<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): June 28, 1999
H&R BLOCK, INC.
---------------
(Exact name of registrant as specified in charter)
MISSOURI 1-6089 44-0607856
-------- ------ ----------
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification Number)
4400 MAIN STREET, KANSAS CITY, MO 64111
--------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(816) 753-6900
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS.
On June 28 1999, H&R Block, Inc. ("Block"), HRB Business
Services, Inc., MGP Business Services, Inc. ("MGP"), McGladrey & Pullen, LLP
("M&P"), MP Active Partners Trust, Clifford Newman, Trustee and MP Retired
Partners Trust, Clifford Newman, Trustee entered into an Asset Purchase
Agreement (the "Purchase Agreement") providing for Block's purchase, through
MGP, of substantially all of the non-attest assets of M&P for a purchase price
of $240 million in cash payments paid over four years, the payment of certain
pension liabilities with an approximate present value of $50 million and
additional payments based on future performance.
The Purchase Agreement provides for (a) MGP to enter into, at
closing, several related agreements including (i) an administrative services
agreement with M&P whereby MGP provides to M&P certain administrative support
services for a fee and (ii) employment agreements with existing M&P partners and
principals whereby MGP will employ such persons to provide non-attest services
while permitting such persons to provide attest services to M&P, (b) Block's
issuance of options at closing or within two years after closing to employees of
MGP to purchase an aggregate 1.2 million shares of Block Common Stock, without
par value, pursuant to Block's 1993 Long-Term Executive Compensation Plan and
(c) Block's guaranty of the payment of the purchase price and pension
liabilities. M&P will continue to exist as a separate, independent licensed
partnership to perform attest services, which are generally audits, reviews and
other engagements in which M&P issues written opinions evaluating client
financial statements. Block expects to rename MGP "RSM McGladrey, Inc." or some
derivative thereof prior to closing.
The closing of the transaction is subject to the expiration or
early termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act, the execution and delivery by M&P's partners of a separate
agreement providing certain representations, warranties, covenants and releases,
compliance with applicable accountancy regulations and related regulatory
approvals and other customary closing conditions.
The foregoing description of the Purchase Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Purchase Agreement, a copy of which is attached hereto and filed herewith as
Exhibit 10.1, and which is incorporated herein by reference.
The information contained in this Current Report on Form 8-K
and the exhibits hereto may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such statements are based upon current
information, expectations, estimates and projections regarding Block, M&P, and
the industries and markets in which Block and M&P operate, and management's
assumptions and beliefs relating thereto. Words such as "will," "expects,"
"intends" and variations thereof and similar expressions are intended to
identify such forward-looking statements. These statements speak only as of the
date on which they are made, are not guarantees of future performance, and
involve certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results could materially differ from
what is expressed, implied or forecast in such forward-looking statements. Such
differences could be caused by a number of
2
<PAGE> 3
factors including, but not limited to, the uncertainty of the satisfaction of
all closing conditions set forth in the Purchase Agreement and the completion of
the M&P transaction; the uncertainty of the renaming of MGP as "RSM McGladrey,
Inc."; the uncertainty of laws, legislation, regulations, supervision and
licensing by federal, state and local authorities and their impact on the
proposed acquisition and the lines of business in which the Block's subsidiaries
are involved; unforeseen compliance costs; changes in economic, political or
regulatory environments; changes in competition and the effects of such changes;
Block's inability to successfully expand its national accounting practice and
implement its strategies with respect to such practice and the broadening of its
customer base; changes in management and management strategies; and risks
described from time to time in reports and registration statements filed by
Block and its subsidiaries with the Securities and Exchange Commission. Readers
should take these factors and risks into account in evaluating any such
forward-looking statements. Block undertakes no obligation to update publicly or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
3
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS.
(C) EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.1 Asset Purchase Agreement dated June 28, 1999 by and among H&R
Block, Inc., MGP Business Services, Inc., HRB Business
Services, Inc., McGladrey & Pullen, LLP, MP Active Partner
Trust, Clifford Newman, Trustee, and MP Retired Partner Trust,
Clifford Newman, Trustee.
99.1 Press release dated June 29, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
H&R BLOCK, INC.
Date: July 8, 1999 By: /s/ James H. Ingraham
-------------------------------
James H. Ingraham
Vice President-General Counsel
and Secretary
4
<PAGE> 5
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.1 Asset Purchase Agreement dated June 28, 1999 by and
among H&R Block, Inc., MGP Business Services, Inc.,
HRB Business Services, Inc., McGladrey & Pullen, LLP,
MP Active Partner Trust, Clifford Newman, Trustee,
and MP Retired Partner Trust, Clifford Newman,
Trustee.
