint as follows:
(a) Ownership of Shares. Such Stockholder is the record and
Beneficial Owner of the number of Shares as set forth opposite such
Stockholder's name on the signature pages hereof. Such Shares, together
with the number of Shares set forth opposite each other Stockholder's name
on the signature pages hereof, represent the requisite number of shares
required to approve the Merger, the Merger Agreement, the transactions
contemplated by the Merger Agreement and any actions required in
furtherance hereof and thereof. On the Effective Date, the Shares set
forth opposite such Stockholder's name on the signature pages hereof
constitute all of the Shares owned of record or Beneficially Owned by such
Stockholder or as to which such Stockholder has voting power by proxy,
voting agreement, voting trust or other similar instrument. Such
Stockholder has sole voting power and sole power to issue instructions with
respect to the matters set forth in Section 1 of this Agreement, sole power
of disposition, sole power of conversion, sole power to demand appraisal
rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of the Shares as set forth
opposite such Stockholder's name on the signature pages hereof, with no
limitations, qualifications or restrictions on such rights.
-2-
<PAGE>
(b) Power; Binding Agreement. Such Stockholder has the legal
capacity, power and authority to enter into and perform all of such
Stockholder's obligations under this Agreement. The execution, delivery
and performance of this Agreement by such Stockholder will not violate any
other agreement to which such Stockholder is a party including, without
limitation, any voting agreement, stockholders agreement, voting trust,
trust or similar agreement. This Agreement has been duly and validly
executed and delivered by such Stockholder and constitutes a valid and
binding agreement of such Stockholder, enforceable against such Stockholder
in accordance with its terms. There is no beneficiary or holder of a
voting trust certificate or other interest of any trust of which such
Stockholder is trustee whose consent is required for the execution and
delivery of this Agreement or the consummation by such Stockholder of the
transactions contemplated hereby. If such Stockholder is married and such
Stockholder's Shares constitute community property, this Agreement has been
duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Stockholder's spouse, enforceable against such
person in accordance with its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
consummation by such Stockholder of the transactions contemplated hereby
and (B) none of the execution and delivery of this Agreement by such
Stockholder, the consummation by such Stockholder of the transactions
contemplated by this Agreement or compliance by such Stockholder with any
of the provisions of this Agreement shall (1) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both)
a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or
other instrument or obligation of any kind to which such Stockholder is a
party or by which such Stockholder or any of such Stockholder's properties
or assets may be bound, or (2) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to such Stockholder
or any of such Stockholder's properties or assets except such agreements as
will be amended or terminated prior to Closing.
(d) Accredited Investor. Each of the Stockholders identified as an
"accredited investor" on the signature pages hereof, represents and
warrants to Mergersub and CenterPoint that such Stockholder (i) is an
"accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) is able to bear the economic risk of an investment in
the CenterPoint Common Stock acquired pursuant to the Merger Agreement and
can afford to sustain a total loss of such investment, (iii) has such
knowledge and experience in financial and business matters that such
Stockholder is capable of evaluating the merits and risks of the proposed
investment in the CenterPoint Common Stock and (iv) has had an adequate
opportunity to ask questions and receive answers from the officers of
CenterPoint concerning all matters relating to the transactions
contemplated herein and in the Merger Agreement including, without
limitation, the background and experience of the
-3-
<PAGE>
current and proposed officers and directors of CenterPoint, and the plans
for the business and operation of CenterPoint.
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Stockholder shall not, directly or indirectly: (i) except as contemplated
by the Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent to
the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment
or other disposition of, any or all of such Stockholder's Shares or any
interest therein; (ii) except as contemplated by this Agreement, grant any
proxies or powers of attorney, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or (iii) take any
action that would make any representation or warranty of such Stockholder
contained herein untrue or incorrect or have the effect of preventing or
disabling such Stockholder from performing such Stockholder's obligations
under this Agreement.
(f) Reliance by CenterPoint. Such Stockholder understands and
acknowledges that CenterPoint is entering into the Merger Agreement in
reliance upon such Stockholder's execution and delivery of this Agreement.
3. Further Assurances. From time to time, at CenterPoint's request and
without further consideration, each Stockholder shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. Each Stockholder agrees with, and covenants to,
CenterPoint that such Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of such Stockholder's Shares, unless such transfer is
made in compliance with this Agreement. Without limiting the covenants in
Section 1, in the event of a stock dividend or distribution, or any change in
Company Stock by reason of any stock dividend, split-up, recapitalization,
combination, exchange of shares or other equity interests or the like, the term
"Shares" shall be deemed to refer to and include the Shares as well as all such
stock dividends and distributions and any shares or other equity interests into
which or for which any or all of the Shares may be changed or exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon the
earlier of (a) termination of the Merger Agreement in accordance with its terms
or (b) the Effective Time.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, the Merger Agreement and the
other agreements contemplated herein or therein constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all other prior
-4-
<PAGE>
agreements and understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement.
(b) Certain Events. Each Stockholder agrees that this Agreement and
the obligations hereunder shall attach to such Stockholder's Shares and
shall be binding upon any person or entity to which legal or Beneficial
Ownership of such Shares shall pass, whether by operation of law or
otherwise, including, without limitation, such Stockholder's heirs,
guardians, administrators or successors. Notwithstanding any such transfer
of Shares, the transferor shall remain liable for the performance of all
obligations of the transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties
hereto, provided that CenterPoint may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly owned
subsidiary of CenterPoint, but no such assignment shall relieve CenterPoint
of its obligations hereunder if such assignee does not perform such
obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Stockholders, except upon the execution and
delivery of a written agreement executed by the parties hereto; provided,
--------
that any Stockholder of the Company who agrees to be bound by the terms of
----
this Agreement may become a signatory hereto without the agreement of any
other party hereto, and thereafter such added Stockholder shall be treated
as a "Stockholder" for all purposes of this Agreement.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
nationally recognized expedited delivery service providing proof of
delivery or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by notice given in accordance
with this Section):
If to a Stockholder: At the address set forth opposite such
Stockholder's name on the signature pages
hereof
with a copy to:
Orrick, Herrington & Sutcliffe, LLP
400 Sansome Street
San Francisco, CA 94111
Attention: Geoffrey P. Leonard, Esq.
-5-
<PAGE>
If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert S. Basten
Scott H. Lang
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision of this Agreement in
such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any of
such rights, powers or remedies by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof,
-6-
<PAGE>
shall not constitute a waiver by such party of its right to exercise any
such or other right, power or remedy or to demand such compliance.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Washington, without giving effect
to the principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the same
agreement.
(n) Recovery of Attorney's Fees. In the event of any litigation
between the parties relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs
(including court costs) from the non-prevailing party, provided that if
both parties prevail in part, the reasonable attorney's fees and costs
shall be awarded by the court in such manner as it deems equitable to
reflect the relative amounts and merits of the parties' claims.
* * *
-7-
<PAGE>
IN WITNESS WHEREOF, CenterPoint and the Stockholders have caused this
Agreement to be duly executed as of the Effective Date.
CENTERPOINT
ADVISORS, INC.
By: /s/
---------------------------
Robert S. Basten,
Chief Executive Officer
<TABLE>
<CAPTION>
"STOCKHOLDERS" "ACCREDITED" ADDRESS NUMBER OF
(Yes/No) BENEFICIALLY
OWNED SHARES
<S> <C> <C> <C>
125
/s/ Ben W. Reppond
- --------------------
Ben W. Reppond
125
/s/ Scott D. Perry
- --------------------
Scott D. Perry
</TABLE>
-8-
<PAGE>
Exhibit 2.24
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated March 31, 1999 (the
"Effective Date"), is by and among CenterPoint Advisors, Inc., a Delaware
corporation ("CenterPoint"), Simione, Scillia, Larrow & Dowling LLC, a
Connecticut limited liability company ("SSLD"), and the managers of SSLD listed
on the signature pages hereof (each, a "Manager" and collectively, the
"Managers").
PREAMBLE
A. Concurrently herewith, CenterPoint, SSLD and SSLD Mergersub LLC, a
Delaware limited liability company and a direct wholly-owned subsidiary of
CenterPoint ("Mergersub"), are entering into a Merger Agreement (as amended from
time to time, the "Merger Agreement"; capitalized terms used but not otherwise
defined herein have the meanings assigned in the Merger Agreement). Pursuant to
the Merger Agreement, SSLD LLC, a Delaware limited liability company
("Company"), will be formed and capitalized by SSLD; SSLD will own all of the
outstanding membership interests of the Company ("Company Interests"); and the
Company will be merged with and into Mergersub, with Mergersub continuing as the
surviving company and as a direct wholly-owned subsidiary of CenterPoint
(collectively, the "Merger").
B. Each Manager owns membership interests of SSLD (the "SSLD Interests")
in the amounts set forth opposite such Manager's name and signature on the
signature pages hereof.
C. As an inducement and a condition to entering into the Merger Agreement,
CenterPoint has required that the Managers and SSLD agree, and the Managers and
SSLD have agreed, to enter into this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CenterPoint, SSLD and the Managers agree as follows:
1. Provisions Concerning the SSLD Interests and the Company Interests.
SSLD and each Manager (as both a manager of SSLD and as a member of SSLD) hereby
agrees that during the period commencing on the Effective Date and continuing
until the first to occur of (a) the Effective Time or (b) the termination of the
Merger Agreement in accordance with its terms, at any meeting of the Managers of
SSLD or the holders of the Company Interests or of the SSLD Interests, however
called, or in connection with any written consent of the Managers of SSLD or the
holders of the Company Interests or of the SSLD Interests, (x) such Managers
shall vote their ballots as managers of SSLD, and shall cause the Company
Interests and the SSLD Interests held of record or Beneficially Owned (as
defined below) by SSLD and such Managers, respectively, whether heretofore owned
or hereafter acquired, to be voted, and (y) SSLD shall vote the Company
Interests: (i) in favor of approval of the Merger, the Merger Agreement, the
transactions contemplated by the Merger Agreement and any actions required in
furtherance hereof and
<PAGE>
thereof; (ii) against any action or agreement that would result in a breach in
any respect of any covenant, representation or warranty or any other obligation
or agreement of SSLD, the Company, any Company Subsidiary or any Member under
the Merger Agreement; and (iii) except as otherwise agreed to in writing in
advance by CenterPoint, against the following actions (other than the Merger and
the agreements and transactions contemplated by the Merger Agreement): (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving SSLD, the Company or any Company Subsidiary; (B)
a sale, lease or transfer of a material amount of assets of SSLD, the Company or
any Company Subsidiary, or a reorganization, recapitalization, dissolution or
liquidation of SSLD, the Company or any Company Subsidiary; (C) (1) any change
in a majority of the individuals who constitute the operating committee,
managers or the board of directors of each of SSLD, the Company or any Company
Subsidiary; (2) any change in the present capitalization of SSLD, the Company or
any Company Subsidiary or any amendment of Organizational Documents of SSLD, the
Company or any Company Subsidiary; (3) any other material change in SSLD's, the
Company's or any Company Subsidiary's corporate structure or business; or (4)
any other action which is intended, or could reasonably be expected, to impede,
interfere with, delay, postpone, or materially and adversely affect the Merger
and the transactions contemplated by this Agreement and the Merger Agreement.
Such Manager shall not enter into any agreement or understanding with any Person
the effect of which would be inconsistent or violative of the provisions and
agreements contained in Section 1 or 2 of this Agreement. For purposes of this
Agreement, "Beneficially Own", "Beneficially Owned" or "Beneficial Ownership"
(or any other derivative of such terms) with respect to any securities shall
mean having "beneficial ownership" of such securities as determined pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including, without limitation, pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all other Persons with whom such
Person would constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act.
2. Other Covenants, Representations and Warranties. SSLD and each
Manager hereby represents and warrants to CenterPoint as follows:
(a) Ownership of SSLD Interests and Company Interests. Such Manager
is the record and Beneficial Owner of the number of SSLD Interests and
Company Interests as set forth opposite such Manager's name and signature
on the signature pages hereof. Such Manager has been duly elected,
appointed or designated a manager of SSLD in accordance with the Second
Amended and Restated Operating Agreement of SSLD and the Connecticut
Limited Liability Company Act. As of the Effective Time, SSLD shall be the
record and Beneficial Owner of all of the outstanding Company Interests.
Such Company Interests together with the number of Managers set forth on
the signature pages hereof, represent the requisite percentage of
membership interests and Managers required to approve the Merger, the
Merger Agreement, the transactions contemplated by the Merger Agreement and
any actions required in furtherance hereof and thereof. On the Effective
Date, the Managers set forth on the signature pages hereof constitute all
of the managers of SSLD. Such Manager has sole voting power and sole power
to issue instructions as a
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<PAGE>
manager of SSLD with respect to the matters set forth in Section 1 of this
Agreement, with no limitations, qualifications or restrictions on such
rights and powers.
(b) Power; Binding Agreement. Each of SSLD and such Manager has the
legal capacity, power and authority to enter into and perform all of SSLD's
and such Manager's obligations under this Agreement. The execution,
delivery and performance of this Agreement by SSLD and such Manager will
not violate any other agreement to which SSLD or such Manager is a party
including, without limitation, any voting agreement, stockholders
agreement, voting trust, trust or similar agreement. This Agreement has
been duly and validly executed and delivered by SSLD and such Manager and
constitutes a valid and binding agreement of SSLD and such Manager,
enforceable against SSLD and such Manager in accordance with its terms.
There is no beneficiary or holder of a voting trust certificate or other
interest of any trust of which SSLD or such Manager is trustee whose
consent is required for the execution and delivery of this Agreement or the
consummation by SSLD and such Manager of the transactions contemplated
hereby.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by SSLD or such Manager and
the consummation by SSLD or such Manager of the transactions contemplated
hereby and (B) none of the execution and delivery of this Agreement by SSLD
or such Manager, the consummation by SSLD or such Manager of the
transactions contemplated by this Agreement or compliance by SSLD or such
Manager with any of the provisions of this Agreement shall (1) result in a
violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which SSLD or
such Manager is a party or by which SSLD or such Manager or any of SSLD's
or such Manager's properties or assets may be bound, or (2) violate any
order, writ, injunction, decree, judgment, order, statute, rule or
regulation applicable to SSLD or such Manager or any of SSLD's or such
Manager's properties or assets (other than to the extent any of the
foregoing relates to regulating, licensing or permitting the practice of
public accountancy).
(d) Accredited Investor. Each of the Managers identified as an
"accredited investor" on the signature pages hereof, represents and
warrants to Mergersub and CenterPoint that such Manager (i) is an
"accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) is able to bear the economic risk of an investment in
the CenterPoint Common Stock acquired pursuant to the Merger Agreement and
can afford to sustain a total loss of such investment, (iii) has such
knowledge and experience in financial and business matters that such
Manager is capable of evaluating the merits and risks of the proposed
investment in the CenterPoint Common Stock and (iv) has had an adequate
opportunity to ask questions and receive answers from the officers of
CenterPoint concerning all matters relating to the transactions
contemplated herein and in the Merger Agreement including, without
limitation, the background and experience of the
-3-
<PAGE>
current and proposed officers and directors of CenterPoint, and the plans
for the business and operation of CenterPoint.
(e) Restriction on Transfer, Proxies and Non-Interference. SSLD and
such Manager shall not, directly or indirectly: (i) except as contemplated
by the Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent to
the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment
or other disposition of, any or all of such Manager's SSLD Interests or
SSLD's Company Interests or any interest therein; (ii) except as
contemplated by this Agreement, grant any proxies or powers of attorney,
deposit any SSLD Interests or Company Interests into a voting trust or
enter into a voting agreement with respect to any SSLD Interests or Company
Interests; or (iii) take any action that would make any representation or
warranty of SSLD or such Manager contained herein untrue or incorrect or
have the effect of preventing or disabling such Manager from performing
such Manager's obligations under this Agreement.
(f) Reliance by CenterPoint. SSLD and such Manager understands and
acknowledges that CenterPoint is entering into the Merger Agreement in
reliance upon SSLD's and such Manager's execution and delivery of this
Agreement.
3. Further Assurances. From time to time, at CenterPoint's request and
without further consideration, SSLD and/or each Manager shall execute and
deliver such additional documents and take all such further lawful action as may
be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. SSLD and each Manager agrees with, and covenants to,
CenterPoint that SSLD and such Manager shall not request that the Company or
SSLD register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Manager's SSLD Interests or
SSLD's Company Interests, unless such transfer is made in compliance with this
Agreement. Without limiting the covenants in Section 1, in the event of a
distribution, or any change in SSLD Interests or Company Interests by reason of
any split-up, recapitalization, combination, exchange of SSLD Interests or
Company Interests or other equity interests or the like, the terms "SSLD
Interests" and "Company Interests" shall be deemed to refer to and include the
SSLD Interests and Company Interests, as applicable, as well as all such
distributions and any equity interests, into which or for which any or all of
the SSLD Interests or Company Interests may be changed or exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Managers, the SSLD Interests and
the Company Interests shall terminate upon the earlier of (a) the termination of
the Merger Agreement in accordance with its terms or (b) the Effective Time.
-4-
<PAGE>
6. Miscellaneous.
(a) Entire Agreement. This Agreement, the Merger Agreement and the
other agreements contemplated herein or therein constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of
this Agreement.
(b) Certain Events. SSLD and each Manager agrees that this Agreement
and the obligations hereunder shall attach to such Manager's SSLD Interests
and SSLD's Company Interests, respectively, and shall be binding upon any
person or entity to which legal or Beneficial Ownership of any such SSLD
Interests or Company Interests shall pass, whether by operation of law or
otherwise, including, without limitation, such Manager's heirs, guardians,
administrators or successors; provided, however, that in the event an
-------- -------
individual who is not a party to this Agreement is duly elected, appointed
or designated to serve as manager of SSLD, SSLD and the Managers shall
require SSLD to cause such individual to become party to and bound by this
Agreement as a condition to such individual becoming a manager of SSLD.
Notwithstanding any such transfer of SSLD Interests or Company Interests,
the transferor shall remain liable for the performance of all obligations
of the transferor under this Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties
hereto, provided that CenterPoint may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly-owned
subsidiary of CenterPoint, but no such assignment shall relieve CenterPoint
of its obligations hereunder if such assignee does not perform such
obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Managers, except upon the execution and delivery
of a written agreement executed by the parties hereto; provided, that, any
-------- ----
manager of SSLD or the Company, who agrees to be bound by the terms of this
Agreement may become a signatory hereto without the agreement of any other
party hereto, and thereafter such added manager shall be treated as a
"Manager" for all purposes of this Agreement.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
nationally recognized expedited delivery service providing proof of
delivery or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by notice given in accordance
with this Section):
-5-
<PAGE>
If to a Manager: At the address set forth
opposite such Manager's
name on the signature pages hereof
with a copy to:
Brenner, Salzman & Wallman
271 Whitney Avenue
New Haven, Connecticut 06511
Attn: Wayne Martino, Esq.
If to SSLD, to:
Simione, Scillia, Larrow & Dowling, LLC
555 Long Wharf Drive, 12th Floor
New Haven, Connecticut 06511
with a copy to:
Brenner, Salzman & Wallman
271 Whitney Avenue
New Haven, Connecticut 06511
Attn: Wayne Martino, Esq.
If to CenterPoint or Mergersub, to:
CenterPoint Advisors, Inc.
225 West Washington Street
16th Floor
Chicago, Illinois 60606
Attn: Robert S. Basten
Scott H. Lang
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other
-6-
<PAGE>
provision or portion of any provision of this Agreement in such
jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision
or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any of
such rights, powers or remedies by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or
other right, power or remedy or to demand such compliance.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Connecticut, without giving effect
to the principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the same
agreement.
-7-
<PAGE>
(n) Recovery of Attorney's Fees. In the event of any litigation
between the parties relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees and costs
(including court costs) from the non-prevailing party, provided that if
both parties prevail in part, the reasonable attorney's fees and costs
shall be awarded by the court in such manner as it deems equitable to
reflect the relative amounts and merits of the parties' claims.
* * *
-8-
<PAGE>
IN WITNESS WHEREOF, CenterPoint, SSLD and the Managers have caused this
Agreement to be duly executed as of the Effective Date.
CENTERPOINT ADVISORS, INC.