99.1 Press release dated June 29, 1999.
5
<PAGE> 1
EXHIBIT 10.1 TO FORM 8-K
ASSET PURCHASE AGREEMENT
BY AND AMONG
MCGLADREY & PULLEN, LLP,
MP ACTIVE PARTNERS TRUST, CLIFFORD NEWMAN, TRUSTEE,
MP RETIRED PARTNERS TRUST, CLIFFORD NEWMAN, TRUSTEE
AND
HRB BUSINESS SERVICES, INC.
MGP BUSINESS SERVICES, INC.
AND
H&R BLOCK, INC.
JUNE 28, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I PURCHASE AND SALE; CONSIDERATION........................................................................1
1.1 Purchase and Sale of the Included Assets............................................................1
1.2 Assumption of Included Liabilities..................................................................2
1.3 Purchase Price......................................................................................2
1.4 Additional Consideration............................................................................4
1.5 Allocation of Consideration Paid....................................................................8
1.6 Bill of Sale; Assignment and Assumption Agreement...................................................8
1.7 Included Assets and Included Liabilities Not Transferred at the Closing.............................9
ARTICLE II CERTAIN RELATED AGREEMENTS.............................................................................9
2.1 Excluded Assets and Liabilities.....................................................................9
2.2 Option to Purchase M&P Fixed Assets.................................................................9
2.3 Change of Name of the Buyer.........................................................................9
2.4 Stock Options.......................................................................................9
2.5 Administrative Services Agreement..................................................................11
2.6 Guaranty...........................................................................................11
2.7 Loan Agreement.....................................................................................11
2.8 Operations Agreement...............................................................................11
2.9 Restrictive Covenants..............................................................................11
2.10 Related Agreements Defined........................................................................12
2.11 Sale of Mutual Fund Business......................................................................12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER.........................................................12
3.1 Organization, Etc..................................................................................12
3.2 Interests in the Seller............................................................................12
3.3 Subsidiaries and Identified Affiliates.............................................................13
3.4 Authorization; Enforceability......................................................................13
3.5 No Violation.......................................................................................14
3.6 Governmental Authorities; Licensure................................................................14
3.7 Financial Statements...............................................................................14
3.8 No Undisclosed Liabilities.........................................................................15
3.9 Absence of Certain Changes Subsequent to October 31, 1998..........................................15
3.10 Contracts.........................................................................................15
3.11 True and Complete Copies..........................................................................16
3.12 Title and Related Matters.........................................................................16
3.13 Litigation........................................................................................17
3.14 Tax Matters.......................................................................................18
3.15 Compliance with Law...............................................................................19
3.16 ERISA and Related Employee Benefit Matters........................................................20
3.17 Labor Relations...................................................................................22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
3.18 Insurance.........................................................................................23
3.19 Capital Expenditures..............................................................................23
3.20 Dealings with Affiliates..........................................................................23
3.21 Competition.......................................................................................23
3.22 Bank Accounts.....................................................................................23
3.23 Compensation......................................................................................23
3.24 Clients...........................................................................................24
3.25 Intellectual Property.............................................................................24
3.26 Outside Financial Interests.......................................................................25
3.27 Guarantees........................................................................................25
3.28 Books and Records.................................................................................25
3.29 Indebtedness to and from Partners, Officers, Directors and Others.................................25
3.30 Seller's Files....................................................................................25
3.31 Reserved..........................................................................................25
3.32 Year 2000 Compliance..............................................................................25
3.33 Consultants, Brokers and Finders..................................................................26
3.34 Affiliate and Network Relationships...............................................................26
3.35 Peer Review.......................................................................................26
3.36 Disclosure........................................................................................26
3.37 Interest Rate Risk Management Instruments.........................................................26
3.38 Trusts Assets.....................................................................................26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER...........................................................27
4.1 Corporate Organization.............................................................................27
4.2 Authorization; Enforceability......................................................................27
4.3 No Violation.......................................................................................27
4.4 Governmental Authorities...........................................................................27
4.5 Consultants, Brokers and Finders...................................................................27
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BLOCK AND HRB........................................................28
5.1 Corporate Organization.............................................................................28
5.2 Authorization......................................................................................28
5.3 No Violation.......................................................................................28
5.4 SEC Reports........................................................................................28
5.5 Major Franchisees..................................................................................29
ARTICLE VI CERTAIN PRECLOSING COVENANTS OF THE SELLER AND MP ACTIVE PARTNERS TRUST...............................29