By: /s/ Robert C. Basten
--------------------
Robert C. Basten,
Chief Executive Officer
PERCENTAGE
OF
BENEFICIALLY
PERCENTAGE OWNED
OF COMPANY
BENEFICIALLY INTERESTS AS
"ACCREDITED" ADDRESS OWNED SSLD OF EFFECTIVE
"SSLD" (Yes/No) INTERESTS TIME
SIMIONE, SCILLIA, LARROW & DOWLING LLC
By: /s/ Richard C. Simione
--------------------------------------
Name: Richard C. Simione
----------------------------------- 100%
Its: Managing Principal
-----------------------------------
"MANAGERS"
/s/ Richard C. Simione
- -----------------------
Richard C. Simione, YES 16.12271
individually and as
Manager of SSLD
/s/ Anthony P. Scillia
- -----------------------
Anthony P. Scillia, YES 16.12271
individually and as
Manager of SSLD
-9-
<PAGE>
PERCENTAGE
OF
BENEFICIALLY
PERCENTAGE OWNED
OF COMPANY
BENEFICIALLY INTERESTS AS
"ACCREDITED" ADDRESS OWNED SSLD OF EFFECTIVE
(Yes/No) INTERESTS TIME
/s/ Joseph Natarelli
- ------------------------
Joseph Natarelli, YES 8.06136
individually and as
Manager of SSLD
/s/ John H. Schuyler
- ------------------------
John H. Schuyler, YES 4.23825
individually and as
Manager of SSLD
/s/ Walter R. Fulton
- ------------------------
Walter R. Fulton, NO 2.8963
individually and as
Manager of SSLD
/s/ W. Edward Dowling
- -------------------------
W. Edward Dowling, YES 9.39365
individually and as
Manager of SSLD
/s/ Richard L. DeVita
- ------------------------
Richard L. DeVita, YES N/A
individually and as
Manager of SSLD
/s/ Peter A. Laine
- ------------------------
Peter A. Laine, YES 11.51465
individually and as
Manager of SSLD
-10-
<PAGE>
PERCENTAGE
OF
BENEFICIALLY
PERCENTAGE OWNED
OF COMPANY
BENEFICIALLY INTERESTS AS
"ACCREDITED" ADDRESS OWNED SSLD OF EFFECTIVE
(Yes/No) INTERESTS TIME
/s/ Ronald Larrow
- ---------------------
Ronald Larrow, Yes 15.15728
individually and as
Manager of SSLD
/s/ William McCabe
- ---------------------
William McCabe No 1.93086
individually and as
Manager of SSLD
-11-
<PAGE>
EXHIBIT 5
[LETTERHEAD OF KATTEN MUCHIN & ZAVIS]
May 21, 1999
CenterPoint Advisors, Inc.
225 West Washington Street, 16/th/ Floor
Chicago, IL 60606
Re: Registration Statement on Form S-1
----------------------------------
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-1 (the "Registration Statement") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
The Registration Statement relates to 12,075,000 shares of the Company's
Common Stock, $.01 par value per share (the "Common Stock").
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 proposed Underwriting Agreement by and among the Company,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc., Thomas
Weisel Partners LLC and CIBC Oppenheimer Corp. as representatives of the
underwriter(the "Underwriting Agreement"), (c) the Certificate of Incorporation
of the Company, (d) the ByLaws of the Company, and (e) resolutions adopted by
the Board of Directors of the Company.
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
<PAGE>
CenterPoint Advisors, Inc.
May 21, 1999
Page 2
originals and the conformity to authentic original documents of all documents
submitted to us as certified, conformed or reproduced copies.
Based upon and subject to the foregoing, it is our opinion that the
12,075,000 shares of Common Stock covered by the Registration Statement
(including 1,575,000 shares subject to the over-allotment option), when issued
and sold by the Company and when paid for in accordance with the provisions of
the Underwriting Agreement, will be validly issued, fully paid and non-
assessable.
Our opinion expressed above is limited to the General Corporation 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 reference to our name in the Registration
Statement under the caption "Certain Legal Matters" and further 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 10.5
------------
FORM OF EMPLOYMENT AGREEMENT
BY AND BETWEEN
SELF FUNDED BENEFITS, INC.
D/B/A INSURANCE DESIGN ADMINISTRATORS
AND
ROBERT F. GALLO
<PAGE>
Draft 3/25/99
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
_____________, 1999, by and between Self Funded Benefits, Inc., d/b/a Insurance
Design Administrators, a New Jersey corporation (the "Company"), and Robert F.
Gallo ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Merger Agreement dated as of
_____________, 1999 (the "Merger Agreement"), by and among the Company,
CenterPoint Advisors, Inc., a Delaware corporation ("CenterPoint"), and the
stockholders of the Company identified on Schedule A to the Merger Agreement,
----------
providing for the merger of the Company into a wholly owned subsidiary of
CenterPoint.
B. Employee has been a substantial owner and executive officer of the
Company since _________, and has extensive knowledge and a unique understanding
of its business.
C. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
D. It is a condition to the consummation of the Merger Agreement that the
Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
Chief Executive Officer of the Company and Employee agrees to accept such
employment, all in accordance with the terms and conditions of this
Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the Company's Chief Executive
Officer and will have such responsibilities, duties and authority, and will
render such services for the Company as the Chief Operating Officer of the
Business and Financial Service Group of CenterPoint or its designee (in
either case, the "Reporting Person") shall from time to time reasonably
direct; provided, however, that such duties and responsibilities shall be
commensurate with the position of Chief Executive Officer of the Company.
Employee agrees diligently and faithfully to serve the Company, comply with
all Company and CenterPoint policies and
<PAGE>
procedures in effect from time to time, and to devote Employee's best
efforts, highest talents and skills and full time and attention during
normal business hours to the furtherance and success of the Company's
business. All parties acknowledge and agree that the management of the
business and affiliates of the Company are subject to the fiduciary and
legal duties of the board of directors of CenterPoint.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of four years beginning on the date of the closing of
the Merger Agreement (the "Initial Employment Period"). This Agreement
shall automatically renew for successive one-year periods (each one-year
period shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its, his or her desire to terminate this Agreement. The
Initial Employment Period and each successive Renewal Period shall be
referred to herein together as the "Employment Period". Notwithstanding
anything to the contrary contained herein, the Employment Period is subject
to termination pursuant to Sections 1.5 and 1.6 below.
1.4 Place of Employment. Employee's services hereunder shall be
-------------------
rendered at such locations in the state of New Jersey and within a twenty-
five mile radius of the Company's current office as shall be determined by
the Board, subject to such travel as may be reasonably required in
connection with the business of the Company. Employee shall not be
required to relocate to any other area without his or her consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement and with the Company, by notice to Employee in writing at any
time, for Cause (as hereinafter defined), and such employment shall
automatically be terminated upon the death or the Disability (as
hereinafter defined) of Employee. Any such termination shall be effective
upon the date of service of such notice pursuant to Section 6.7 hereof, in
the case of termination for Cause, or immediately upon the death or
Disability of Employee, and the Employment Period shall terminate as of the
effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Reporting Person after (A) written notice
is delivered to Employee describing such willful failure and (B) if
reasonably possible or practical to cure, Employee has failed to cure
or take substantial steps to cure such willful failure after a
reasonable period of time, as determined by the Board in its
discretion (not to be less than 30 days from the date of such notice);
2
<PAGE>
(iii) the good faith determination by the Board of Directors of
the Company (the "Board") in the exercise of its reasonable judgment
that Employee has committed an act or acts in the course of his
employment constituting fraud or misappropriation of material Company
property;
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in Section 3 of this Agreement; or
(v) a material breach by Employee of any of the other material
terms or conditions of this Agreement if (A) written notice is
delivered to Employee describing such breach and (B) if reasonably
possible or practical to cure, Employee has failed to cure or take
substantial steps to cure such breach after a reasonable period of
time, as determined by the Board in its discretion (not to be less
than 30 days from the date of such notice).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with
or without reasonable accommodation, for a total period of 90 days in any
360-day period. The Board shall determine, according to the facts then
available, including without limitation, the examination report of a
physician selected by Employee, whether and when the Disability of the
Employee has occurred. Such determination shall not be arbitrary or
unreasonable if Employee contests a determination of Disability, and the
Board shall be bound by the expert medical opinion of a physician mutually
agreed upon by Employee (or his representative, if any) and the Company,
after such physician has completed an examination of Employee. In the
event Employee and the Company cannot agree on a physician, the two
physicians so selected shall select a third physician, whose opinion shall
be final. Employee agrees to make reasonable efforts to make himself
available for such examination upon the reasonable request of the Company.
1.6 Termination of Employment without Cause. The Company has the
---------------------------------------
right to terminate Employee's employment with the Company and under this
Agreement, by 30 days written notice to Employee in writing at any time,
without Cause (as defined in this Agreement). Any such termination shall
be effective upon the expiration of such 30 day period.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $200,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as
3
<PAGE>
determined by the Compensation Committee of the Board (the "Compensation
Committee"), based upon CenterPoint's policies and procedures. If the
Employment Period is terminated pursuant to Section 1.5 above or for any
other reason, then the Base Salary for any partial year will be prorated
based on the number of days elapsed in such year during which services were
actually performed by Employee.
2.2 Bonus.
-----
(a) For calendar year 1999, Employee shall be eligible to earn a
bonus of up to 50% of Employee's Base Salary as described in the
CenterPoint bonus plan if the Company achieves its performance targets
set forth in the budget which bonus plan and budget shall be
established in writing at the closing of the Merger Agreement.
(b) For future years, Employee shall be eligible to earn an
annual bonus of up to 100% of Employee's Base Salary under
CenterPoint's bonus plan for executive employees based upon such
factors as (i) the financial performance of the Company, and (ii) the
achievement of personal performance goals. Such criteria and goals,
and the amount of a bonus, if any, shall be established by the
Compensation Committee of the Board of Directors of CenterPoint.
(c) Any bonus for a partial year shall be prorated for that year.
All bonuses awarded to Employee hereunder shall be payable in
accordance with the terms of the bonus plan.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
Section 1.5 of this Agreement), or if Employee shall voluntarily
terminate his employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to the
amount of his Base Salary for the remainder of the Initial Employment
Period (the "Severance Period"), (B) (i) if permitted under Company's
group health insurance coverage, continuation at the cost of Company
of coverage thereunder for Employee and, if dependent coverage is then
in effect, his covered dependents (subject to such changes in coverage
as shall apply to Company's employees generally and provided that if
the cost of dependent coverage prior to termination of employment was
being paid by Employee, such cost shall continue to be payable by
Employee) or (ii) if not so permitted, reimbursement by the Company of
the premiums for group health insurance coverage otherwise payable by
Employee under COBRA, until the end of the Severance Period or until
other employment is obtained by Employee, whichever occurs first, and
(C) his pro rated bonus (if any),
4
<PAGE>
as determined by the Compensation Committee of the Board in its good faith
judgement, for the period of any partial fiscal year immediately preceding
the termination date ((A), (B) and (C) collectively, the "Severance
Benefits"). The Severance Benefits payable under (A) and (B)(ii) above
shall be paid in equal installments on the Company's normal payroll payment
dates occurring during the Severance Period. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee shall
execute and deliver to the Company a written separation agreement, in form
and substance reasonably satisfactory to the Company (but not inconsistent
with this Agreement), which agreement shall, among other things, contain a
general release by Employee of all claims arising out of Employee's
employment or termination of employment (but excluding claims for
indemnification for third party claims), and (ii) Employee shall be in
compliance with all of Employee's obligations which expressly survive
termination hereof, including without limitation those arising under
Section 3 hereof. The Severance Benefits are intended to be in lieu of all
other payments to which Employee might otherwise be entitled in respect of
termination of Employee's employment without Cause. In addition to the
payment of Severance Benefits, all options to purchase CenterPoint stock
granted to Employee prior to the date of (i) a termination by the Company
without cause, (ii) Employee's voluntary termination of his employment
during the Employment Period and within 90 days of a Constructive
Termination, or (iii) Employee's death or Disability shall vest and become
exercisable on the date of such event and for a period of one year
thereafter. Except as expressly provided above, no fringe or other employee
benefits shall be payable during or after the Severance Period.
(b) If Employee's employment shall be terminated by Company for
"Cause" pursuant to Section 1.5 or if Employee shall voluntarily terminate
his employment during the Employment Period under circumstances not
described in Section 2.3 above, the Company shall have no further
obligations hereunder or otherwise with respect to Employee's employment
from and after the effective date of the termination of the Employment
Period (except for the payments required under Section 2.1), and the
Company shall continue to have all other rights available hereunder
(including, without limitation, all rights under Section 3 hereof at law or
in equity).
(c) For the avoidance of doubt, except as set forth in this
Section 2.3(c), Severance Benefits shall not be payable if Employee's
employment is terminated by reason of his death or Disability, but shall
continue to be payable during the Severance Period if his employment is
terminated without Cause or by reason of Constructive Termination and he
subsequently dies or becomes disabled. If Employee dies during the
Employment Period, Employee's designated beneficiary shall receive the Base
Salary for a six month period, which amounts shall be paid on the Company's
normal payroll payment dates during such six month period.
5
<PAGE>
(d) "Constructive Termination" as used herein, shall be deemed to
have occurred if the Company (i) demotes Employee to a position
substantially below that of Chief Executive Office of the Company or
assigns the Employee duties and responsibilities that are not commensurate
with such position, (ii) substantially reduces Employee's Base Salary,
fails to comply with applicable CenterPoint compensation policies
(including, without limitation, failure to pay any bonus due pursuant to
the CenterPoint bonus plan described in Section 2.2) or materially reduces
his employee benefits and perquisites, taken in the aggregate, unless such
reduction is the result of a termination of a benefit plan as to
substantially all managerial employees of the Company or (iii) requires
Employee to relocate in violation of Section 1.4.
(e) The occurrence of a "change in control of the Company," as
that term in hereafter defined, shall constitute a Constructive
Termination. For purposes of this Agreement, "change in control of the
Company" means (i) the acquisition of ownership by any person or group of
two (2) or more persons, of fifty percent (50%) or more of the assets of
the Company, or of the issued and outstanding common stock of the Company,
whether by or as a result of purchase, tender offer, exchange offer,
merger, or otherwise, and whether by or as a result of one transaction or a
series of transactions; or (ii) the adoption of a plan of liquidation or
dissolution of the Company. "Person," as used herein, means any individual,
trust, partnership, limited liability company, joint venture, corporation
or business entity, however known, foreign or domestic. Under no
circumstances shall an event which would constitute a change in control of
CenterPoint constitute a change in control of the Company unless it
otherwise constitutes a change in control of the Company.
2.4 Benefits, Expenses and Pension Plan.
-----------------------------------
(a) During the Employment Period, the Company agrees to provide
to Employee such fringe and other employee benefits as are generally
provided, from time to time, to senior officers of CenterPoint or the
subsidiaries of CenterPoint (upon no less favorable terms as provided
to such officers), and in a manner which considered in total is
consistent with the past practices of the Company, including without
limitation, vacation, health insurance, life insurance and disability
insurance benefits, and the opportunity to participate in
CenterPoint's stock option plans. Employee acknowledges that
CenterPoint and the Company shall retain the right to discontinue or
modify any employee benefit program (including, without limitation,
CenterPoint's stock option plans) at any time. The Company will
reimburse Employee in accordance with Company policy for his normal
out-of-pocket expenses reasonably incurred in the course of performing
his duties hereunder.
6
<PAGE>
[(b) During the Employment Period, Employee shall be entitled to
an automobile allowance of $_______ per month.] [Existing Lease]
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(a) the Company is and will be engaged in the business of
providing professional services, in particular third party benefits
administration (the "Business") during the Employment Period and
thereafter;
(b) Employee will occupy a position of trust and confidence with
the Company after the date of this Agreement and, during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(c) the agreements and covenants contained in this Section 3 are
essential to protect the Company and the goodwill of the Business and
are a condition precedent to the Company's entering into this
Agreement;
(d) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(e) Employee has means to support himself or herself and his or
her dependents other than by engaging in the Business, or a business
substantially similar to the Business, and the provisions of this
Section 3 will not impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the period of
-----------
time commencing as of the date hereof and ending as of the date that is two
years after Employee's employment with the Company has (other than by the
expiration of this Agreement at the end of the Employment Period without
renewal) been terminated (the "Restrictive Period"), he shall not, for any
reason whatsoever, directly or indirectly, for himself or on behalf of or
in conjunction with any other person:
7
<PAGE>
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with the Company or any of the subsidiaries or
affiliates thereof, within any business market where the Company or
any subsidiary or affiliate thereof conducted or conducts business at
any time prior to the termination (the "Territory"),
(b) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period preceding or that
was known by Employee to have been actively being solicited by the
Company to become a customer of the Company at any time during such
period,
(c) call upon any person who is, at that time, within the
Territory, an employee of the Company (including the subsidiaries or
affiliates thereof) for the purpose or with the intent of enticing
such employee away from or out of the employ of the Company (including
the subsidiaries and affiliates thereof), or hire such person, or
(d) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction (as
hereinafter defined) with any entity with respect to which CenterPoint
or any subsidiary or affiliate thereof has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the preceding one-year period.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares,
proxy solicitation or other business combination. Notwithstanding the
above, the foregoing covenant shall not be deemed to prohibit Employee from
acquiring as an investment not more than one percent (1%) of the capital
stock of a competing business whose stock is traded on a national
securities exchange or over-the-counter market so long as Employee does not
consult with or is not employed by such competitor.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely
8
<PAGE>
or jointly with others during the term of Employee's employment hereunder,
whether or not during normal working hours. Employee agrees that all right,
title and interest in and to all such ideas, discoveries, inventions and
improvements shall belong solely to the Company, whether or not they are
protected or protectible under applicable patent, trademark, service mark,
copyright or trade secret laws. Employee agrees that all work or other
material containing or reflecting any such ideas, discoveries, inventions
or improvements shall be deemed work made for hire as defined in Section
101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall include all
patent rights, copyrights, trademark and service mark rights, and trade
secret rights (if any) to such ideas, discoveries, inventions and
improvements in the United States and in all other countries. Employee
further agrees, at the expense of the Company, to take all such reasonable
actions and to execute and deliver all such assignments and other lawful
papers relating to any aspect of the prosecution of such rights in the
United States and all other countries as the Company may request at any
time during the Employment Period or after termination thereof. This
Section 3.3 shall not prohibit Employee from engaging in any business in a
manner which does not violate the provisions of this Agreement.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his or her duties hereunder, during the Restrictive Period, Employee
shall not, directly or indirectly, as employee, agent, consultant,
stockholder, director, partner or in any other individual or representative
capacity, solicit or intentionally encourage any present or future
customer, supplier or other third party to terminate or otherwise alter
his, her or its relationship with the Company.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the Company, directly or indirectly
furnish, make available or disclose to any third party or use for the
benefit of himself or any third party, any Confidential Information. As
used in this Agreement, "Confidential Information" shall mean any
information relating to the business or affairs of CenterPoint, the Company
or the Business, including, but not limited to, information relating to
financial statements, employees, clients, suppliers, pricing, marketing,
equipment, programs, strategies, analyses, profit margins, or other
proprietary information of or used by CenterPoint, the Company or any other
subsidiary of CenterPoint in connection with the Business and the business
of each of CenterPoint's subsidiaries; provided, however, that Confidential
Information shall not include any information which is in the public domain
or becomes known in the industry through no wrongful act on the part of
Employee. Employee acknowledges that the Confidential Information is vital,
sensitive, confidential and proprietary to the Company and CenterPoint.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of
9
<PAGE>
this Section 3 shall nevertheless stand, the Restrictive Period herein
shall be deemed to be the longest period permissible by law under the
circumstances and the Territory herein shall be deemed to comprise the
largest territory permissible by law under the circumstances. The court in
each case shall reduce the time period and/or territory to permissible
duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders, client
lists and other client information, supplier lists and other supplier
information, financial information, memoranda, correspondence and other
records or documents including information stored on computer disks or in
computer readable form, containing Confidential Information prepared by
Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this Section 3 (collectively, the "Restrictive Covenants") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
3.9 Company. For purposes of this Section 3, (i) the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the
Company, if any, or their subsidiaries or affiliates and (ii) the term
"Business" shall include the business activities of the Company and its
subsidiaries.
3.10 Reasonable Restraint. It is agreed by the parties hereto that
--------------------
the foregoing covenants in this Section 3 impose a reasonable restraint on
Employee in light of the activities and business of CenterPoint (including
the subsidiaries thereof) on the date of execution of this Agreement and
the current plans of CenterPoint; but it is also the intent of the parties
that such covenants be construed and enforced for the Company in accordance
with the changing activities and business of the Company throughout the
respective terms of these covenants.
10
<PAGE>
It is further agreed by the parties that, in the event that the
Employee ceases to be employed by the Company, CenterPoint or any affiliate
thereof, and Employee enters into a business or pursues activities not in
competition with CenterPoint and/or any subsidiary thereof, or similar
activities or businesses in locations the operations of which, under such
circumstances, does not violate this Section 3 and in any event such new
business, activities or location are not in violation of this Section 3,
Employee shall not be chargeable with a violation of this Section 3 if
CenterPoint and/or any subsidiary thereof shall thereafter enter the same,
similar or competitive (i) business, (ii) course of activities or (iii)
location, as applicable.
3.11 Independent Covenant. All of the covenants of this Section 3
--------------------
shall be construed as an agreement independent of any provision of this
Agreement, and the existence of any claim or cause of action of Employee
against the Company, CenterPoint or any subsidiary or affiliate thereof,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is
specifically agreed that the respective periods of time during which
Employee's covenants as set forth in this Section 3 are effective shall be
computed by excluding from any such computation any time during which
Employee is in violation of any provision of this Section 3.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in Sections 2.3, 3, 4 and 5 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under Section 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he or she will treat all such amounts as required
pursuant to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
11
<PAGE>
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee to any affiliate of the Company
to which the Business of the Company is assigned at any time or any
surviving entity following any merger or consolidation of the Company and
any other entity. Except as otherwise expressly provided herein, all
covenants and agreements contained in this Agreement by or on behalf of any
of the parties hereto shall bind and inure to the benefit of the respective
legal representatives, heirs, permitted successors and assigns of the
parties hereto whether so expressed or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of New Jersey, without giving effect to provisions
thereof regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered
12
<PAGE>
by a nationally recognized overnight courier service, (c) sent by certified
or registered mail, return receipt requested and first class postage
prepaid, or (d) sent by facsimile transmission followed by a confirmation
copy delivered by a nationally recognized overnight courier service the
next day. Such notices, demands and other communications shall be sent to
the addresses indicated below:
(a) If to Employee:
Robert F. Gallo
169 Ramapo Valley Road
Oakland, New Jersey 07436
with a copy to:
Henry Matri, Esq.
Cole, Schotz, Meisel, Forman & Leonard
25 Main Street
P.O. Box 800
Hackensack, New Jersey 07602-0800
(b) If to the Company:
Insurance Design Administrators
169 Ramapo Road
P. O. Box 875
Oakland, New Jersey 07436-0875
Attention: ___________________
with a copy to:
CenterPoint Advisors, Inc.
225 West Washington Street, 16/th/ Floor
Chicago, Illinois 60606
Attention: Robert Basten
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Howard S. Lanznar, Esq.
13
<PAGE>
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
6.1 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.1 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
Section 3 as to which the parties shall have the right to apply for relief in
any court of competent jurisdiction, shall be resolved by arbitration in
Hackensack, New Jersey, in accordance with the Federal Arbitration Act and the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. Without
limiting the generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims arising
out of or related to this Agreement or breach thereof; (ii) any claims arising
under any federal, state, or local statute or the common law of any state,
regarding compensation or employee benefits, or discrimination, retaliation,
harassment, or denial of equal employment opportunity based on sex, race, color,
religion, national origin, disability, age, marital status, or any other
category protected by law; (iii) any claims arising under the common law of the
United States or any state relating to Employee's employment with Company,
including without limitation claims alleging negligence, defamation, public
policy, tort, infliction of emotional distress, fraud, or misrepresentation; or
(iv) any civil claims that Company may have against Employee relating to
Employee's employment with Company. Anything herein to the contrary
notwithstanding, this Section 6.11 shall not apply to: (i) any claim by Employee
for workers compensation benefits or unemployment compensation benefits; or (ii)
any claim by
14
<PAGE>
Company or Employee for injunctive or equitable relief, including without
limitation claims related to the enforcement of Section 3 hereof, which may be
brought in any court of competent jurisdiction. Employee and Company expressly
waive any right to resolve any dispute covered by this Section by filing suit in
court for trial by a judge or jury. The arbitrator shall include in any award in
the prevailing party's favor costs and expenses of the arbitration. In the event
the arbitrator does not rule in favor of the prevailing party in respect of all
the claims alleged by such party, the arbitrator shall include in any award in
favor of the prevailing party the amount of his, her or its reasonable costs and
expenses of the arbitration as he or she deems just and equitable under the
circumstances. Except as provided above, each party to the arbitration shall
bear his, her or its own attorney's fees and expenses and the parties shall bear
equally all other costs and expenses of the arbitration.
7. Settlement. The Company's obligation to make the payments provided for
----------
in this Agreement and otherwise perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Employee or others other than
any such set-off, counterclaim, recoupment, defense or other claim, right or
action to which the Company may become entitled in connection with a final
judgment in its favor resulting from any theft, embezzlement, conversion or
similar act by the Employee.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SELF FUNDED BENEFITS, INC. D/B/A INSURANCE
DESIGN ADMINISTRATORS
By:_______________________________________________
Name:_____________________________________________
Title:____________________________________________
EMPLOYEE:
__________________________________________________
Robert F. Gallo
16
<PAGE>
EXHIBIT 10.6
------------
FORM OF EMPLOYMENT AGREEMENT
BY AND AMONG
ROBERT F. DRIVER CO., INC.,
CENTERPOINT ADVISORS, INC.
AND
THOMAS W. CORBETT
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
__________ __, 1999, by and among Robert F. Driver Co., Inc., a Delaware
corporation (the "Company"), CenterPoint Advisors, Inc., a Delaware corporation
("CenterPoint"), and Thomas W. Corbett ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Merger Agreement dated as of March
__, 1999 (the "Merger Agreement"), by and among the Company, CenterPoint, and
the stockholders of the Company identified on Schedule A to the Merger
----------
Agreement, providing for the Merger by CenterPoint of all of the issued and
outstanding capital stock of the Company.
B. Employee has been a substantial owner and executive officer of the
Company since _________, and has extensive knowledge and a unique understanding
of its business.
C. The Company and CenterPoint desire to employ Employee, and Employee
desires to be employed by the Company and CenterPoint, all under the terms and
conditions set forth herein.
D. It is a condition to the consummation of the Merger Agreement that the
Company, CenterPoint and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee.
----------------------
(a) For the Employment Period (hereinafter defined), the Company
hereby employs Employee as Chief Executive Officer and Chairman of the
Board of the Company, and Employee hereby accepts such employment.
(b) For the Employment Period, CenterPoint hereby employs
Employee as President and Chief Operating Officer of the Business and
Financial Services Group of CenterPoint ("COO of BFS Group") and
Employee hereby accepts such employment.
<PAGE>
(c) During the Employment Period, CenterPoint shall use its best
efforts, subject to its fiduciary duty, to cause Employee to be and
remain appointed to the Executive Committee of the CenterPoint Board
of Directors.
(d) CenterPoint and the Company shall use their best efforts to
cause Employee to be and remain appointed to the Board of Directors of
the Company during the Employment Period. During the Employment
Period, Employee shall have the right to approve nominees to the
Company's Board of Directors, which approval shall not be unreasonably
withheld. Employee acknowledges and agrees that the actions of the
Board of Directors of the Company are subject to their fiduciary
duties to the Company's sole shareholder, CenterPoint, and that the
Board of Directors of the Company shall serve at the direction of
CenterPoint.
1.2 Duties and Powers.
-----------------
(a) At all times during the Employment Period (as hereinafter
defined), Employee will serve as the Company's Chief Executive Officer and
Chairman of the Board and will have such responsibilities, duties and
authority, and will render such services for the Company and its
affiliates, as are commensurate with the position of Chief Executive
Officer and Chairman of the Board of the Company. Unless otherwise agreed,
Employee will report directly to the Chief Executive Officer of
CenterPoint.
(b) It is understood and agreed by the parties hereto that, subject
to the last three sentences of Section 1.2(c), the Company shall have
operational control of, and Employee in his capacity as Chief Executive
Officer of the Company shall be the most senior executive responsible for
the operations of CenterPoint's insurance business, including without
limitation, property and casualty insurance, life insurance, health and
welfare, third party benefits administration (except business currently
conducted by Insurance Design Administrators ("IDA") described in Exhibit A
hereto), surety bonds, marine insurance, public entity insurance and
MGA/MGU operations and other insurance-related businesses (collectively,
the "Driver Controlled Insurance Business"). Notwithstanding the foregoing,
if during the Employment Period, CenterPoint makes a strategic decision to
significantly expand its life insurance business (whether by acquisition or
otherwise), then Employee and CenterPoint shall jointly determine in good
faith whether such life insurance business will remain a part of the Driver
Controlled Insurance Business, or whether it will be operated as a separate
platform within the BFS Group.
(c) Employee shall have general responsibility for day-to-day
operations of the Company. He shall also be responsible for the execution
and implementation of the Company's business plan, which will be prepared
on an annual basis by the Company and reviewed and approved by the
CenterPoint Board of Directors. Employee shall have overall responsibility
for (i) the selection, creation, development, cessation and implementation
of lines of business and other products provided by the Company; (ii) the
2
<PAGE>
Company's pricing, billing and collection policies; (iii) business
development, marketing, advertising and producer relations; (iv) hiring,
retention, training and compensation of personnel; and (v) management of
other overheads. Employee agrees and acknowledges that (i) the operations
of the Company will be subject to compliance with reasonable policies and
procedures, not inconsistent with the foregoing areas of responsibility,
adopted by CenterPoint and (ii) that the CenterPoint Board of Directors
shall be entitled to take actions which override the operating autonomy of
the Employee set forth in this Section 1.2(c) if it determines in good
faith that fulfilment of the CenterPoint Board of Directors' fiduciary
duties requires that it take such actions. Employee further acknowledges
and agrees that the operating autonomy provided herein is based on the
Company performing substantially in line with its annual business plan, and
that if the Company fails to achieve at least (i) 75% of the key financial
objectives in the business plan for any quarter, or (ii) 80% of the key
financial objectives in the business plan for any two consecutive quarters,
CenterPoint or its designees will have the right to exert significantly
greater control over the Company's operations. Each year, in connection
with the approval of the Company's business plan, the CenterPoint Board of
Directors and the Company Board of Directors shall agree on the "key
financial objectives" for such period.
(d) It is the intention of CenterPoint that the Company, under the
leadership of Employee, shall have primary responsibility for the
identification, execution and integration of acquisitions in the Driver
Controlled Insurance Business. Any such acquisitions, however, must be
subject to the general oversight of, and comply with policies established
by, the CenterPoint Board of Directors. Accordingly, the Company shall
make, or agree to make, acquisitions in the Driver Controlled Insurance
Business only if such acquisitions (i) are specifically approved by the
CenterPoint Board of Directors or its designee, (ii) are included in an
annual business plan that has been approved by the CenterPoint Board of
Directors, and (iii) satisfy certain quantitative criteria (including,
without limitation, maximum size and minimum return on investment) that
have been previously approved by the CenterPoint Board of Directors and
agreed to by Employee. However, neither CenterPoint nor the Company shall,
without the consent of Employee (which shall not be unreasonably withheld),
acquire or agree to acquire any companies and/or businesses that are
predominantly engaged in a Driver Controlled Insurance Business.
(e) During the Employment Period, Employee will serve as President
and COO-BFS Group of CenterPoint and will have such responsibilities,
duties and authority and will render such services to CenterPoint and its
affiliates, commensurate with the position of President and COO-BFS Group,
as the Chief Executive Officer of CenterPoint shall from time to time
reasonably direct. In such capacity, Employee shall report to the Chief
Executive Officer of CenterPoint. Employee's duties as President and COO-
BFS shall include responsibility for establishing and maintaining the
overall strategic direction of the BFS Group, including (i) its internal
growth strategy, (ii) integration of the services of the BFS Group within
other platform companies in the BFS Group as well as with
3
<PAGE>
professional services platform companies of CenterPoint and (iii) its
external growth by acquisition or otherwise. The BFS Group shall include
all insurance services (including life insurance and the IDA business),
financial services and products as well as other businesses which the
CenterPoint Board determines are appropriate for the BFS Group. However,
the parties acknowledge that if the BFS Group grows to include a
substantial complement of businesses outside of Employee's experience and
expertise, his position as President and COO-BFS shall be jointly evaluated
by Employee and the CenterPoint Board. If, after such evaluation, the
CenterPoint Board determines that it is in CenterPoint's best interests to
replace Employee as President and COO-BFS, it shall so notify Employee and
Employee shall be so replaced. Any such replacement of Employee shall not
cause a decrease in Employee's compensation and benefits as set forth in
Section 2 and shall not be considered a Constructive Termination (as
hereinafter defined). CenterPoint acknowledges that it will provide to any
other person serving as President and COO-BFS a competitive compensation
package, including base salary, bonus and equity based components.
(f) Employee agrees diligently and faithfully to serve the Company
and CenterPoint, comply with all Company and CenterPoint policies and
procedures in effect from time to time and to devote Employee's best
efforts, highest talents and skills and full time and attention during
normal business hours to the furtherance and success of the Company's
business and of CenterPoint's Business and Financial Services Group.
Notwithstanding the foregoing, Employee may engage in charitable and
community affairs and the management of his personal passive investments
provided that such activities do not interfere with the performance of his
duties hereunder. All parties acknowledge and agree that the management of
the business and affairs of the Company and CenterPoint are subject to the
fiduciary and legal duties of the CenterPoint Board and the Company's Board
and compliance with the policies and procedures of CenterPoint and the
Company as set forth by their respective board of directors.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period commencing as of the date of this Agreement and
ending at the close of business on the fifth anniversary of the date of
this Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its, his or her desire to terminate this Agreement. The
Initial Employment Period and each successive Renewal Period shall be
referred to herein as the "Employment Period." Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to Sections 1.5 and 1.6 below.
1.4 Place of Employment. Employee's services hereunder shall be
-------------------
rendered at such locations in the Southern California area as shall be
agreed to by Employee and the
4
<PAGE>
CenterPoint Board, subject to such travel as may be reasonably required in
connection with the business of the Company and CenterPoint. Employee's
primary office shall be the existing Company offices in Newport Beach,
California. Employee shall not be required to relocate to any other area
without his or her consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment hereunder by the
Company and CenterPoint, by notice to Employee in writing at any time, for
Cause (as hereinafter defined), and such employment shall automatically be
terminated upon the death or the Disability (as hereinafter defined) of
Employee. Any such termination shall be effective upon the date of service
of such notice pursuant to Section 7.9 hereof, in the case of termination
for Cause, or immediately upon the death or Disability of Employee, and the
Employment Period shall terminate as of the effective date of such
termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving (a) moral turpitude or (b) the violation of ethical
standards established by the Company, CenterPoint or generally
prevailing in the insurance agency/broker business;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions, not inconsistent with the provisions of this
Agreement, of the CenterPoint Board, the Company's Board or such other
person to whom Employee reports pursuant to this Agreement after (A)
written notice is delivered to Employee describing such willful
failure and (B) if reasonably possible or practical to cure, Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable period of time, as determined by the Board
in its discretion (not to be less than 30 days from the date of
delivery of such notice);
(iii) the good faith determination by the CenterPoint Board or
the Company's Board in the exercise of its reasonable judgment that
Employee has committed an act or acts in the course of his employment
constituting fraud or misappropriation of material Company or
CenterPoint property;
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in Section 3 of this Agreement; or
(v) a material breach by Employee of any of the other terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) if reasonably possible or
practicable to cure, Employee has failed to cure or take substantial
steps to cure such breach after a
5
<PAGE>
reasonable period of time, as determined by the Board in its
discretion (not to be less than 30 days from the date of delivery of
such notice).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with
or without reasonable accommodation, for a total period of 180 days or
more. The CenterPoint Board shall determine, according to the facts then
available, whether and when the Disability of the Employee has occurred.
Such determination shall not be arbitrary or unreasonable and the
CenterPoint Board will, if available, take into consideration the expert
written medical opinion of two physicians selected by the CenterPoint
Board, after such physicians have completed an examination of Employee.
Employee agrees to make reasonable efforts to make himself available for
such examinations upon the reasonable request of the Company.
1.6 Termination of Employment Without Cause. The Company has the
---------------------------------------
right to terminate Employee's employment with the Company, by notice to
Employee in writing at any time, without Cause (as hereinafter defined).
Any such termination shall be effective upon the date of service of such
notice pursuant to Section 7.9 hereof.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $350,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. Employee's Base Salary shall in no event be reduced if he ceases
to serve as COO-BFS Group. The Base Salary may be increased (but not
decreased), from time to time during the Employment Period, as determined
by the Compensation Committee of the Board of CenterPoint (the
"Compensation Committee"), in its sole discretion. If the Employment Period
is terminated for any reason, then the Base Salary for any partial year
will be prorated based on the number of days elapsed in such year during
which services were actually performed by Employee.
2.2 Bonus.
-----
(a) For calendar year 1999, Employee shall be eligible to earn
an annual bonus of up to $250,000 (prorated pursuant to subsection (c)
below) pursuant to a CenterPoint bonus plan established prior to the
date of this Agreement. A bonus shall be payable under the plan if the
Company exceeds its EBITDA performance targets established in
connection with the Merger Agreement by agreed-upon amounts and if
CenterPoint achieves a percentage of its EPS performance targets
established in connection with its initial public offering.
6
<PAGE>
(b) For future years, Employee shall be eligible to earn an
annual bonus of up to $250,000 under CenterPoint's incentive compensation
policies for executive employees based upon such factors as (i) the
financial performance of the Company, (ii) the financial performance of
CenterPoint, and (iii) the achievement of personal performance goals. Such
criteria and goals, and the amount of a bonus, if any, shall be established
by the Compensation Committee of the Board of Directors of CenterPoint.
(c) Any bonus for a partial year shall be prorated for that
year. All bonuses awarded to Employee hereunder shall be payable in
accordance with Company policy.
2.3 Additional Compensation. In addition to the compensation set
-----------------------
forth in Section 2.1 and Section 2.2, the Company will pay Employee
$400,000 per annum (the "Additional Compensation"), payable in accordance
with the Company's regular payroll policies. The Additional Compensation
shall be funded by a direct offset of commission amounts previously
provided for under a prior producer employment agreement.
2.4 Obligations Upon Termination of Employment.
------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than pursuant to Section
1.3 or for Cause, death or Disability pursuant to Section 1.5 of this
Agreement), or if Employee shall voluntarily terminate his employment
during the Employment Period and within 90 days after a Constructive
Termination (as hereinafter defined), Employee shall be entitled to a
lump sum severance payment equal to (A) the product of (i) $800,000
and (ii) the greater of (x) the number of years (or fractions thereof)
remaining in the Employment Period or (y) three years (the "Severance
Period") and (B)(i) if permitted under Company's group health
insurance coverage, continuation at the cost of Company of coverage
thereunder for Employee and, if dependent coverage is then in effect,
his covered dependents (subject to such changes in coverage as shall
apply to Company's employees generally and provided that if the cost
of dependent coverage prior to termination of employment was being
paid by Employee, such cost shall continue to be payable by Employee)
or (ii) if not so permitted, reimbursement by the Company of the
premiums for group health insurance coverage payable by Employee under
COBRA, and thereafter under an insurance plan reasonably comparable to
that in effect prior to the Severance Period, until the end of the
Severance Period or until other employment is obtained, whichever
occurs first ((A) and (B) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and (B)(ii) above shall be paid
in equal installments on the Company's normal payroll payment dates
occurring during the Severance Period. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the
7
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Company a written separation agreement, in form and substance
reasonably satisfactory to the Company (but not inconsistent with this
Agreement), which agreement shall, among other things, contain a
general release by Employee of all claims arising out of Employee's
employment or termination of employment (but excluding claims for
indemnification for third party claims pursuant to the Company's
certificate of incorporation and/or bylaws or any indemnification
agreement between Employee and the Company or CenterPoint), and (ii)
Employee shall be in compliance with all of Employee's obligations
which expressly survive termination hereof, including without
limitation those arising under Section 3 hereof. The Severance
Benefits are intended to be in lieu of all other payments to which
Employee might otherwise be entitled in respect of termination of
Employee's employment without Cause. In addition to payment of
Severance Benefits, all options to purchase CenterPoint stock granted
to Employee prior to the date of (i) a termination by the Company
without Cause, (ii) Employee's voluntary termination of his employment
during the Employment Period and within 90 days after a Constructive
Termination, or (iii) Employee's death or Disability shall vest and
become exercisable on the date of such event and for a period of one
year thereafter. Except as expressly provided above, no fringe or
other employee benefits shall be payable during or after the Severance
Period.
(b) If Employee's employment shall be terminated by Company for
"Cause" pursuant to Section 1.5 or if Employee shall voluntarily
terminate his employment during the Employment Period and not within
90 days after a Constructive Termination, the Company shall have no
further obligations hereunder or otherwise with respect to Employee's
employment from and after the effective date of the termination of the
Employment Period (except for the payments required under Section 2.1
to the date of such termination), and the Company shall continue to
have all other rights available hereunder (including, without
limitation, all rights under Section 3 hereof at law or in equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated pursuant to Section 1.3
or for Cause or by reason of his death or Disability pursuant to
Section 1.5, but shall continue to be payable during the Severance
Period if his or her employment is terminated (i) without Cause or
(ii) by reason of and within 60 days after a Constructive Termination
(as described below) and he subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be deemed
to have occurred if the Company or CenterPoint (i) fails to elect or
retain Employee as Chairman of the Board and Chief Executive Officer
of the Company as provided in Section 1 or (ii) materially breaches
(after a 30-day notice and cure period) any material covenant or
agreement made by either CenterPoint or the Company under this
Agreement; (iii) assigns duties to Employee hereunder which are
materially
8
<PAGE>
inconsistent with his position as either Chairman of the Board or
Chief Executive Officer of the Company, (iv) reduces Employee's Base
Salary, Minimum Expense Allowance, Bonus or Additional Compensation or
materially reduces his other employee benefits and perquisites, taken
in the aggregate, unless such reduction is the result of a termination
of a benefit plan as to substantially all managerial employees of the
Company or CenterPoint, (v) requires Employee to relocate in violation
of Section 1.4, (vi) if any of the events described in Section 2.3(e)
occur, or (vii) in the event the Company is required to pay to Jerold
D. Hall ("Hall") or P. Gregory Zimmer ("Zimmer") "Severance Benefits"
(for the purposes of this sentence, "Severance Benefits" with respect
to Hall and Zimmer, shall have the meaning reflected in the Hall
Employment Agreement and the Zimmer Employment Agreement,
respectively) pursuant to either of the employment agreements of even
date herewith between the Company and Hall or Zimmer (the "Hall
Employment Agreement" and the "Zimmer Employment Agreement,"
respectively); provided however that this subsection (d)(vii) shall
not apply in the event any of Employee, Hall or Zimmer has taken the
action which would require "Severance Benefits" to be paid to Hall
and/or Zimmer under their respective employment agreements.
Notwithstanding the forgoing, the parties acknowledge and agree that
neither CenterPoint's exercise of authority pursuant to the last three
sentences of Section 1.2(c) or the last sentence of Section 1.1(d) nor
CenterPoint's selection of a replacement President and COO-BFS
pursuant to Section 1.2(e) shall be a Constructive Termination.
(e) The occurrence of a "change in control of the Company," as
that term in hereafter defined, shall constitute a Constructive
Termination. For purposes of this Agreement, "change in control of the
Company" means (i) the acquisition of ownership by any person or group
of two (2) or more persons, of fifty percent (50%) or more of the
assets of the Company, or of the issued and outstanding common stock
of the Company, whether by or as a result of purchase, tender offer,
exchange offer, merger, or otherwise, and whether by or as a result of
one transaction or a series of transactions (except for any exercise
of purchase rights under Section 6 hereof which shall be expressly
excluded from this definition of "change in control"); or (ii) the
adoption of a plan of liquidation or dissolution of the Company.
"Person," as used herein, means any individual, trust, partnership,
limited liability company, joint venture, corporation or business
entity, however known, foreign or domestic. Under no circumstances
shall an event which would constitute a change in control of
CenterPoint constitute a change in control of the Company unless it
otherwise constitutes a change in control of the Company.
2.5 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits and prerequisites as are provided, from time to time, to
any other senior officers of CenterPoint or a subsidiary of CenterPoint
(upon no less favorable terms as provided to such officers),
9
<PAGE>
including without limitation, vacation, health and insurance benefits, and
the opportunity to participate in CenterPoint's stock option plans.
Employee acknowledges that CenterPoint and the Company shall retain the
right to discontinue or modify any employee benefit program (including,
without limitation, CenterPoint's stock option plans) at any time. The
Company will provide Employee a $50,000 account for expenditure (the
"Minimum Expense Allowance") (which amount shall include Employee's
automobile lease expenditures) in accordance with the Company's Producer
Expense Program (or any applicable replacement expense program of the
Company or CenterPoint) and will, in addition, also reimburse Employee for
out-of-pocket expenses reasonably incurred in the course of performing his
duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(a) the Company is and will be engaged in the business of
providing professional services, in particular the Driver Controlled
Insurance Business during the Employment Period and thereafter;
(b) Employee will occupy a position of trust and confidence with
the Company after the date of this Agreement and, during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company, the Driver Controlled
Insurance Business, and the business of the BFS Group (collectively
the "Business");
(c) the agreements and covenants contained in this Section 3 are
essential to protect the Company and the goodwill of the Business and
are a condition precedent to the Company's entering into this
Agreement;
(d) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(e) Employee has means to support himself and his dependents
other than by engaging in activities that would violate Section 3.2,
and the provisions of this Section 3 will not impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the period of
-----------
time commencing as of the date hereof and ending as of that date that is
two years after Employee's employment with the Company has been terminated
(other than by the expiration of this Agreement at the end of the
Employment Period without renewal) (the
10
<PAGE>
(the "Restrictive Period"), he shall not, for any reason whatsoever,
directly or indirectly for himself or on behalf of or in conjunction with
any other person:
(a) engage, directly or indirectly, as an officer, director,
shareholder, owner, partner, joint venturer, or in a managerial
capacity, whether as an employee, independent contractor, consultant
or advisor, or as a sales representative in, or otherwise own,
operate, manage, control, engage in, participate in, act as a
representative, agent, consultant or advisor to, or render services
for (alone or in association with any person, firm, corporation or
other entity, including through agents, brokers or surplus line
brokers), any business selling any products or services in direct
competition with the Company or the BFS Group, within any business
market where the Company or the BFS Group conducted or conducts
business at any time (the "Territory");
(b) sell or provide, directly or indirectly, any competitive
products or services to, or solicit for the purpose of selling or
providing any competitive products or services to, or otherwise accept
commissions from, any person or entity that was a customer of the
Company or the BFS Group or any subsidiary or affiliate thereof
(including any agents or brokers that produce insurance through the
Company or the BFS Group or any affiliate or subsidiary thereof) at
any time during the preceding one-year period or that was known by
Employee to have been actively being solicited by the Company or the
BFS Group or any subsidiary or affiliate thereof to become a customer
at any time during such period including any "Policyholders," "Premium
Finance Customers," "Prospective Policyholders" or "Prospective
Premium Finance Customers" (as each such term is defined in the Merger
Agreement);
(c) call upon any person who is, at that time, within the
Territory, an employee of CenterPoint (including the subsidiaries and
affiliates thereof) for the purpose or with the intent of enticing
such employee away from or out of the employ of CenterPoint (including
the subsidiaries and affiliates thereof), or hire such person;
(d) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction (as
hereinafter defined) with any entity with respect to which CenterPoint
or any subsidiary or affiliate thereof has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the preceding one-year period; and
(e) disclose the identity of (i) any agents, brokers or surplus
line brokers that produce or finance insurance through the Company or
the BFS Group or a subsidiary or affiliate thereof or (ii) any
Policyholder, Prospective Policyholder,
11
<PAGE>
Premium Finance Customer or Prospective Premium Finance Customer, or
any part thereof, to any person, firm, corporation, association or
other entity, for any reason or purpose whatsoever.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares,
proxy solicitation or other business combination. Notwithstanding the
above, the foregoing covenant shall not be deemed to prohibit Employee from
acquiring as an investment not more than one percent (1%) of the capital
stock of a competing business whose stock is traded on a national
securities exchange or over-the-counter market so long as the Employee does
not consult with or is not employed by such competitor.
For the avoidance of doubt, Employee hereby confirms that he is
subject to separate non-competition provisions under the Merger Agreement
which are in addition to obligations under this Agreement.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment hereunder, whether or not during normal working hours. Employee
agrees that all right, title and interest in and to all such ideas,
discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer,
12
<PAGE>
supplier or other third party to terminate or otherwise alter his, her or
its relationship with the Company, CenterPoint or any of its subsidiaries
or affiliates.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the Company, directly or indirectly
furnish, make available or disclose to any third party or use for the
benefit of himself or any third party, any Confidential Information. As
used in this Agreement, "Confidential Information" shall mean any
information relating to the business or affairs of CenterPoint, the Company
or the Business, including, but not limited to, information relating to
financial statements, employees, clients, consultants, suppliers, policies
and procedures, financial records and data, managerial and operational
policies, plans, methods, practices, customer and vendor lists, risk
rating, underwriting rate criteria, specifications, pricing elements,
carrier products, marketing, equipment, programs, strategies, analyses,
profit margins, or other proprietary information of or used by CenterPoint,
the Company or any other subsidiary of CenterPoint in connection with the
Business and the business of each of CenterPoint's subsidiaries; provided,
however, that Confidential Information shall not include any information
which is in the public domain or becomes known in the industry through no
wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary
to the Company and CenterPoint.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this Section 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders, client
lists and other client information, supplier lists and other supplier
information, financial information, memoranda, correspondence and other
records or documents including information stored on computer disks or in
computer readable form, containing Confidential Information prepared by
Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
13
<PAGE>
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this Section 3 (collectively, the "Restrictive Covenants") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
3.9 Company. For purposes of this Section 3, the term "Company" or
-------
"CenterPoint" shall include each and their respective subsidiaries,
affiliates, permitted assignees and any permitted successors in interest of
their respective subsidiaries or affiliates.
3.10 Reasonable Restraint. It is agreed by the parties hereto that
--------------------
the foregoing covenants in this Section 3 impose a reasonable restraint on
Employee in light of the activities and business of CenterPoint (including
the subsidiaries thereof) on the date of the execution of this Agreement
and the current plans of CenterPoint; but it is also the intent of the
parties that such covenants be construed and enforced in accordance with
the changing activities and business of CenterPoint (including the
subsidiaries thereof) throughout the respective terms of these covenants.
It is further agreed by the parties that, in the event that the
Employee ceases to be employed by the Company, CenterPoint or any
subsidiary or affiliate thereof, and Employee enters into a business or
pursues activities not in competition with CenterPoint and/or any
subsidiary thereof, or similar activities or businesses in locations the
operations of which, under such circumstances, does not violate this
Section 3 and in any event such new business, activities or location are
not in violation of this Section 3, Employee shall not be chargeable with a
violation of this Section 3 if CenterPoint and/or any subsidiary thereof
shall thereafter enter the same, similar or competitive (i) business, (ii)
course of activities or (iii) location, as applicable.
3.11 Independent Covenant. All of the covenants in this Section 3
--------------------
shall be construed as an agreement independent of any other provision of
this Agreement, and the existence of any claim or cause of action of
Employee against the Company, CenterPoint or any subsidiary or affiliate
thereof, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of such covenants.
It is specifically agreed that the respective periods of time during which
Employee's covenants as set forth in this Section 3 are effective shall be
computed by excluding from such
14
<PAGE>
computation any time during which Employee is in violation of any provision
of this Section 3.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in Sections 2.3, 3, 4 and 5 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under Section 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Right of First Refusal.
----------------------
(a) Subject to the terms and conditions of this Section 6, the Company and
CenterPoint hereby grant to the Employee Group (as hereinafter defined), during
the Initial Employment Period (or, with respect to Employee, such shorter period
of time ending on the date that (y) Employee's employment is terminated pursuant
to Section 1.5 hereof or (z) Employee voluntarily terminates his employment
hereunder and not within ninety (90) days after a Constructive Termination) (the
"First Refusal Period"), the following limited right of first refusal (the
"First Refusal Right") with respect to the sale of the Driver Controlled
Insurance Business (the "Sale"), whether in the form of (i) the sale of all or
substantially all of the assets of the Company (either independently or as part
of the assets of the BFS Group), (ii) the sale of all or substantially all of
the capital stock of the Company or (iii) the merger of the Company, in each
case limited to a sale to a company engaged in commercial insurance business
(collectively, the "Competitors"). Notwithstanding anything to the contrary in
this Agreement, the First Refusal Right shall not apply to the sale of all or
substantially all of the assets or capital stock of CenterPoint, or to any other
business combination involving CenterPoint.
(b) In the event that Company or CenterPoint desires to accept a bona fide
offer for the Sale from any of the Competitors during the First Refusal Period,
Company and CenterPoint shall promptly deliver to the Employee Group written
notice (the "Disposition Notice") of the terms and conditions of such offer,
including, among other things, the proposed purchase price, the form of
transaction and the identity of the Competitor offeror.
(c) The Employee Group shall have, for a period of forty-five (45) days
following receipt of the Disposition Notice, the right to agree in good faith to
consummate the Sale upon the same terms and conditions as those specified in the
Disposition Notice. Such right shall be exercisable by delivery of written
notice (the "Exercise Notice") to Company and CenterPoint prior to the
termination of the forty-five (45) day exercise period. Upon expiration of the
forty-five (45) day exercise period without receipt of the Exercise Notice, the
Company and CenterPoint shall be entitled to consummate the Sale.
15
<PAGE>
(d) Should the purchase right specified in the Disposition Notice be
payable in property other than cash, the Employee Group shall pay the purchase
price in the form of cash equal in amount to the value of such property. If the
Employee Group and CenterPoint cannot agree on such cash value within forty-five
(45) days after the Employee Group's receipt of the Disposition Notice, the
valuation shall be made by an appraiser of recognized standing selected by the
Employee Group and CenterPoint or, if they cannot agree on an appraiser within
fifty (50) days after the Employee Group's receipt of the Disposition Notice,
each shall select an appraiser of recognized standing and the two (2) appraisers
shall designate a third appraiser of recognized standing, whose appraisal shall
be determinative of such value. The cost of such appraisal shall be shared
equally by the Employee Group and CenterPoint. The closing of the Sale to the
Employee Group shall then be held no later than one hundred twenty (120) days
following the (i) delivery of the Exercise Notice or (ii), if applicable, the
day such cash valuation shall have been made.
(e) As used in this Section 6, the term "Employee Group" shall mean an
investment committee consisting of members of senior management of the Company,
which committee may also include both other employees and outside investors and
represented by Employee, or if Employee does not represent such Employee Group,
is no longer employed with the Company or has not been designated to represent
the Employee Group, if any, Hall, or if Hall is no longer employed with the
Company or has not been designated to represent the Employee Group, if any,
Zimmer. If no Employee Group exists, the rights provided under this Section 6
shall be deemed terminated. Employee acknowledges and agrees that (i) each of
Hall and Zimmer have been granted by the Company and CenterPoint substantially
similar rights as the Right of First Refusal granted to Employee hereunder, (ii)
the Right of First Refusal, and such similar rights granted to such persons, can
only be exercised collectively by the Employee Group and (iii) Company and
CenterPoint shall have no liability whatsoever to Employee, or to Hall or
Zimmer, if Employee and Hall and Zimmer cannot agree how to proceed with respect
to exercising such rights.
7. Miscellaneous.
-------------
7.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may Merger any and all such insurance from the Company
for an amount equal to the actual premiums thereon previously paid by the
Company.
16
<PAGE>
7.2 Maintenance of Company. During the Employment Period,
----------------------
CenterPoint shall maintain the Company as a separate subsidiary
corporation.
7.3 Gross Up for Excise Tax Liability. If it shall be determined
---------------------------------
that any payment or benefit received or to be received by Employee pursuant
to Section 2.4 of this Agreement (all such payments and benefits a
"Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") (or any
successor provision) (the "Excise Tax"), then the Company shall make to
Employee an additional payment (a "Gross-Up Payment") in an amount
necessary to reimburse Employee, on an after-tax basis, for the Excise Tax
and for any federal, state and local income tax and excise tax (including
any interest and penalties imposed with respect to such taxes) that may be
imposed by reason of the Payment, such that, after the payment of such
Excise Tax, federal, state and local income tax and excise tax (and any
interest and penalties relating thereto), Employee shall retain an amount
equal to the amount Employee would have obtained had the Excise Tax not
applied. For purposes of determining the amount of any Gross-Up Payment,
Employee shall be deemed to pay federal, state and local income taxes at
the highest applicable marginal rate of taxation in the calendar year in
which the Gross-Up Payment is to be made. All determinations required to
be made under this Section 7.3, including whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment shall be made by
CenterPoint's independent accounting firm (the "Accounting Firm"), which
shall provide detailed supporting calculations both to the Company and
Employee within 15 business days of the request for such determination.
Such request may be made by either party hereto. The Company shall pay the
fees and expenses of the Accounting Firm in connection with any
determinations hereunder. The Gross-Up Payment shall be paid by the
Company within 30 days of the Accounting Firm's determination of the amount
thereof.
7.4 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time or any
surviving entity following any merger or consolidation of the Company and
any other entity or (ii) in connection with the sale of the Business by the
Company. Except as otherwise expressly provided herein, all covenants and
agreements contained in this Agreement by or on behalf of any of the
parties hereto shall bind and inure to the benefit of the respective legal
representatives, heirs, permitted successors and assigns of the parties
hereto whether so expressed or not.
7.5 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof, including, without
limitation, the Contract dated January 1, 1999 by and between
17
<PAGE>
Employee and the Company (the "Prior Employment Agreement"); provided,
however, that the provisions of Section 10 of the Prior Employment
Agreement shall remain in effect and are by this reference hereby
incorporated into this Agreement as though fully set forth herein.
7.6 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
7.7 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
7.8 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of California with out giving effect to provisions
thereof regarding conflict of laws.
7.9 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Thomas W. Corbett
c/o Robert F. Driver Co., Inc.
1620 Fifth Avenue
San Diego, California 92101
18
<PAGE>
with a copy to:
_____________________
_____________________
_____________________
_____________________
(b) If to the Company or CenterPoint:
Robert F. Driver Co., Inc.
1520 Fifth Avenue
San Diego, California 92101
Attention: Jerold D. Hall
with a copy to:
CenterPoint Advisors, Inc.
225 West Washington Street, 16/th/ Floor
Chicago, Illinois 60606
Attention: Robert Basten
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Howard S. Lanznar, Esq.
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
7.10 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same Agreement.
7.11 Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
in this Agreement are inserted for convenience of reference only and are
not intended to be part
19
<PAGE>
of or to affect the meaning or interpretation of this Agreement. The use of
the word "including" in this Agreement shall be by way of example rather
than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
7.12 No Strict Construction. The language used in this Agreement will
----------------------
be deemed to be the language chosen by the parties hereto to express their
mutual interest, and no rule of strict construction will be applied against
any party hereto.
7.13 Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement, the making, interpretation or the breach thereof, other
than a claim solely for injunctive relief for any alleged breach of the
provisions of Section 3 as to which the parties shall have the right to
apply for relief in any court of competent jurisdiction, shall be resolved
by arbitration in San Diego, California, in accordance with the Federal
Arbitration Act and the National Rules for the Resolution of Employment
Disputes of the American Arbitration Association. Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof and any party to the arbitration may, if such party so elects,
institute proceedings in any court having jurisdiction for the specific
performance of any such award. Without limiting the generality of the
foregoing sentence, the claims to which this provision shall apply include,
but are not limited to: (i) any claims arising out of or related to this
Agreement or breach thereof; (ii) any claims arising under any federal,
state, or local statute or the common law of any state, regarding
compensation or employee benefits, or discrimination, retaliation,
harassment, or denial of equal employment opportunity based on sex, race,
color, religion, national origin, disability, age, marital status, or any
other category protected by law; (iii) any claims arising under the common
law of the United States or any state relating to Employee's employment
with Company, including without limitation claims alleging negligence,
defamation, public policy, tort, infliction of emotional distress, fraud,
or misrepresentation; or (iv) any civil claims that Company may have
against Employee relating to Employee's employment with Company. Anything
herein to the contrary notwithstanding, this Section 7.13 shall not apply
to: (i) any claim by Employee for workers compensation benefits or
unemployment compensation benefits; or (ii) any claim by Company for
injunctive or equitable relief, including without limitation claims related
to the enforcement of Section 3 hereof, which may be brought in any court
of competent jurisdiction. Employee and Company expressly waive any right
to resolve any dispute covered by this Section by filing suit in court for
trial by a judge or jury. The arbitrator shall include in any award in the
prevailing party's favor costs and expenses of the arbitration. In the
event the arbitrator does not rule in favor of the prevailing party in
respect of all the claims alleged by such party, the arbitrator shall
include in any award in favor of the prevailing party the amount of his,
her or its reasonable costs and expenses of the arbitration as he or she
deems just and equitable under the circumstances. Except as provided
above, each party to the arbitration shall bear his, or its own attorneys'
fees and expenses and the parties shall bear equally all other costs and
expenses of the arbitration.
20
<PAGE>
8. Settlement. The Company's obligation to make the payments provided for
----------
in this Agreement and otherwise perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Employee or others other than
any such set-off, counterclaim, recoupment, defense or other claim, right or
action to which the Company may become entitled in connection with a final
judgment in its favor resulting from any theft, embezzlement, conversion or
similar act by the Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ROBERT F. DRIVER CO., INC.
By:_________________________________________________________
Name:_______________________________________________________
Title:______________________________________________________
CENTERPOINT ADVISORS, INC.
By:_________________________________________________________
Name:_______________________________________________________
Title:______________________________________________________
EMPLOYEE:
____________________________________________________________
THOMAS W. CORBETT
21
<PAGE>
EXHIBIT A
---------
Business of Insurance Design Administrators
-------------------------------------------
The following activities, in connection with employer self-funded
healthcare plans for employees ("Plans"):
(i) Consulting, advising and designing Plans;
(ii) Acting as a third-party Plan Administrator of a Plan (processing
claims, preparing reports for Plans and insurers, billing and
collection of premiums and fees);
(iii) Claim management under Plans (including "Claim Check," "Bill
Check," LuminX);
(iv) Utilization review;
(v) COBRA and Section 125 Plan administration;
(vi) Arrangement, as a broker/agent, for stop loss and excess
insurance or reinsurance.
22
<PAGE>
EXHIBIT 10.11
CENTERPOINT ADVISORS, INC.
EMPLOYEE INCENTIVE COMPENSATION PLAN
<PAGE>
CENTERPOINT ADVISORS, INC.
EMPLOYEE INCENTIVE COMPENSATION PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I ESTABLISHMENT.................................................................. 1
1.1 Purpose............................................................................... 1
ARTICLE II DEFINITIONS.................................................................... 1
2.1 "Affiliate"........................................................................... 1
2.2 "Agreement" or "Award Agreement"...................................................... 1
2.3 "Annual Incentive Award".............................................................. 1
2.4 "Award" .............................................................................. 1
2.5 "Beneficiary"......................................................................... 1
2.6 "Board of Directors" or "Board"....................................................... 2
2.7 "Cause"............................................................................... 2
2.8 "Change in Control" and "Change in Control Price"..................................... 2
2.9 "Code" or "Internal Revenue Code"..................................................... 2
2.10 "Commission".......................................................................... 2
2.11 "Committee"........................................................................... 2
2.12 "Common Stock"........................................................................ 2
2.13 "Company"............................................................................. 2
2.14 "Covered Employee".................................................................... 2
2.15 "Deferred Stock"...................................................................... 3
2.16 "Disability".......................................................................... 3
2.17 "Effective Date"...................................................................... 3
2.18 "Exchange Act"........................................................................ 3
2.19 "Extraordinary Termination of Employment"............................................. 3
2.20 "Fair Market Value"................................................................... 3
2.21 "Grant Date".......................................................................... 3
2.22 "Incentive Stock Option".............................................................. 3
2.23 "Nonqualified Stock Option"........................................................... 3
2.24 "Option Period"....................................................................... 3
2.25 "Option Price"........................................................................ 4
2.26 "Participant"......................................................................... 4
2.27 "Performance Shares".................................................................. 4
2.28 "Plan"................................................................................ 4
2.29 "Representative"...................................................................... 4
2.30 "Restricted Stock".................................................................... 4
2.31 "Retirement".......................................................................... 4
2.32 "Rule 16b-3" and "Rule 16a-1(c)(3)"................................................... 5
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
2.33 "Stock Appreciation Right"5.......................................................
2.34 "Stock Option" or "Option"........................................................ 5
2.35 "Termination of Employment"....................................................... 5
ARTICLE III ADMINISTRATION............................................................. 5
3.1 Committee Structure and Authority................................................. 5
ARTICLE IV STOCK SUBJECT TO PLAN...................................................... 8
4.1 Number of Shares.................................................................. 8
4.2 Release of Shares................................................................. 8
4.3 Restrictions on Shares............................................................ 8
4.4 Stockholder Rights................................................................ 9
4.5 Best Efforts To Register.......................................................... 9
4.6 Anti-Dilution..................................................................... 9
ARTICLE V ELIGIBILITY................................................................ 10
5.1 Eligibility....................................................................... 10
ARTICLE VI STOCK OPTIONS.............................................................. 10
6.1 General........................................................................... 10
6.2 Grant and Exercise................................................................ 11
6.3 Terms and Conditions.............................................................. 11
6.4 Termination by Reason of Death.................................................... 13
6.5 Termination by Reason of Disability............................................... 13
6.6 Other Termination................................................................. 14
6.7 Cashing Out of Option............................................................. 14
6.8 Formula Grants.................................................................... 14
ARTICLE VII STOCK APPRECIATION RIGHTS.................................................. 15
7.1 General........................................................................... 15
7.2 Grant............................................................................. 15
7.3 Terms and Conditions.............................................................. 15
ARTICLE VIII RESTRICTED STOCK........................................................... 17
8.1 General........................................................................... 17
8.2 Awards and Certificates........................................................... 17
8.3 Terms and Conditions.............................................................. 17
ARTICLE IX DEFERRED STOCK............................................................. 19
9.1 General............................................................................ 19
9.2 Terms and Conditions............................................................... 19
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE X PERFORMANCE SHARES................................................................. 20
10.1 General.................................................................................. 20
10.2 Price.................................................................................... 20
10.3 Performance Share Agreement.............................................................. 20
10.4 Performance Periods...................................................................... 21
10.5 Performance Goals........................................................................ 21
10.6 Earning of Performance Shares............................................................ 21
10.7 Termination of Employment Due to Death, Disability or Retirement or at the
Request of the Company Without Cause..................................................... 22
10.8 Termination of Employment for Other Reasons.............................................. 22
10.9 Nontransferability....................................................................... 22
10.10 Amendment of Awards...................................................................... 22
ARTICLE XI ANNUAL INCENTIVE AWARDS............................................................ 23
11.1 Eligibility.............................................................................. 23
11.2 Earning of Annual Incentive Awards....................................................... 23
11.3 Payments and Election.................................................................... 24
11.4 Amendment of Awards...................................................................... 25
11.5 Performance Threshold.................................................................... 25
11.6 Maximum Awards........................................................................... 25
ARTICLE XII PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THIS
PLAN............................................................................... 25
12.1 Limited Transfer During Offering......................................................... 25
ARTICLE XIII CHANGE IN CONTROL PROVISIONS....................................................... 26
13.1 Impact of Event.......................................................................... 26
13.2 Definition of Change in Control.......................................................... 26
13.3 Change in Control Price.................................................................. 28
ARTICLE XIV MISCELLANEOUS...................................................................... 28
14.1 Amendments and Termination............................................................... 28
14.2 Unfunded Status of Plan.................................................................. 29
14.3 Status of Awards Under Code Section 162(m)............................................... 29
14.4 General Provisions....................................................................... 29
14.5 Mitigation of Excise Tax................................................................. 31
14.6 Rights with Respect to Continuance of Employment......................................... 31
14.7 Awards in Substitution for Awards Granted by Other Corporations.......................... 31
14.8 Procedure for Adoption................................................................... 32
14.9 Procedure for Withdrawal................................................................. 32
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
14.10 Delay..................................................................... 32
14.11 Headings.................................................................. 32
14.12 Severability.............................................................. 32
14.13 Successors and Assigns.................................................... 32
14.14 Entire Agreement.......................................................... 32
</TABLE>
iv
<PAGE>
CENTERPOINT ADVISORS, INC.
EMPLOYEE INCENTIVE COMPENSATION PLAN
ARTICLE I
---------
ESTABLISHMENT
-------------
1.1 Purpose. The CenterPoint Advisors, Inc. Employee Incentive
-------
Compensation Plan ("Plan") is hereby established by CenterPoint Advisors, Inc.
("Company"). The purpose of this Plan is to promote the overall financial
objectives of the Company and its stockholders by motivating those persons
selected to participate in this Plan to achieve long-term growth in stockholder
equity in the Company and by retaining the association of those individuals who
are instrumental in achieving this growth. The Plan and the grant of awards
hereunder are expressly conditioned upon the Plan's approval by the stockholders
of the Company. If such approval is not obtained, then this Plan and all Awards
(as defined herein) hereunder shall be null and void ab initio.
-- ------
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of this Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
---------
association, limited liability company, joint-stock company, trust,
unincorporated association or other entity (other than the Company) that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company including, without
limitation, any member of an affiliated group of which the Company is a common
parent corporation as provided in Section 1504 of the Code.
2.2 "Agreement" or "Award Agreement" means any agreement entered into
--------- ---------------
pursuant to this Plan pursuant to which an Award is granted to a Participant.
2.3 "Annual Incentive Award" means an award granted pursuant to Article
----------------------
XI.
2.4 "Award" means any Stock Option, Stock Appreciation Right, Restricted
-----
Stock, Deferred Stock, Performance Share or Annual Incentive Award granted to a
Participant under the Plan.
2.5 "Beneficiary" means the person, persons, trust or trusts which have
-----------
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee
<PAGE>
to receive the benefit specified under the Plan to the extent permitted. If
there is no designated beneficiary, then the term means the person or persons,
trust or trusts entitled by will or the laws of descent and distribution to
receive such benefits.
2.6 "Board of Directors" or "Board" means the Board of Directors of the
------------------ -----
Company.
2.7 "Cause" shall mean, for purposes of whether and when a Participant
-----
has incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate a written agreement or arrangement (employment
or otherwise) between the Participant and the Company or an Affiliate for Cause
as defined in such agreement or arrangement, or in the event there is no such
agreement or arrangement or the agreement or arrangement does not define the
term "cause," then Cause shall mean (a) any act or failure to act deemed to
constitute cause under the Company's established practices, policies or
guidelines applicable to the Participant or (b) the Participant's act or
omission constituting gross misconduct with respect to the Company or an
Affiliate in any material respect.
2.8 "Change in Control" and "Change in Control Price" have the meanings
----------------- -----------------------
set forth in Sections 13.2 and 13.3, respectively.
2.9 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
---- ---------------------
1986, as amended, final Treasury Regulations thereunder and any subsequent
Internal Revenue Code.
2.10 "Commission" means the Securities and Exchange Commission or any
----------
successor agency.
2.11 "Committee" means the person or persons appointed by the Board of
---------
Directors to administer this Plan, as further described herein; provided,
however, the Committee shall consist of directors who are "non-employees" within
the meaning of Rule 16b-3 and each of whom is an "outside" director under
Section 162(m) of the Code.
2.12 "Common Stock" means the shares of the Company's regular voting
------------
common stock, $.01 par value per share, whether presently or hereafter issued,
and any other stock or security resulting from adjustment thereof as described
hereinafter or the common stock of any successor to the Company which is
designated for the purpose of this Plan.
2.13 "Company" means CenterPoint Advisors, Inc., a Delaware corporation,
-------
and includes any successor or assignee corporation or corporations into which
the Company may be merged, changed or consolidated; any corporation for whose
securities all or substantially all of the securities of the Company shall be
exchanged; and any assignee of or successor to substantially all of the assets
of the Company.
2.14 "Covered Employee" means a Participant who is a "covered employee"
----------------
within the meaning of Section 162(m) of the Code.
2
<PAGE>
2.15 "Deferred Stock" means an award made pursuant to Article IX to
--------------
receive Common Stock at the end of a specified period.
2.16 "Disability" means a mental or physical illness that entitles the
----------
Participant to receive benefits under the long term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully self-
induced sickness; or (ii) an injury or disease contracted, suffered, or incurred
while participating in a criminal offense. Notwithstanding the foregoing, if
the Participant and the Company or an Affiliate have entered into an employment
agreement which defines the term "Disability" (or a similar term), such
definition shall govern for purposes of determining whether such Participant
suffers a Disability for purposes of this Plan. The determination of Disability
shall be made by the Committee. The determination of Disability for purposes of
this Plan shall not be construed to be an admission of disability for any other
purpose.
2.17 "Effective Date" means _____________, 1999 [closing date of the
-------------- -------------------
IPO]
- ---
2.18 "Exchange Act" means the Securities Exchange Act of 1934,
------------
amended, and the rules and regulations promulgated thereunder.
2.19 "Extraordinary Termination of Employment" means the Termination
---------------------------------------
of Employment of the Participant due to death, Disability or Retirement.
2.20 "Fair Market Value" means the fair market value of Common Stock,
-----------------
Awards, or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee, the
Fair Market Value per share of Common Stock as of any date shall be the closing
sale price per share reported on a consolidated basis for stock listed on the
principal stock exchange or market on which the Common Stock is traded on the
date as of which such value is being determined or, if there is no sale on that
date, then on the last previous day on which a sale was reported.
2.21 "Grant Date" means the date as of which an Award is granted
----------
pursuant to this Plan.
2.22 "Incentive Stock Option" means any Stock Option intended to be
----------------------
and designated as an "incentive stock option" within the meaning of Section 422
of the Code.
2.23 "Nonqualified Stock Option" means an Option to purchase Common
-------------------------
Stock in the Company granted under this Plan the taxation of which is pursuant
to Section 83 of the Code.
2.24 "Option Period" means the period during which an Option shall be
-------------
exercisable in accordance with the Agreement and Article VI.
3
<PAGE>
2.25 "Option Price" means the price at which the Common Stock may be
------------
purchased under an Option as provided in Section 6.3.
2.26 "Participant" means a person who satisfies the eligibility
-----------
conditions of Article V and to whom an Award has been granted by the Committee
under this Plan, and in the event a Representative is appointed for a
Participant or another person becomes a Representative, then the term
"Participant" shall mean such Representative. The term shall also include a
trust for the benefit of the Participant, a partnership the interest of which is
by or for the benefit of the Participant, the Participant's parents, spouse or
descendants, or a custodian under a uniform gifts to minors act or similar
statute for the benefit of the Participant's descendants, to the extent
permitted by the Committee and not inconsistent with the Rule 16b-3 or the
status of the Option as an Incentive Stock Option to the extent intended.
Notwithstanding the foregoing, the term "Termination of Employment" shall mean
the Termination of Employment of the employee (and other terms intended to refer
solely to the employee shall be interpreted in a manner that is consistent with
such intent).
2.27 "Performance Shares" means a right, granted under Article X, to
------------------
receive Awards based upon criteria specified by the Committee.
2.28 "Plan" means this CenterPoint Advisors, Inc. Employee Incentive
----
Compensation Plan, as the same may be amended from time to time.
2.29 "Representative" means (a) the person or entity acting as the
--------------
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been transferred with the permission of the
Committee or by operation of law; provided that only one of the foregoing shall
be the Representative at any point in time as determined under applicable law
and recognized by the Committee.
2.30 "Restricted Stock" means an award of Common Stock under Article
----------------
VIII that is subject to certain restrictions and a risk of forfeiture.
2.31 "Retirement" means the Participant's Termination of Employment
----------
after attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such plan, and if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
4
<PAGE>
2.32 "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16b-3 and Rule
---------------------------------
16a-1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
2.33 "Stock Appreciation Right" means a right granted under Article
------------------------
VII.
2.34 "Stock Option" or "Option" means a right granted under Article VI
------------ ------
to purchase Common Stock on specified conditions .
2.35 "Termination of Employment" means the occurrence of any act or
-------------------------
event, whether pursuant to an employment agreement or otherwise, that actually
or effectively causes or results in the person's ceasing, for whatever reason,
to be an officer, consultant, director or employee of the Company or of any
Affiliate, or to be an officer, independent contractor, director or employee of
any entity that provides services to the Company or an Affiliate, including,
without limitation, death, Disability, dismissal, severance at the election of
the Participant, Retirement, or severance as a result of the discontinuance,
liquidation, sale or transfer by the Company or its Affiliates of all businesses
owned or operated by the Company or its Affiliates. With respect to any person
who is not an employee with respect to the Company or an Affiliate, the
Agreement may establish what act or event shall constitute a Termination of
Employment for purposes of this Plan. A transfer of employment from the Company
to an Affiliate, or from an Affiliate to the Company, shall not be a Termination
of Employment, unless expressly determined by the Committee. A Termination of
Employment shall occur with respect to an employee who is employed by an
Affiliate if the Affiliate shall cease to be an Affiliate and the Participant
shall not immediately thereafter become an employee of the Company or an
Affiliate.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. This Plan shall be
---------------------------------
administered by the Committee which shall be comprised of one or more persons.
The Committee shall be the Compensation Committee of the Board of Directors,
unless such committee does not exist or the Board establishes a committee whose
purpose is the administration of this Plan. In the absence of an appointment,
the Board or the portion that qualifies as the Committee shall be the Committee.
A majority of the Committee shall constitute a quorum at any meeting thereof
(including a telephone conference) and the acts of a majority of the members
present, or acts approved in writing by a majority of the entire Committee
without a meeting, shall be the acts of the Committee for purposes of this Plan.
The Committee may authorize any one or more of its members or an officer of the
Company to execute and deliver documents on behalf of the
5
<PAGE>
Committee. This Plan is intended to qualify for exemption from Section 16(b) of
the Exchange Act and to qualify as performance-based compensation under Section
162(m) of the Code and shall be interpreted in such a way as to result in such
qualification. A member of the Committee shall not exercise any discretion
respecting himself or herself under this Plan. The Board shall have the
authority to remove, replace or fill any vacancy of any member of the Committee
upon notice to the Committee and the affected member. Any member of the
Committee may resign upon notice to the Board. The Committee may allocate among
one or more of its members, or may delegate to one or more of its agents, such
duties and responsibilities as it determines.
Among other things, the Committee shall have the authority, (i) subject to
the terms of this Plan, and (ii) subject to the approval of the Board (to the
extent required to qualify an option granted hereunder for exemption under
Section 16(b) of the Exchange Act and as "performance-based compensation" under
Section 162(m) of the Code):
(a) to select those persons to whom Awards may be granted from time to
time;
(b) to determine whether and to what extent Awards are to be granted
hereunder;
(c) to determine the number of shares of Common Stock to be covered by
each Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction or limitation; any exercise acceleration
or forfeiture waiver or any performance criteria regarding any Award and
the shares of Common Stock relating thereto);
(e) to adjust the terms and conditions, at any time or from time to
time, of any Award, subject to the limitations of Section 14.1;
(f) to determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Award shall be deferred;
(g) to determine under what circumstances an Award may be settled in
cash or Common Stock.
(h) to provide for the forms of Agreement to be utilized in connection
with this Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
6
<PAGE>
(j) to determine what securities law requirements are applicable to
this Plan, Awards, and the issuance of shares of Common Stock and to
require of a Participant that appropriate action be taken with respect to
such requirements;
(k) to cancel, with the consent of the Participant or as otherwise
provided in this Plan or an Agreement, outstanding Awards;
(l) to interpret and make a final determination with respect to the
remaining number of shares of Common Stock available under this Plan;
(m) to require as a condition of the exercise of an Award or the
issuance or transfer of a certificate of Common Stock, the withholding from
a Participant of the amount of any federal, state or local taxes as may be
necessary in order for the Company or any other employer to obtain a
deduction or as may be otherwise required by law;
(n) to determine whether and with what effect an individual has
incurred a Termination of Employment;
(o) to determine whether the Company or any other person has a right
or obligation to purchase Common Stock from a Participant and, if so, the
terms and conditions on which such Common Stock is to be purchased;
(p) to determine the restrictions or limitations on the transfer of
Common Stock;
(q) to determine whether an Award is to be adjusted, modified or
purchased, or is to become fully exercisable, under this Plan or the terms
of an Agreement;
(r) to determine the permissible methods of Award exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of this Plan; and
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing this Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of this
Plan and any Award issued under this Plan (and any Agreement) and to otherwise
supervise the administration of this Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
7
<PAGE>
Any determination made by the Committee pursuant to the provisions of this
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Award, may be made at the time of the grant of the Award or,
unless in contravention of any express term of this Plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of this Plan shall be final and binding on all persons, including the Company
and Participants. Any determination shall not be subject to de novo review if
-- ----
challenged in court.
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
---------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
----------------
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under this Plan shall be [20% of shares initially
outstanding] shares of Common Stock. Notwithstanding the foregoing, unless
approved by the Board of Directors, the number of shares of Common Stock
available for distribution under the Plan at any given time shall not exceed
15.0% of the shares of Common Stock then outstanding. Such shares may consist,
in whole or in part, of authorized and unissued shares or treasury shares.
4.2 Release of Shares. The Committee shall have full authority to
-----------------
determine the number of shares of Common Stock available for Award, and in its
discretion may include (without limitation) as available for distribution any
shares of Common Stock that have ceased to be subject to an Award, any shares of
Common Stock subject to any Award that are forfeited, any Award that otherwise
terminates without issuance of shares of Common Stock being made to the
Participant, or any shares (whether or not restricted) of Common Stock that are
received by the Company in connection with the exercise of an Award including
the satisfaction of any tax liability or the satisfaction of a tax withholding
obligation. If any shares could not again be available for Awards to a
particular Participant under any applicable law, such shares shall be available
exclusively for Awards to Participants who are not subject to such limitations.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise
----------------------
of an Award shall be subject to the terms and conditions specified herein and to
such other terms, conditions and restrictions as the Committee in its discretion
may determine or provide in the Award Agreement. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock, cash
or other property prior to (i) the listing of such shares on any stock exchange
(or other public market) on which the Common Stock may then be listed (or
regularly traded), (ii) the completion of any registration or qualification of
such shares under federal or state law, or any ruling or regulation of any
government body which the Committee determines to be necessary or advisable, and
(iii) the satisfaction of any applicable withholding obligation in order for the
Company or an Affiliate to obtain a deduction with respect to the exercise of an
Award. The Company may cause any certificate for any share of Common Stock to
be delivered to be properly marked with a legend or other notation reflecting
the limitations on transfer of such Common
8
<PAGE>
Stock as provided in this Plan or as the Committee may otherwise require. The
Committee may require any person exercising an Award to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of the shares of Common Stock in
compliance with applicable law or otherwise. Fractional shares shall not be
delivered, but shall be rounded to the next lower whole number of shares, with
appropriate payment made with respect to such fractional shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder
------------------
as to shares of Common Stock subject to an Award until, after proper exercise of
the Award or other action required, such shares shall have been recorded on the
Company's official stockholder records as having been issued and transferred.
Upon exercise of the Award or any portion thereof, the Company will have a
reasonable time in which to issue the shares, and the Participant will not be
treated as a stockholder for any purpose whatsoever prior to such issuance. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date such shares are recorded as issued and transferred in
the Company's official stockholder records, except as provided herein or in an
Agreement.
4.5 Best Efforts To Register. If there has been an initial public
------------------------
offering of the Common Stock, the Company will register under the Securities Act
the Common Stock delivered or deliverable pursuant to Awards on Commission Form
S-8 if available to the Company for this purpose (or any successor or alternate
form that is substantially similar to that form to the extent available to
effect such registration), in accordance with the rules and regulations
governing such forms, as soon as such forms are available for registration to
the Company for this purpose. The Company will use its best efforts to cause
the registration statement to become effective as soon as possible and will file
such supplements and amendments to the registration statement as may be
necessary to keep the registration statement in effect until the earliest of (a)
one year following the expiration of the last relevant period of the last Award
outstanding, (b) the date the Company is no longer a reporting company under the
Exchange Act and (c) the date all Participants have disposed of all shares of
Common Stock delivered pursuant to any Award. The Company may delay the
foregoing obligation if the Committee reasonably determines that any such
registration would materially and adversely affect the Company's interests or if
there is no material benefit to Participants.
4.6 Anti-Dilution. In the event of any Company stock dividend, stock
-------------
split, combination or exchange of shares, recapitalization or other change in
the capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction or event involving
the Company and having an effect similar to any of the foregoing, then the
Committee may adjust or substitute, as the case may be, the number of shares of
Common Stock available for Awards under this Plan, the number of shares of
Common Stock covered by outstanding Awards, the exercise price per share of
outstanding Awards, and
9
<PAGE>
any other characteristics or terms of the Awards as the Committee shall deem
necessary or appropriate to reflect equitably the effects of such changes to the
Participants; provided, however, that the Committee may limit any such
adjustment so as to maintain the deductibility of the Awards under Section
162(m) of the Code, and that any fractional shares resulting from such
adjustment shall be eliminated by rounding to the next lower whole number of
shares with appropriate payment for such fractional share as shall reasonably be
determined by the Committee.
ARTICLE V
---------
ELIGIBILITY
-----------
5.1 Eligibility. Except as herein provided, the persons who shall be
-----------
eligible to participate in this Plan and be granted Awards shall be those
persons who are officers, directors, employees or consultants of the Company or
any subsidiary, who shall be in a position, in the opinion of the Committee, to
make contributions to the growth, management, protection and success of the
Company and its subsidiaries. Of those persons described in the preceding
sentence, the Committee may, from time to time, select persons to be granted
Awards and shall determine the terms and conditions with respect thereto. In
making any such selection and in determining the form of the Award, the
Committee may give consideration to the functions and responsibilities of the
person's contributions to the Company and its subsidiaries, the value of the
individual's service to the Company and its subsidiaries and such other factors
deemed relevant by the Committee. The Committee may designate any person who is
not eligible to participate in this Plan if such person would otherwise be
eligible to participate in this Plan (and members of the Committee are expressly
excluded from participation to the extent necessary for purposes of Rule 16b-3,
Section 162(m) of the Code or any other legal reason).
ARTICLE VI
----------
STOCK OPTIONS
-------------
6.1 General. The Committee shall have authority to grant Options under
-------
this Plan at any time or from time to time. Stock Options may be granted alone
or in addition to other Awards and may be either Incentive Stock Options or Non-
Qualified Stock Options. An Option shall entitle the Participant to receive
shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with this Plan or an Agreement (the terms and
provisions of which may differ from other Agreements) including without
limitation, payment of the Option Price. During any three-calendar-year period,
Options for no more than one-half of all shares of Common Stock available for
grant under the Plan shall be granted to any single Participant.
10
<PAGE>
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of the
------------------
date the Committee determines. Each Option granted under this Plan shall be
evidenced by an Agreement, in a form approved by the Committee, which shall
embody the terms and conditions of such Option and which shall be subject to the
express terms and conditions set forth in this Plan. Such Agreement shall
become effective upon execution by the Participant. Only a person who is a
common-law employee of the Company, any parent corporation of the Company or a
subsidiary (as such terms are defined in Section 424 of the Code) on the Grant
date shall be eligible to be granted an Option which is intended to be and is an
Incentive Stock Option. To the extent that any Stock Option is not designated
as an Incentive Stock Option or even if so designated does not qualify as an
Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.
6.3 Terms and Conditions. Stock Options shall be subject to such terms
--------------------
and conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Stock Option shall be
-------------
fixed by the Committee; provided that no Non-Qualified Stock Option shall
be exercisable more than ten (10) years after the date the Stock Option is
granted. In the case of an Incentive Stock Option, the Option Period shall
not exceed ten (10) years from the date of grant or five (5) years in the
case of an individual who owns more than ten percent (10%) of the combined
voting power of all classes of stock of the Company, a corporation which
is a parent corporation of the Company or any subsidiary of the Company
(each as defined in Section 424 of the Code). No Option which is intended
to be an Incentive Stock Option shall be granted more than ten (10) years
from the date this Plan is adopted by the Company or the date this Plan is
approved by the stockholders of the Company, whichever is earlier.
(b) Option Price. The Option Price per share of the Common Stock
------------
purchasable under an Option shall be determined by the Committee. If such
Option is intended to qualify as an Incentive Stock Option, the Option
Price per share shall be not less than the Fair Market Value per share on
the date the Option is granted, or where granted to an individual who owns
or who is deemed to own stock possessing more than ten percent (10%) of
the combined voting power of all classes of stock of the Company, a
corporation which is a parent corporation of the Company or any subsidiary
of the Company (each as defined in Section 424 of the Code), not less than
one hundred ten percent (110%) of such Fair Market Value per share.
(c) Exercisability. Subject to Section 13.1, Stock Options shall be
--------------
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee. If the Committee provides that
any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part.
In addition, the Committee may at any time accelerate the exercisability
of any Stock Option. If the Committee intends that an Option be an
Incentive Stock Option, the Committee shall provide that the aggregate
Fair Market Value
11
<PAGE>
(determined at the Grant Date) of Incentive Stock Options which are
exercisable by a single Participant for the first time during the calendar
year shall not exceed $100,000.
(d) Method of Exercise. Subject to the provisions of this Article VI,
------------------
a Participant may exercise Stock Options, in whole or in part, at any time
during the Option Period by the Participant's giving written notice of
exercise on a form provided by the Committee to the Company specifying the
number of shares of Common Stock subject to the Stock Option to be
purchased. Such notice shall be accompanied by payment in full of the
purchase price by cash or check or such other form of payment as the
Company may accept. If approved by the Committee (including approval at
the time of exercise), payment in full or in part may also be made (i) by
delivering Common Stock already owned by the Participant for at least six
months prior to the date of exercise having a total Fair Market Value on
the date of such delivery equal to the Option Price; (ii) by the execution
and delivery of a note or other evidence of indebtedness (and any security
agreement thereunder) satisfactory to the Committee and permitted in
accordance with Section 6.3(e); (iii) by the delivery of cash or the
extension of credit by a broker-dealer to whom the Participant has
submitted a notice of exercise or otherwise indicated an intent to exercise
an Option (in accordance with Part 220, Chapter II, Title 12 of the Code of
Federal Regulations, so-called "cashless" exercise); (iv) by certifying
ownership of shares of Common Stock owned by the Participant to the
satisfaction of the Committee for later delivery to the Company as
specified by the Company; or (v) by any combination of the foregoing. If
payment of the Option Price of a Non-Qualified Stock Option is made in
whole or in part in the form of Restricted Stock or Deferred Stock, the
number of shares of Common Stock to be received upon such exercise equal to
the number of shares of Restricted Stock or Deferred Stock used for payment
of the Option Price shall be subject to the same forfeiture restrictions or
deferral limitations to which such Restricted Stock or Deferred Stock was
subject, unless otherwise determined by the Committee. In the case of an
Incentive Stock Option, the right to make a payment in the form of already
owned shares of Common Stock of the same class as the Common Stock subject
to the Stock Option may be authorized only at the time the Stock Option is
granted. No shares of Common Stock shall be issued until full payment
therefor, as determined by the Committee, has been made. Subject to any
forfeiture restrictions or deferral limitations that may apply if a Stock
Option is exercised using Restricted Stock or Deferred Stock, a Participant
shall have all of the rights of a stockholder of the Company holding the
class of Common Stock that is subject to such Stock Option (including, if
applicable, the right to vote the shares and the right to receive
dividends), when the Participant has given written notice of exercise, has
paid in full for such shares and such shares have been recorded on the
Company's official stockholder records as having been issued and
transferred.
(e) Company Loan or Guarantee. Upon the exercise of any Option and
-------------------------
subject to the pertinent Agreement and the discretion of the Committee, the
Company may at the request of the Participant:
12
<PAGE>
(i) lend to the Participant, an amount equal to such portion of
the Option Price as the Committee may determine; or
(ii) guarantee a loan obtained by the Participant from a third-
party for the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term,
interest rate, whether the loan is with recourse against the Participant
and any security interest thereunder, shall be determined by the Committee,
except that no extension of credit or guarantee shall obligate the Company
for an amount to exceed the lesser of the aggregate Fair Market Value per
share of the Common Stock on the date of exercise, less the par value of
the shares of Common Stock to be purchased upon the exercise of the Award,
or the amount permitted under applicable laws or the regulations and rules
of the Federal Reserve Board and any other governmental agency having
jurisdiction.
(f) Non-transferability of Options. Except as provided herein or in
------------------------------
an Agreement and then only consistent with the intent that the Option be an
Incentive Stock Option (as applicable), no Stock Option or interest therein
shall be transferable by the Participant other than by will or by the laws
of descent and distribution or by a designation of beneficiary effective
upon the death of the Participant, and all Stock Options shall be
exercisable during the Participant's lifetime only by the Participant. If
and to the extent transferability is permitted by Rule 16b-3 and except as
otherwise provided herein or by an Agreement, every Option granted
hereunder shall be freely transferable, but only if such transfer does not
result in liability under Section 16 of the Exchange Act to the Participant
or other Participants and is consistent with registration of the Option and
sale of Common Stock on Form S-8 (or a successor form) or the Committee's
waiver of such condition.
6.4 Termination by Reason of Death. Unless otherwise provided in an
------------------------------
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of one (1)
year (or such other period or no period as the Committee may specify)
immediately following the date of such death or until the expiration of the
Option Period, whichever period is the shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
-----------------------------------
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Stock Option
held by such Participant shall thereafter be fully exercisable by the
Participant for the period of one (1) year (or such other period or no period as
the Committee may specify) immediately following the date of such Termination of
Employment or until the expiration of the Option Period, whichever period is
shorter, and the Participant's death at any time following such Termination of
Employment due to Disability shall not affect the foregoing. In the event of
Termination of Employment by reason of Disability, if
13
<PAGE>
an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422 of the Code, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
6.6 Other Termination. Unless otherwise provided in an Agreement or
-----------------
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, or the Termination of Employment is involuntary on the part
of the Participant (but is not due to death, Disability or with Cause), any
Stock Option held by such Participant shall thereupon terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the
lesser of the ninety (90) day period commencing with the date of such
Termination of Employment or until the expiration of the Option Period. Unless
otherwise provided in an Agreement or determined by the Committee, if the
Participant incurs a Termination of Employment which is either (a) voluntary on
the part of the Participant (and is not due to Retirement) or (b) with Cause,
the Option shall terminate immediately. Unless otherwise provided in an
Agreement or determined by the Committee, the death or Disability of a
Participant after a Termination of Employment otherwise provided herein shall
not extend the exercisability of the time permitted to exercise an Option.
6.7 Cashing Out of Option. On receipt of written notice of exercise, the
---------------------
Committee may elect to cash out all or part of the portion of any Stock Option
by paying the Participant an amount, in cash or Common Stock, equal to the
excess of the Fair Market Value of the Common Stock that is subject to the
Option over the Option Price times the number of shares of Common Stock subject
to the Option on the effective date of such cash out.
6.8 Formula Grants. Each person who is a non-employee Director on the
--------------
Effective Date shall become a Participant and shall be granted an Option to
purchase 15,000 shares of Common Stock without further action by the Board or
the Committee. Each non-employee who is subsequently elected or appointed as a
Director shall become a Participant and shall, on his date of election or
appointment, without further action by the Board or the Committee, be granted an
Option to purchase 15,000 shares of Common Stock. Thereafter, on the date of
each annual meeting of stockholders of the Company after which a Participant
continues as a non-employee Director, but only with respect to an annual meeting
which is more than three months after the date of the initial grant of an Option
to such Participant under this Section 6.8, such Participant shall be granted an
Option to purchase 7,500 shares of Common Stock. If the number of shares of
Common Stock available to grant under the Plan on a scheduled date of grant is
insufficient to make all automatic grants required to be made pursuant to the
Plan on such date, then each eligible Director shall receive an Option to
purchase a pro rata number of the remaining shares of Common Stock available
under the Plan; provided further, however, that if such proration results in
fractional shares of Common Stock, then such Option shall be rounded down to the
nearest number of whole shares of Common Stock. If there is no whole number of
shares remaining to be granted, then no grants shall be made under the Plan.
Each Option granted under the Plan shall be evidenced by an Agreement, in a form
approved by the Committee, which shall embody the terms and conditions of such
Option and which shall be subject to the express terms and conditions
14
<PAGE>
set forth in the Plan. Such Agreement shall become effective upon execution by
the Participant. Any Option granted pursuant to this Section 6.8 shall terminate
upon the first anniversary of the date the Participant first ceased to hold the
position of Director.
ARTICLE VII
-----------
STOCK APPRECIATION RIGHTS
-------------------------
7.1 General. The Committee shall have authority to grant Stock
-------
Appreciation Rights under this Plan at any time or from time to time. Subject
to the Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with this Plan or an Agreement, a Stock
Appreciation Right shall entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).
7.2 Grant. Stock Appreciation Rights may be granted in conjunction with
-----
all or part of any Stock Option granted under this Plan, in which case the
exercise of the Stock Appreciation Right shall require the cancellation of a
corresponding portion of the Stock Option, and the exercise of the Stock Option
will result in cancellation of a corresponding portion of the Stock Appreciation
Right. In the case of a Non-Qualified Stock Option, such rights may be granted
either at or after the time of grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of grant of
such Stock Option. A Stock Appreciation Right may also be granted on a stand
alone basis. The grant of a Stock Appreciation Right shall occur as of the date
the Committee determines. Each Stock Appreciation Right granted under this Plan
shall be evidenced by an Agreement, which shall embody the terms and conditions
of such Stock Appreciation Right and which shall be subject to the terms and
conditions set forth in this Plan. During any three-calendar-year period, no
more Stock Appreciation Rights shall be granted to any Participant than the
number of Options that may be granted to any Participant under Section 6.1.
7.3 Terms and Conditions. Stock Appreciation Rights shall be subject to
--------------------
such terms and conditions as shall be determined by the Committee, including the
following:
(a) Period and Exercise. The term of a Stock Appreciation Right shall
-------------------
be established by the Committee. If granted in conjunction with a Stock
Option, the Stock Appreciation Right shall have a term which is the same
as the Option Period and shall be exercisable only at such time or times
and to the extent the related Stock Options would be exercisable in
accordance with the provisions of Article VI. A Stock Appreciation Right
which is granted on a stand alone basis shall be for such period and shall
be exercisable at such times and to the extent provided in an Agreement.
Stock Appreciation Rights shall be exercised by the Participant's giving
written notice of exercise on a form
15
<PAGE>
provided by the Committee to the Company specifying the portion of the
Stock Appreciation Right to be exercised.
(b) Amount. Upon the exercise of a Stock Appreciation Right, a
------
Participant shall be entitled to receive an amount in cash, shares of
Common Stock or both as determined by the Committee or as otherwise
permitted in an Agreement equal in value to the excess of the Fair Market
Value per share of Common Stock over the Option Price per share of Common
Stock specified in the related Agreement multiplied by the number of shares
in respect of which the Stock Appreciation Right is exercised. In the case
of a Stock Appreciation Right granted on a stand alone basis, the Agreement
shall specify the value to be used in lieu of the Option Price per share of
Common Stock. The aggregate Fair Market Value per share of the Common
Stock shall be determined as of the date of exercise of such Stock
Appreciation Right.
(c) Special Rules. In the case of Stock Appreciation Rights relating
-------------
to Stock Options held by Participants who are actually or potentially
subject to Section 16(b) of the Exchange Act to the extent required by Rule
16b-3:
(i) The Committee may require that such Stock Appreciation Rights
be exercised only in accordance with the provisions of Rule
16b-3; and
(ii) The Committee may provide that the amount to be paid upon
exercise of such Stock Appreciation Rights (other than those
relating to Incentive Stock Options) shall be based on the
highest mean sales price of the Common Stock on the principal
exchange on which the Common Stock is traded, NASDAQ or other
relevant market for determining value.
(d) Non-transferability of Stock Appreciation Rights. Stock
------------------------------------------------
Appreciation Rights shall be transferable only when and to the extent that
a Stock Option would be transferable under this Plan unless otherwise
provided in an Agreement.
(e) Termination. A Stock Appreciation Right shall terminate at such
-----------
time as a Stock Option would terminate under this Plan, unless otherwise
provided in an Agreement.
(f) Effect on Shares Under this Plan. Upon the exercise of a Stock
--------------------------------
Appreciation Right, the Stock Option or part thereof to which such Stock
Appreciation Right is related shall be deemed to have been exercised for
the purpose of the limitation set forth in Section 4.1 on the number of
shares of Common Stock to be issued under this Plan, but only to the extent
of the number of shares of Common Stock covered by the Stock Appreciation
Right at the time of exercise based on the value of the Stock Appreciation
Right at such time.
16
<PAGE>
(g) Incentive Stock Option. A Stock Appreciation Right granted in
----------------------
tandem with an Incentive Stock Option shall not be exercisable unless the
Fair Market Value of the Common Stock on the date of exercise exceeds the
Option Price. In no event shall any amount paid pursuant to the Stock
Appreciation Right exceed the difference between the Fair Market Value on
the date of exercise and the Option Price.
ARTICLE VIII
------------
RESTRICTED STOCK
----------------
8.1 General. The Committee shall have authority to grant Restricted Stock
-------
under this Plan at any time or from time to time. Shares of Restricted Stock
may be awarded either alone or in addition to other Awards granted under this
Plan. The Committee shall determine the persons to whom and the time or times
at which grants of Restricted Stock will be awarded, the number of shares of
Restricted Shares to be awarded to any Participant, the time or times within
which such Awards may be subject to forfeiture and any other terms and
conditions of the Awards. Each Award shall be confirmed by, and be subject to
the terms of, an Agreement. The Committee may condition the grant of Restricted
Stock upon the attainment of specified performance goals by the Participant or
by the Company or an Affiliate (including a division or department of the
Company or an Affiliate) for or within which the Participant is primarily
employed or upon such other factors or criteria as the Committee shall
determine. The provisions of Restricted Stock Awards need not be the same with
respect to any Participant. The purchase price for shares of Restricted Stock
shall be set by the Committee and may be zero.
8.2 Awards and Certificates. Notwithstanding the limitations on issuance
-----------------------
of shares of Common Stock otherwise provided in this Plan, each Participant
receiving an Award of Restricted Stock shall be issued a certificate in respect
of such shares of Restricted Stock. Such certificate shall be registered in the
name of such Participant and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Award as determined by
the Committee. The Committee may require that the certificates evidencing such
shares be held in custody by the Company until the restrictions thereon shall
have lapsed and that, as a condition of any Award of Restricted Stock, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Common Stock covered by such Award.
8.3 Terms and Conditions. Shares of Restricted Stock shall be subject to
--------------------
the following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of this
------------------------------
Plan and the Agreement, during a period set by the Committee, commencing
with the date of such Award (the "Restriction Period"), the Participant
shall not be permitted to sell, assign, transfer, pledge or otherwise
encumber any interest in shares of Restricted Stock. Unless otherwise
determined by the Committee, awards of Restricted Stock must be accepted
by
17
<PAGE>
a Participant within a period of 60 days (or such shorter periods as the
Committee may specify at grant) after the Grant Date, by executing a
Restricted Stock Agreement and paying whatever price, if any, is required.
The Participant shall not have any rights with respect to such Award,
unless and until such Participant has executed an agreement evidencing the
Award and has delivered a fully executed copy thereof to the Company, and
has otherwise complied with the applicable terms and conditions of such
Award.
(b) Rights. Except as provided in Section 8.3(a), the Participant
------
shall have, with respect to the shares of Restricted Stock, all of the
rights of a stockholder of the Company holding the class of Common Stock
that is the subject of the Restricted Stock, including, if applicable, the
right to vote the shares and the right to receive any cash dividends.
Unless otherwise determined by the Committee and subject to this Plan, cash
dividends on the class of Common Stock that is the subject of the
Restricted Stock shall be automatically deferred and reinvested in
additional Restricted Stock, and dividends on the class of Common Stock
that is the subject of the Restricted Stock payable in Common Stock shall
be paid in the form of Restricted Stock of the same class as the Common
Stock on which such dividend was paid.
(c) Criteria. Based on service, performance by the Participant or by
--------
the Company or the Affiliate, including any division or department for
which the Participant is employed or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
restrictions in installments and may accelerate the vesting of all or any
part of any Award and waive the restrictions for all or any part of such
Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
----------
determined by the Committee, if the Participant incurs a Termination of
Employment during the Restriction Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Restricted Stock. Except to the extent otherwise provided in the
applicable Agreement and this Plan, upon a Participant's Termination of
Employment for any reason during the Restriction Period other than death or
Disability, all shares of Restricted Stock still subject to restriction
shall be forfeited by the Participant, except the Committee shall have the
discretion to waive in whole or in part any or all remaining restrictions
with respect to any or all of such Participant's shares of Restricted
Stock.
(e) Delivery. If and when the Restriction Period expires without a
--------
prior forfeiture of the Restricted Stock subject to such Restriction
Period, unlegended certificates for such shares shall be delivered to the
Participant.
(f) Election. A Participant may elect to further defer receipt of the
--------
Restricted Stock for a specified period or until a specified event, subject
in each case to the Committee's approval and to such terms as are
determined by the Committee. Subject to
18
<PAGE>
any exceptions adopted by the Committee, such election must be made one
(1) year prior to completion of the Restriction Period.
ARTICLE IX
----------
DEFERRED STOCK
--------------
9.1 General. The Committee shall have authority to grant Deferred Stock
-------
under this Plan at any time or from time to time. Shares of Deferred Stock may
be awarded either alone or in addition to other Awards granted under this Plan.
The Committee shall determine the persons to whom and the time or times at which
Deferred Stock will be awarded, the number of shares of Deferred Stock to be
awarded to any Participant, the duration of the period (the "Deferral Period")
prior to which the Common Stock will be delivered, and the conditions under
which receipt of the Common Stock will be deferred and any other terms and
conditions of the Awards. Each Award shall be confirmed by, and be subject to
the terms of, an Agreement. The Committee may condition the grant of Deferred
Stock upon the attainment of specified performance goals by the Participant or
by the Company or an Affiliate, including a division or department of the
Company or an Affiliate for or within which the Participant is primarily
employed or upon such other factors or criteria as the Committee shall
determine. The provisions of Deferred Stock Awards need not be the same with
respect to any Participant.
9.2 Terms and Conditions. Deferred Stock Awards shall be subject to the
--------------------
following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of this
------------------------------
Plan and except as may otherwise be provided in an Agreement, neither
Deferred Stock Awards, nor any interest therein, may be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral Period.
At the expiration of the Deferral Period (or Elective Deferral Period as
defined in Section 9.2(e), where applicable), the Committee may elect to
deliver Common Stock, cash equal to the Fair Market Value of such Common
Stock or a combination of cash and Common Stock, to the Participant for
the shares covered by the Deferred Stock Award.
(b) Rights. Unless otherwise determined by the Committee and subject
------
to this Plan, cash dividends on the Common Stock that is the subject of
the Deferred Stock Award shall be automatically deferred and reinvested in
additional Deferred Stock, and dividends on the Common Stock that is the
subject of the Deferred Stock Award payable in Common Stock shall be paid
in the form of Deferred Stock of the same class as the Common Stock on
which such dividend was paid.
(c) Criteria. Based on service, performance by the Participant or by
--------
the Company or the Affiliate, including any division or department for
which the Participant
19
<PAGE>
is employed or such other factors or criteria as the Committee may
determine, the Committee may provide for the lapse of deferral limitations
in installments and may accelerate the vesting of all or any part of any
Award and waive the deferral limitations for all or any part of such
Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
----------
determined by the Committee, if the Participant incurs a Termination of
Employment during the Deferral Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Deferred Stock. Unless otherwise provided in an Agreement or determined by
the Committee, upon a Participant's Termination of Employment for any
reason during the Deferral Period other than death or Disability, the
rights to the shares still covered by the Award shall be forfeited by the
Participant, except the Committee shall have the discretion to waive in
whole or in part any or all remaining deferral limitations with respect to
any or all of such Participant's Deferred Stock.
(e) Election. A Participant may elect to further defer receipt of the
--------
Deferred Stock payable under an Award (or an installment of an Award) for
a specified period or until a specified event (an "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee. Subject to any exceptions
adopted by the Committee, such election must be made at least one (1) year
prior to completion of the Deferral Period for the Award (or the
applicable installment thereof).
ARTICLE X
---------
PERFORMANCE SHARES
------------------
10.1 General. Subject to the terms and conditions described below,
-------
Performance Shares may be granted to any Participant at any time and from time
to time as determined by the Committee. The Committee shall have complete
discretion in determining the number of Performance Shares granted to each
Participant; provided, however, that no Participant who is a Covered Employee
may earn more than one half the number of shares of Common Stock reserved under
the Plan as Performance Shares with respect to any Performance Period (as
defined below).
10.2 Price. The purchase price for Performance Shares shall be zero
-----
unless otherwise specified by the Committee.
10.3 Performance Share Agreement. Subject to the provisions of this
---------------------------
Plan, all the terms and conditions of an Award of Performance Shares shall be
determined by the Committee in its discretion and shall be confirmed by a
Performance Share Award Agreement which shall be executed by the Company and the
Participant. Not later than the date required or permitted for "qualified
performance-based compensation" under Code Section 162(m), the Committee shall
20
<PAGE>
determine the Participants who are Covered Employees who will potentially
receive individual Performance Share Awards for the Performance Period and the
amount or method for determining the amount of such Participant's number of
Performance Shares.
10.4 Performance Periods. Any time period (the "Performance Period")
-------------------
relating to a Performance Share Award (commencing with the Grant Date) shall be
at least one calendar or Company fiscal year in length unless otherwise provided
by the Committee.
10.5 Performance Goals. Not later than the date required or permitted
-----------------
for "qualified performance-based compensation" under Section 162(m), the
Committee shall establish in writing the performance goals ("Performance Goals")
for such Performance Period, which shall be based on any of the following
performance criteria, either alone or in any combination, and on either a
consolidated or business unit level, as the Committee may determine: sales, net
asset turnover, earnings per share, cash flow, cash flow from operations,
operating profit or income, net income, operating margin, net income margin,
return on net assets, return on total assets, return on common equity, return on
total capital, and total shareholder return. The foregoing criteria shall have
any reasonable definitions that the Committee may specify, which may include or
exclude any or all of the following items as the Committee may specify;
extraordinary, unusual or nonrecurring items; effects of accounting changes;
effects of financing activities (e.g., effect on earnings per share of issuance
of convertible debt securities); expenses for restructuring or productivity
initiates; other nonoperating items; spending for acquisitions; effects of
divestitures; and effects of litigation activities and settlements. Any such
performance criterion or combination of such criteria may apply to the
Participant's Award opportunity in its entirety or to any designated portion or
portions of the Award opportunity, as the Committee may specify. Unless the
Committee determines otherwise for any Performance Period, extraordinary items,
such as capital gains and losses, which affect any performance criterion
applicable to the Award (including but not limited to the criterion of net
income) shall be excluded or included in determining the extent to which the
correspondence performance goal has been achieved, whichever will produce the
higher Award. The Committee may, in its discretion, vary the terms and
conditions of any Performance Share Award, including, without limitation, the
Performance Period and Performance Goals, without shareholder approval, as
applied to any recipient who is not a Covered Employee with respect to the
Company. In the event applicable tax or securities laws change to permit the
Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval.
10.6 Earning of Performance Shares. After the applicable Performance
-----------------------------
Period shall have ended, the Committee shall certify the extent to which the
established Performance Goals have been achieved. The retention of Performance
Shares shall be a direct function of the extent to which the Company's
Performance Goals have been achieved. A Participant may earn more or less than
the number of Performance Shares originally awarded, or no Performance Shares at
all. Performance Shares shall be paid in the form of Common Stock.
Unrestricted certificates representing such number of shares of Common Stock as
equals the number of Performance Shares
21
<PAGE>
earned under the Award shall be delivered to the Participant as soon as
practicable after the end of the applicable Performance Period. Participants
shall also be entitled to any dividends or other distributions that have been or
would have been paid or earned in respect of such shares of Common Stock during
the period from the initial award date to the final payout on the Performance
Shares, and may be paid in the form of Common Stock. Unless otherwise provided,
in its discretion, by the Committee, any such dividends or other distributions
shall not bear interest. All determinations by the Committee as to the
establishment of Performance Goals and the potential Awards related to such
Performance Goals and as to the achievement of Performance Goals relating to
such Awards, and the number of any Performance Shares shall be made in writing
in the case of any Award intended to qualify under Code Section 162(m). The
Committee may not delegate any responsibility relating to such Awards, and may
not exercise discretion to increase the amount payable in respect of a
Performance Share Award to a Covered Employee.
10.7 Termination of Employment Due to Death, Disability or Retirement
----------------------------------------------------------------
or at the Request of the Company Without Cause. In the event of an
- ----------------------------------------------
Extraordinary Termination of Employment or a Termination of Employment by the
Company without Cause during a Performance Period, the Participant may receive a
prorated payout with respect to the Performance Shares relating to such
Performance Period. The prorated payout shall be determined by the Committee,
in its sole discretion, and shall be based upon the length of time that the
Participant held the Performance Shares during the Performance Period and based
upon the achievement of the established Performance Goals. Distribution of
earned Performance Shares shall be made at the same time payments are made to
Participants who did not incur a Termination of Employment during the applicable
Performance Period.
10.8 Termination of Employment for Other Reasons. Unless otherwise
-------------------------------------------
provided in an Agreement, in the event that a Participant's employment
terminates for any reason other than those reasons set forth in Section 10.7,
all Performance Shares shall be forfeited by the Participant to the Company.
10.9 Nontransferability. Unless otherwise provided in an Agreement,
------------------
Performance Shares may not be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. Further, a Participant's rights under the Plan shall be
exercisable during the Participant's lifetime only by the Participant or a
Representative.
10.10 Amendment of Awards. The Committee has discretion, subject to
-------------------
the Plan's constituting a plan of performance-based compensation under Code
Section 162(m), to vary the terms and conditions of any Performance Share Award,
including, without limitation, the Performance Goals, without shareholder
approval, as applied to any Participant who is not a "covered employee" with
respect to the Company as defined in Section 162(m) of the Code.
ARTICLE XI
----------
22
<PAGE>
ANNUAL INCENTIVE AWARDS
-----------------------
11.1 Eligibility. Participants designated by the Committee shall be
-----------
eligible for an Annual Incentive Award, the amount of which will be based on the
satisfaction of specified bonus targets ("Award Targets"). Not later than the
date required as permitted for "qualified performance-based compensation" under
Code Section 162(m), the Committee shall establish in writing (i) the Award
Targets and (ii) the Annual Incentive Awards which may be earned by
Participants, based upon the extent to which the Award Targets are achieved
("Award Opportunities"). The Award Targets and Award Opportunities shall be
confirmed in Agreements between the Company and the Participants. The Award
Targets shall be based on any of the following performance criteria, either
alone or in any combination, and on either a consolidated or business unit
level, as the Committee may determine: sales, net asset turnover, earnings per
share, cash flow, cash flow from operations, operating profit or income, net
income, operating margin, net income margin, return on net assets, return on
total assets, return on common equity, return on total capital, and total
shareholder return. The foregoing criteria shall have any reasonable definitions
that the Committee may specify, which may include or exclude any or all of the
following items; effects of accounting changes; effects of financing activities
(e.g., effect on earnings per share of issuance of convertible debt securities);
expenses for restructuring or productivity initiates; other nonoperating items;
spending for acquisitions; effects of divestitures; and effects of litigation
activities and settlements. Any such performance criterion or combination of
such criteria may apply to the Participant's Award opportunity in its entirety
or to any designated portion or portions of the Award opportunity, as the
Committee may specify. Unless the Committee determines otherwise for any
Performance Period, extraordinary items, such as capital gains and losses, which
affect any performance criterion applicable to the Award (including but not
limited to the criterion of net income) shall be excluded or included in
determining the extent to which the corresponding performance goal has been
achieved, whichever will produce the higher Award. The Committee may specify
the amount of the individual Award as a percentage of such business criteria, a
percentage thereof in excess of a threshold amount, or another amount which need
not bear a strictly mathematical relationship to such relationship criteria.
With respect to any Performance Period, the Committee may establish an aggregate
limit or individual limit with respect to the value of the Awards.
11.2 Earning of Annual Incentive Awards. After the applicable fiscal
----------------------------------
year shall have ended, the Committee shall certify in writing the extent to
which the established Award Targets have been achieved. The Committee may, in
its discretion, determine that the amount payable to any Participant as a final
Annual Incentive Award shall be increased or reduced from the amount of his or
her potential Award, including a determination to make no final Award
whatsoever, but the Committee may not exercise discretion to increase any such
amount in the case of an individual Award with respect to a Covered Employee
intended to qualify under Code Section 162(m). Unless otherwise determined by
the Committee, during a Performance Period, an Award shall be payable under this
Plan to the Participant who incurs an Extraordinary Termination of Employment or
a Termination of Employment by the Company without cause, which shall be
adjusted, pro rata, for the period of time during the year the Participant
actually worked. Unless
23
<PAGE>
otherwise provided by the Committee, a Participant who incurs a Termination of
Employment other than an Extraordinary Termination of Employment or a
Termination of Employment by the Company with Cause prior to the end of the
Performance Period shall not be entitled to any Award under the Performance
Period. Subsequently, the Committee shall calculate the Annual Incentive Award
(if any) for each Participant, based upon the Award Opportunities established by
the Committee prior to the beginning of the applicable year. Each Annual
Incentive Award shall be solely a function of the degree to which the
established Award Targets have been achieved.
11.3 Payments and Election. Participants may elect to receive Annual
---------------------
Incentive payouts in cash, Common Stock, Deferred Stock, Restricted Stock or a
combination of the foregoing, provided that any election for payment in Common
Stock is subject to the approval of the Committee. Payouts with respect to a
fiscal year will be made within ninety (90) days of the end of such year. To
elect the payout of a portion of an Annual Incentive Award in Common Stock, a
Participant must inform the Committee in writing prior to the start of the
fiscal year with respect to which payout would be made or at such other time as
the Committee may permit. Unless modified by the Committee before the beginning
of a fiscal year of the Company, terms and conditions of Deferred or Restricted
Stock payouts shall include the following:
(a) Any portion of an Annual Incentive Award can be elected for
payout in Deferred or Restricted Stock, either in a dollar amount or as a
percentage of the total Annual Incentive Award.
(b) Deferred or Restricted Stock will be issued on the same date
that cash payouts would be made, based on the closing price of the Common
Stock as of the date of the award ("Closing Price") on the principal
exchange on which the Common Stock shall then be listed or quoted.
(c) Deferred or Restricted Stock will be issued pursuant to, and
shall be subject to the terms and conditions contained in this Plan.
Unless otherwise agreed, the Deferral Period or Restriction Period,
respectively, will be for a period determined by the Committee of at least
three (3) years in duration, after which time the Common Stock will be
distributed or released to the Participant.
(d) The number of shares of Deferred Stock or Restricted Stock
granted to a Participant will equal the product of (A) such number of
shares of Common Stock as have an aggregate closing price equal to the
dollar amount of the Annual Incentive Award elected to be received in the
form of Deferred Stock or Restricted Stock, multiplied by (B) a factor
greater than 1.00 but less than or equal to 1.30, as determined by the
Committee prior to the beginning of the Company's applicable fiscal year.
(e) If the Participant (who is not a Covered Employee) incurs a
Termination of Employment by reason of death, Disability or Retirement or
by the Company without Cause, the Committee, at its discretion, may
provide for waiver of all, or a portion of the
24
<PAGE>
deferrals or restrictions applicable to such Awards. If the Participant's
incurs a Termination of Employment for any other reason, the shares of
Deferred or Restricted Stock may be forfeited.
11.4 Amendment of Awards. The Committee has discretion, subject to
-------------------
the Plan's constituting a plan of performance-based compensation under Code
Section 162(m), to vary the terms and conditions of any Annual Incentive Award,
including, without limitation, the Award Targets, without shareholder approval,
as applied to any Participant who is not a "covered employee" with respect to
the Company as defined in Section 162(m) of the Code.
11.5 Performance Threshold. The Committee may establish minimum
---------------------
levels of Company performance which must be achieved during a fiscal year before
any Annual Incentive Awards shall be paid to Participants.
11.6 Maximum Awards. The Committee may establish guidelines governing
--------------
the maximum Annual Incentive Awards that may be earned by Participants (either
in the aggregate, by employee class or among individual Participants), provided
that no Participant may receive an Annual Incentive Award in an amount
(including the value of any Common Stock constituting any portion of such Annual
Incentive Awards) greater than $1,500,000 with respect to any fiscal year of the
Company.
ARTICLE XII
-----------
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THIS PLAN
-------------------------------------------------------
12.1 Limited Transfer During Offering. In the event there is an
--------------------------------
effective registration statement under the Securities Act pursuant to which
shares of Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an exercise of an Award.
12.2 No Company Obligation. None of the Company, an Affiliate or the
---------------------
Committee shall have any duty or obligation to affirmatively disclose to a
record or beneficial holder of Common Stock or an Award, and such holder shall
have no right to be advised of any material information regarding the Company or
any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Award or the Company's purchase of Common Stock or an Award from
such holder in accordance with the terms hereof.
ARTICLE XIII
------------
CHANGE IN CONTROL PROVISIONS
----------------------------
25
<PAGE>
13.1 Impact of Event. Notwithstanding any other provision of this
---------------
Plan to the contrary, in the event of a Change in Control (as defined in Section
13.2), the Committee shall have full discretion, notwithstanding anything herein
or in an Agreement to the contrary, to do any or all of the following with
respect to an outstanding Award:
(a) to provide that the Stock Options and Stock Appreciation
Rights outstanding as of the date of the Change in Control which are not
then exercisable shall become fully exercisable to the full extent of the
original grant;
(b) to provide that the restrictions and deferral limitations
applicable to any Restricted Stock, Deferred Stock or other Award shall
lapse, and such Restricted Stock, Deferred Stock or other Award shall
become free of all restrictions and become fully vested and transferrable
to the full extent of the original grant;
(c) to deem any performance goal or other condition with respect
to any Performance Shares or Annual Incentive Award to have been satisfied
in full, and such Award shall be fully distributable;
(d) to cause any Award to be cancelled, provided notice of at
least 15 days thereof is provided before the date of cancellation;
(e) to provide that the securities of another entity be
substituted hereunder for the Common Stock and to make equitable
adjustment with respect thereto;
(f) to grant the Participant the right to elect by giving notice
during a set period of time from and after a Change in Control to
surrender all or part of a stock-based Award to the Company and to receive
cash in an amount equal to the amount by the "Change in Control Price" (as
defined in Section 13.3) per share of the Common Stock on the date of the
election exceeds the amount the Participant must pay to exercise the Award
per share of Common Stock under the Award (the "Spread") multiplied by the
number of shares of Common Stock granted under the Award; and
(g) to take any other action the Committee determines to take.
13.2 Definition of Change in Control. For purposes of this Plan, a
-------------------------------
"Change in Control" shall mean the happening of any of the following events:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of thirty percent (30%) or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of
the
26
<PAGE>
then-outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a),
the following acquisitions shall not constitute a Change of Control: (i)
any acquisition directly from the Company other than in connection with the
acquisition by the Company or an Affiliate of a business, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (iv) any acquisition by a lender to
the Company pursuant to a debt restructuring of the Company, or (v) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 13.2;
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board.
(c) Consummation of a reorganization, merger or consolidation of the
Company or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than sixty percent (60%) of, respectively, the
then-outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, thirty percent
(30%) or more of, respectively, the then outstanding shares of common stock
of the corporation resulting from such Business Combination, or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business
27
<PAGE>
Combination and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company other than to a corporation
which would satisfy the requirements of clauses (i), (ii) or (iii) of
Subsection (c) of this Section 13.2, assuming for this purpose that such
liquidation or dissolution was a Business Combination.
13.3 Change in Control Price. For purposes of this Plan, "Change in
-----------------------
Control Price" means the higher of (a) the highest reported sales price of a
share of Common Stock in any transaction reported on the principal exchange on
which such shares are listed or on Nasdaq during the 60-day period prior to and
including the date of a Change in Control or (b) if the Change in Control is the
result of a tender or exchange offer or a Corporate Transaction, the highest
price per share of Common Stock paid in such tender or exchange offer or a
Corporate Transaction, except that, in the case of Incentive Stock Options and
Stock Appreciation Rights relating to Incentive Stock Options, such price shall
be based only on the Fair Market Value of the Common Stock on the date such
Incentive Stock Option or Stock Appreciation Right is exercised. To the extent
that the consideration paid in any such transaction described above consists all
or in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Committee.
ARTICLE XIV
-----------
MISCELLANEOUS
-------------
14.1 Amendments and Termination. The Board may amend, alter or
--------------------------
discontinue the Plan at any time, but no amendment, alteration or
discontinuation shall be made which would impair the rights of a Participant
under an Award theretofore granted without the Participant's consent, except
such an amendment (a) made to avoid an expense charge to the Company or an
Affiliate, (b) made to cause the Plan to qualify for the exemption provided by
Rule 16b-3, or (c) made to permit the Company or an Affiliate a deduction under
the Code. In addition, no such amendment shall be made without the approval of
the Company's stockholders to the extent such approval is required by law or
agreement. The Committee may amend, alter or discontinue the terms of any Award
theretofore granted, prospectively or retroactively, on the same conditions and
limitations (and exceptions to limitations) as the Board and further subject to
any approval or limitations the Board may impose.
Notwithstanding anything in the Plan to the contrary, if any right under
this Plan would cause a transaction to be ineligible for pooling of interest
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, the Committee may modify or adjust the
28
<PAGE>
right so that pooling of interest accounting shall be available, including the
substitution of Common Stock having a Fair Market Value equal to the cash
otherwise payable hereunder for the right which caused the transaction to be
ineligible for pooling of interest accounting.
14.2 Unfunded Status of Plan. It is intended that this Plan be an
-----------------------
"unfunded" plan for incentive and deferred compensation. The Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under this Plan to deliver Common Stock or make payments; provided,
however, that, unless the Committee otherwise determines, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of this
Plan.
14.3 Status of Awards Under Code Section 162(m). It is the intent of
------------------------------------------
the Company that Awards granted to persons who are Covered Employees within the
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any agreement relating to such
an Award does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
14.4 General Provisions.
------------------
(a) Representation. The Committee may require each person
--------------
purchasing or receiving shares pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to the distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
(b) No Additional Obligation. Nothing contained in this Plan
------------------------
shall prevent the Company or an Affiliate from adopting other or
additional compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount
-----------
first becomes includible in the gross income of the Participant for
Federal income tax purposes with respect to any Award, the Participant
shall pay to the Company (or other entity identified by the Committee), or
make arrangements satisfactory to the Company or other entity identified
by the Committee regarding the payment of, any Federal, state, local or
foreign taxes of any kind required by law to be withheld with respect to
such amount required in order for the Company or an Affiliate to obtain a
current deduction. To the extent permitted by the Committee, withholding
obligations may be settled with Common Stock, including Common Stock that
is part of the Award that gives rise to the withholding requirement
provided that any applicable requirements under Section 16 of the Exchange
Act are satisfied. The obligations of the Company under this Plan shall be
conditional on such payment or arrangements, and the Company and its
Affiliates shall, to the extent
29
<PAGE>
permitted by law, have the right to deduct any such taxes from any payment
otherwise due to the Participant. If the Participant disposes of shares of
Common Stock acquired pursuant to an Incentive Stock Option in any
transaction considered to be a disqualifying transaction under the Code,
the Participant must give written notice of such transfer and the Company
shall have the right to deduct any taxes required by law to be withheld
from any amounts otherwise payable to the Participant.
(d) Reinvestment. The reinvestment of dividends in additional
------------
Deferred or Restricted Stock at the time of any dividend payment shall only
be permissible if sufficient shares of Common Stock are available for such
reinvestment (taking into account then outstanding Options and other
Awards).
(e) Representation. The Committee shall establish such procedures as
--------------
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(f) Controlling Law. This Plan and all Awards made and actions taken
---------------
thereunder shall be governed by and construed in accordance with the laws
of the State of Delaware (other than its law respecting choice of law).
This Plan shall be construed to comply with all applicable law, and to
avoid liability to the Company, an Affiliate or a Participant, including,
without limitation, liability under Section 16(b) of the Exchange Act.
(g) Offset. Any amounts owed to the Company or an Affiliate by the
------
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under this Plan
or an Agreement to be transferred to the Participant, and no shares of
Common Stock, cash or other thing of value under this Plan or an Agreement
shall be transferred unless and until all disputes between the Company and
the Participant have been fully and finally resolved and the Participant
has waived all claims to such against the Company or an Affiliate.
(h) Fail-Safe. With respect to persons subject to Section 16 of the
---------
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3), as applicable. To
the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee. Moreover, in the event the Plan
does not include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to
be stated herein, such provision (other than one relating to eligibility
requirements or the price and amount of Awards) shall be deemed to be
incorporated by reference into the Plan with respect to Participants
subject to Section 16.
(i) Right to Capitalize. The grant of an Award shall in no way affect
-------------------
the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business
30
<PAGE>
structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
14.5 Mitigation of Excise Tax. Subject to any other agreement between
------------------------
the Participant and the Company or an Affiliate, if any payment or right
accruing to a Participant under this Plan (without the application of this
Section 14.5), either alone or together with other payments or rights accruing
to the Participant from the Company or an Affiliate ("Total Payments") would
constitute a "parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced to the largest
amount or greatest right that will result in no portion of the amount payable or
right accruing under this Plan being subject to an excise tax under Section 4999
of the Code or being disallowed as a deduction under Section 280G of the Code.
The determination of whether any reduction in the rights or payments under this
Plan is to apply shall be made by the Committee in good faith after consultation
with the Participant, and such determination shall be conclusive and binding on
the Participant. The Participant shall cooperate in good faith with the
Committee in making such determination and providing the necessary information
for this purpose. The foregoing provisions of this Section 14.5 shall apply
with respect to any person only if after reduction for any applicable federal
excise tax imposed by Section 4999 of the Code and federal income tax imposed by
the Code, the Total Payments accruing to such person would be less than the
amount of the Total Payments as reduced, if applicable, under the foregoing
provisions of this Plan and after reduction for only federal income taxes.
14.6 Rights with Respect to Continuance of Employment. Nothing
------------------------------------------------
contained herein shall be deemed to alter the relationship between the Company
or an Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or
an Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Company or an Affiliate reserves the
same rights to terminate the Participant's employment or service as existed
prior to the individual becoming a Participant in this Plan.
14.7 Awards in Substitution for Awards Granted by Other Corporations.
---------------------------------------------------------------
Awards may be granted under this Plan from time to time in substitution for
awards in respect of other plans of other entities. The terms and conditions of
the Awards so granted may vary from the terms and conditions set forth in this
Plan at the time of such grant as the majority of the members of the Committee
may deem appropriate to conform, in whole or in part, to the provisions of the
awards in substitution for which they are granted.
14.8 Procedure for Adoption. Any Affiliate of the Company on the
----------------------
Effective Date shall be deemed to have adopted this Plan on the Effective Date.
Any other Affiliate of the Company
31
<PAGE>
may by resolution of such Affiliate's board of directors, with the consent of
the Board of Directors and subject to such conditions as may be imposed by the
Board of Directors, adopt this Plan as of the date specified in the board
resolution.
14.9 Procedure for Withdrawal. Any Affiliate which has adopted this
------------------------
Plan may, by resolution of the board of directors of such direct or indirect
subsidiary, with the consent of the Board of Directors and subject to such
conditions as may be imposed by the Board of Directors, terminate its adoption
of this Plan.
14.10 Delay. If at the time a Participant incurs a Termination of
-----
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under this Plan or an Agreement to
the extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, or the period for exercise of a Stock Appreciation Right as provided in
the Agreement, whichever is shorter. The Company shall have the right to
suspend or delay any time period described in this Plan or an Agreement if the
Committee shall determine that the action may constitute a violation of any law
or result in liability under any law to the Company, an Affiliate or a
stockholder of the Company until such time as the action required or permitted
shall not constitute a violation of law or result in liability to the Company,
an Affiliate or a stockholder of the Company. The Committee shall have the
discretion to suspend the application of the provisions of this Plan required
solely to comply with Rule 16b-3 if the Committee shall determine that Rule 16b-
3 does not apply to this Plan.
14.11 Headings. The headings contained in this Plan are for reference
--------
purposes only and shall not affect the meaning or interpretation of this Plan.
14.12 Severability. If any provision of this Plan shall for any reason
------------
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereby, and this Plan shall be construed as
if such invalid or unenforceable provision were omitted.
14.13 Successors and Assigns. This Plan shall inure to the benefit of
----------------------
and be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
14.14 Entire Agreement. This Plan and the Agreement constitute the
----------------
entire agreement with respect to the subject matter hereof and thereof, provided
that in the event of any inconsistency between this Plan and the Agreement, the
terms and conditions of the Agreement shall control.
Effective as of _______________, 1999.
32
<PAGE>
CENTERPOINT ADVISORS, INC.
By ____________________________________
Robert C. Basten
President and Chief Executive Officer
33
<PAGE>
EXHIBIT 10.12
CENTERPOINT ADVISORS, INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
(1999)
INTRODUCTION
------------
The purpose of this Employee Stock Purchase Plan (the "Plan") is to benefit
CenterPoint Advisors, Inc. (the "Corporation") (and its parent or subsidiaries)
by offering eligible employees a favorable opportunity to become stockholders of
the Corporation over a period of years, thereby giving them a proprietary
interest in the growth and prosperity of the Corporation and encouraging the
continuance of their dedicated services with the Corporation (or its parent or
subsidiaries).
Pursuant to this Plan, [2,000,000] shares of authorized but unissued common
stock of the Corporation may be offered for sale to eligible employees (as
determined under Section 2 of this Plan) through periodic offerings to be made
during the ten-year period commencing ____________, 1999 (the "Effective Date").
The Plan will be implemented by making four (4) offerings annually of the
Corporation's common stock (the "Offerings" and individually, an "Offering"),
beginning on the first day of each calendar quarter, each Offering terminating
on the last day of such quarter ("Offering Period").
The Plan is intended to qualify as an Employee Stock Purchase Plan under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations promulgated thereunder.
<PAGE>
1. Committee. The Plan will be administered by a committee (the
---------
"Committee") appointed by the Corporation's Board of Directors. The Committee
shall be the Compensation Committee of the Board of Directors, unless such
committee does not exist or the Board of Directors establishes a committee whose
purpose is the administration of this Plan. The Committee shall at all times
consist of one or more members of the Board of Directors, none of whom shall be
eligible to participate in the Plan. The Committee's interpretations and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. All employees of the Corporation (and its parent and
-----------
subsidiaries) on the date of any Offering (as hereinafter described) shall be
eligible to participate in the Plan, except that the following classes of
employees shall not be eligible:
(a) employees who are not employed by the Corporation (or its parent or
one of its subsidiaries) as of the date one year prior to the first
day of an Offering;
(b) employees whose customary employment is for not more than 5 months in
any calendar year;
(c) employees who would, immediately after the grant of an option under
the Plan, own Corporation stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the
Corporation (or its parent or subsidiaries);
(d) employees whose customary employment with the Corporation is 20 hours
or less per week;
(e) members of the Committee.
For purposes of subparagraph (a), above, a participating employee who
terminates his or her employment and is subsequently reemployed by the
Corporation (or its parent or one of its subsidiaries) within one year of the
termination date shall be eligible to participate in any Offering
-2-
<PAGE>
under this Plan as of the first day of the Offering Period following the one
year anniversary of the date of such reemployment (as if the employee were a new
employee). Additionally, in determining an employee's employment for purposes of
this Plan, such employee's employment with any business entity, the assets,
business, stock or product line of which is acquired by the Corporation (or its
parent or one of its subsidiaries) through purchase, merger or otherwise will be
deemed to be employment with the Corporation. For purposes of subparagraph (c)
of this Section 2, the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an employee, and stock which the employee may
purchase under outstanding options shall be treated as stock owned by the
employee. For purposes of this Plan, a subsidiary of the Corporation shall mean
a "subsidiary corporation" as defined in Section 424(f) of the Code, and a
parent of the Corporation shall mean a "parent corporation" as defined in
section 424(e) of the Code.
3. Offerings. The Corporation will make four (4) annual Offerings to
---------
employees to purchase stock under this Plan. Each Offering Period shall be
three (3) months in duration, during which the amounts of Base Compensation (as
defined below) directed pursuant to Section 4 by an employee (plus the amount of
any dividends received on any shares purchased by the employee under the Plan
while such shares are registered in the name of a custodian, if one is appointed
pursuant to Section 9 hereof) shall constitute the measure by which the
employee's participation in the Offering is based. For all purposes of this
Plan, "Base Compensation" shall mean cash payments on account of the employee's
employment with the Corporation or its subsidiaries, and shall include regular
wage or salary payments only. Overtime premium, shift pay for Saturday, Sunday
or holiday work, emergency call-in cash payments, bonuses, commissions and all
other
-3-
<PAGE>
non-regular compensation, if any, shall be excluded from Base Compensation for
both salaried and hourly employees.
No employee may be granted an option which permits his rights to purchase
stock under this Plan, and any other stock purchase plan of the Corporation (and
its parent or subsidiaries), to accrue at a rate which exceeds $25,000 of the
fair market value of such stock (determined at the effective date of the
Offering) for each calendar year in which the Offering is outstanding at any
time. For purposes of the preceding sentence, the rules set forth in Section
423(b)(8) of the Code shall apply.
4. Participation. Subject to the third sentence of Section 7, an
-------------
employee eligible on the effective date of any Offering may participate in such
Offering on any enrollment date by completing and forwarding a payroll deduction
authorization form to the Human Resources Department. The form will authorize a
regular payroll deduction from the employee's direct, after-tax Base
Compensation, and must specify the date on which such deduction is to commence,
which shall be the first day of the next Offering Period and may not be
retroactive. The form may also authorize the purchase of additional shares with
any dividends received on any shares purchased by the employee under this Plan
while such shares are registered in the name of a custodian, if one is appointed
pursuant to Section 9 hereof.
5. Payroll Deductions. The Corporation will maintain payroll deduction
------------------
accounts for all participating employees. With respect to any Offering made
under this Plan, an employee may authorize a payroll deduction in terms of whole
number percentages from a minimum of 1% up
-4-
<PAGE>
to a maximum of 10% of the gross, pre-tax Base Compensation an employee receives
during the Offering Period. Notwithstanding the foregoing, in no event may more
than $10,000.00 be deducted from an employee's Base Compensation for each
Offering Period.
6. Deduction Terminations. An employee may, at any time, terminate the
----------------------
employee's payroll deduction by filing a payroll deduction termination form.
The change will not become effective sooner than the next pay period after
receipt of the form by the Human Resources Department. Upon filing such payroll
deduction termination form, the employee shall also be deemed to have elected a
"withdrawal of funds" in accordance with Section 7, below.
7. Withdrawal of Funds. An employee may at any time more than 15 days
-------------------
prior to the end of an Offering Period, and for any reason, permanently draw out
the balance accumulated in the employee's account for the Offering Period for
which such payroll deduction form is effective and thereby withdraw from
participation in an Offering for the Offering Period. Upon an election in
accordance with this Section 7, all payroll withdrawals for the Offering Period
shall be returned to the employee as soon as administratively practicable and
such employee's option shall be automatically terminated. An employee may
thereafter resume participation again only as of the first day of the next
Offering Period (and/or the first day of each Offering Period thereafter);
provided, however, that an employee who is an officer or director of the
Corporation may not thereafter resume participation in that Offering or
participate in a subsequent Offering until the first day of an Offering Period
which occurs at least six months after the date of such withdrawal. Partial
withdrawals will not be permitted.
-5-
<PAGE>
8. Purchase of Shares. Each employee participating in any Offering under
------------------
this Plan will be granted an option, upon the effective date of such Offering,
for as many full shares of the Corporation's common stock as can be purchased by
such employee, which shall equal the sum of the following:
(a) the amount of payroll deduction elected by the employee up to 10% of
such employee's gross, pre-tax Base Compensation received during the
specified Offering Period, but not to exceed $10,000; and
(b) the amount of any dividends received on any shares purchased by the
employee under this Plan while such shares are registered in the name
of a custodian appointed pursuant to Section 9 hereof, if any.
Notwithstanding the foregoing, the maximum number of shares which can be
purchased by an employee shall not exceed the amount of payroll deduction
elected by the employee for the Offering Period (not to exceed $10,000) divided
by 85% of the fair market value (as defined in Section 11) of the stock on the
first day of the Offering Period
9. Purchase Price of Shares. The purchase price for each share purchased
------------------------
will be 85% of the fair market value (as defined in Section 11) of the stock at
the time the option is exercised, or, if lower, on the first day of the Offering
Period (such price hereinafter referred to as the "Subscription Price"), when
there are sufficient funds in the employee's account to purchase one or more
full shares. Each option shall be automatically exercised at the Subscription
Price at the end of the Offering Period. The employee's account shall be
charged for the amount of the purchase price and ownership of such share or
shares shall be appropriately entered in the books of the Corporation. The
Committee may appoint a custodian to accept custody of such shares on behalf of
each participating employee. Upon an employee's request, the employee shall be
issued a certificate for any or all of the shares held by the custodian on his
or her behalf by
-6-
<PAGE>
completing a form approved by the Committee. If no such custodian is appointed,
employees will be issued a certificate for shares as soon as practical after
exercising an option.
A participating employee may not purchase a share under any Offering beyond
60 months from the effective date thereof. Any balance remaining in an
employee's payroll deduction account at the end of an Offering Period shall be
carried over to the next Offering Period. In no event will such balance exceed
the Subscription Price of one share on the last day of the last month of the
Offering Period.
10. Registration of Certification. Any certificates issued to an employee
-----------------------------
may be registered only in the name of the employee, or, if the employee so
indicates on the employee's payroll deduction authorization form, in the
employee's name jointly with a member of the employee's family, with right of
survivorship.
11. Fair Market Value. The "fair market value" for any day shall be the
-----------------
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on The New York Stock Exchange or,
if such shares are not listed or admitted to trading on The New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the shares are listed or admitted to trading or, if the shares are not
listed or admitted to trading on any national securities exchange, the last
quoted sale price on such date or, if not so quoted, the average of the high bid
-7-
<PAGE>
and low asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or such
other system then in use, or, if on any such date the shares are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in such shares selected
by the Committee. If such prices are not available on a given day, then the
Committee may use the prices of such stock on the next preceding trading day for
which such prices are available.
12. Rights as a Stockholder. None of the rights or privileges of a
-----------------------
stockholder of the Corporation shall exist with respect to shares purchased
under this Plan unless and until a stock certificate with respect to such full
shares shall have been issued to the employee or the custodian, if any, on his
behalf.
13. Rights on Retirement, Death or Termination of Employment. In the
--------------------------------------------------------
event of a participating employee's retirement, death or termination of
employment (other than an authorized leave of absence), no payroll deduction
shall be taken from any pay due and owing to an employee at such time and the
balance in the employee's account shall be paid to the employee or, in the event
of the employee's death, to the employee's estate, as soon as practicable
thereafter. Such employee's option shall be automatically terminated.
14. Rights Not Transferable. Rights under this Plan are not transferable
-----------------------
by a participating employee other than by will or the laws of descent and
distribution, and, during the employee's lifetime, said rights are exercisable
only by the employee.
-8-
<PAGE>
15. Application of Funds. All funds received or held by the Corporation
--------------------
under this Plan may be used for any corporate purpose, and the Corporation shall
not be obligated to segregate any payroll deductions. No interest shall be
allocated to the payroll deductions credited to an employee's account under the
Plan.
16. Adjustment in Case of Changes Affecting Cornerstone Professional
----------------------------------------------------------------
Advisors, Inc. Stock. The number of shares subject to the Plan and to Offerings
- --------------------
granted under the Plan shall be adjusted as follows: (a) in the event that the
Corporation's outstanding common stock is changed by any stock dividend, stock
split or combination of shares, the number of shares subject to the Plan and to
Offerings theretofore granted thereunder shall be proportionately adjusted; (b)
in the event of any merger or consolidation of the Corporation with any other
corporation or corporations, there shall be substituted for each share of
Cornerstone Professional Advisors, Inc. then subject to the Plan, whether or not
at the time subject to outstanding Offerings, the number and kind of shares of
common stock or other securities to which the holders of common stock of the
Corporation will be entitled pursuant to the transaction; and (c) in the event
of any other relevant change in the capitalization of the Corporation, the
Committee shall provide for an equitable adjustment in the number of shares of
Cornerstone Professional Advisors, Inc. common stock subject to the Plan,
whether or not then subject to outstanding Offerings. In the event of any such
adjustment, the Subscription Price(s) per share shall be appropriately adjusted.
17. Amendment of the Plan. The Committee may at any time, or from time to
---------------------
time, amend this Plan in any respect, except that, without the approval of the
holders of a majority of the shares of stock of the Corporation then issued and
outstanding and entitled to vote, no
-9-
<PAGE>
amendment shall be made (i) increasing or decreasing the number of shares
approved for this Plan (other than as provided in Section 16) or (ii) amending
provisions governing which employees (or classes of employees) are eligible to
receive options under the Plan. Said shareholder approval must be obtained
within 12 months of the amendment's adoption by the Committee.
18. Termination of the Plan. This Plan and all rights of employees under
-----------------------
any Offering pursuant to the Plan hereunder shall terminate:
(a) on the day that participating employees become entitled to purchase a
number of shares equal to or greater than the number of shares
remaining available for purchase. If the number of shares so
purchasable is greater than the shares remaining available, the
available shares shall be allocated by the Committee on a pro rata
basis of each participant's Base Compensation earned during the prior
Offering Period or, if none, during the immediately prior fiscal year
of the Corporation; or
(b) at any time, at the discretion of the Board of Directors.
No Offering hereunder shall be made which shall extend beyond the ten year
anniversary of the Effective Date. Upon termination of this Plan, all amounts
in the accounts of participating employees shall be carried forward into the
employees' payroll deduction account under a successor employee stock purchase
plan, if any, or refunded as soon as practicable thereafter.
19. Governmental Regulations. The Corporation's obligation to sell and
------------------------
deliver CenterPoint Advisors, Inc. common stock under this Plan is subject to
the approval of any governmental authority required in connection with the
authorization, issuance or sale of such common stock.
-10-
<PAGE>
Each option shall also be subject to the requirement that, if at any time
the Corporation determines, in its discretion, that the listing, registration or
qualification of the shares subject to the option upon any securities exchange
or under any state or federal law, or the consent or approval of any government
regulatory body is necessary or desirable as a condition of, or in connection
with, the issue or purchase of shares thereunder, the option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable by the Corporation.
20. Purchase of Shares. Purchase of outstanding shares may be made
------------------
pursuant to and on behalf of this Plan, upon such terms as the Corporation may
approve, for delivery under this Plan.
21. Shareholder Approval. No options shall be exercised or shares issued
--------------------
hereunder before the Plan shall have been approved by the stockholders of the
Company. Such approval must be obtained within 12 months before or after the
date the Plan is adopted, and shall comply with all applicable laws and the
requirements of Section 423 of the Code.
22. No Employment Rights. The Plan does not provide any employment rights
--------------------
to any employee, and it shall not be deemed to interfere in any way with an
employer's right to terminate, or otherwise modify, an employee's employment at
any time.
-11-
<PAGE>
23. Applicable Law. The laws of the State of Delaware (other than its law
--------------
regarding choice of law) shall govern all matters relating to this Plan, except
to the extent such laws are superseded by the laws of the United States.
24. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Securities Exchange Act of 1934, as amended ("Section 16"),
shall comply with the applicable provisions of Rule 16b-3. This Plan shall be
deemed to contain, such options shall contain, and the shares issued upon
exercise thereof shall be subject to, such additional conditions and
restrictions as may be required by Rule 16b-3 to qualify for the maximum
exemption from Section 16 with respect to Plan transactions.
25. Plan Administration. The Committee shall have full and exclusive
--------------------
discretionary authority to construe, interpret and apply the terms of the Plan,
to determine eligibility and to adjudicate all disputed claims under the Plan.
All notices or other communications hereunder shall be deemed to have been duly
given when received in the form specified by the Committee at the location, or
by the person, designated by the Committee for the receipt thereof.
-12-
<PAGE>
IN WITNESS WHEREOF, this Plan is adopted as of ___________, 1999.
CENTERPOINT ADVISORS, INC.
By: ______________________________________
Robert C. Basten
Its: President and Chief Executive Officer
-13-
<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-1 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.
/s/ KPMG LLP
KPMG LLP
San Diego, California
May 24, 1999