6.1 Operation of the Business..........................................................................29
6.2 Preservation of Business...........................................................................30
6.3 Insurance and Maintenance of Property..............................................................30
6.4 Full Access........................................................................................30
6.5 Books, Records and Financial Statements............................................................31
6.6 Other Governmental Filings.........................................................................31
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.7 Tax Matters........................................................................................31
6.8 Releases Regarding Liens on Included Assets........................................................32
6.9 Seller's Release...................................................................................32
6.10 Excluded Liabilities..............................................................................32
6.11 Notification......................................................................................32
6.12 No Negotiation....................................................................................33
6.13 Commercially Reasonable Efforts...................................................................33
6.14 No Amendments.....................................................................................33
6.15 Formation of TP Services..........................................................................33
6.16 Billing of WIP....................................................................................33
6.17 Partnership Agreement.............................................................................33
6.18 Employment Agreements.............................................................................34
6.19 Supplemental Agreementof Partners.................................................................34
6.20 Scally and Rotherham Employment Agreements........................................................34
ARTICLE VII CERTAIN OTHER COVENANTS OF THE SELLER AND THE TRUSTS.................................................34
7.1 Further Assurances.................................................................................34
7.2 Confidentiality....................................................................................34
7.3 Ownership of Assets................................................................................35
7.4 Licensure of the Seller; Compliance with Laws......................................................35
7.5 Accounting For Earnout.............................................................................35
7.6 Acknowledgment of Certain Covenants................................................................35
ARTICLE VIII COVENANTS OF THE BUYER..............................................................................36
8.1 Confidentiality....................................................................................36
8.2 Further Assurances.................................................................................36
8.3 No Negotiation.....................................................................................36
8.4 Employee Compensation..............................................................................36
8.5 Access to Information Regarding Foundation Firms and Add-On Firms..................................37
8.6 Commercially Reasonable Efforts....................................................................37
8.7 Benefit Plans......................................................................................37
8.8 Incremental Costs of TPS...........................................................................37
ARTICLE IX OTHER AGREEMENTS......................................................................................37
9.1 Agreement to Defend................................................................................37
9.2 Adverse Regulatory Action..........................................................................38
9.3 Agreement Regarding Network Firms..................................................................38
9.4 Media Relations....................................................................................38
9.5 Income Tax Reporting...............................................................................39
9.6 A/R Buyback........................................................................................39
9.7 Breaches That Become Known; Supplemental Schedules.................................................39
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE X CONDITIONS TO THE OBLIGATIONS OF THE BUYER, HRB AND BLOCK..............................................39
10.1 Representations and Warranties; Performance.......................................................40
10.2 General Consents and Approvals....................................................................40
10.3 Licensure in the Jurisdictions....................................................................40
10.4 Lease Consents....................................................................................40
10.5 Information Systems...............................................................................40
10.6 Indebtedness......................................................................................40
10.7 Supplemental Partners Agreement Signed by All Partners............................................40
10.8 No Adverse Change.................................................................................40
10.9 No Proceeding or Litigation.......................................................................41
10.10 No Restrictions..................................................................................41
10.11 Consents.........................................................................................41
10.12 Documents........................................................................................41
10.13 Seller Closing Deliveries........................................................................41
10.14 Compliance with Applicable Law...................................................................41
10.15 Formation of the Trusts and TPS..................................................................41
10.16 Due Diligence....................................................................................41
10.17 Regulatory Analysis..............................................................................41
10.18 Bank Consents....................................................................................42
ARTICLE XI CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND THE TRUSTS............................................42
11.1 Representations and Warranties; Performance.......................................................42
11.2 No Proceeding or Litigation.......................................................................42
11.3 Buyer Closing Deliveries..........................................................................42
11.4 General Consents and Approvals....................................................................42
11.5 Lease Consents....................................................................................42
11.6 Information Systems Technology....................................................................43
11.7 Consents..........................................................................................43
11.8 Documents.........................................................................................43
11.9 Compliance with Applicable Law....................................................................43
11.10 Regulatory Analysis..............................................................................43
ARTICLE XII THE BUYER'S CLOSING DELIVERIES.......................................................................43
12.1 Purchase Price....................................................................................43
12.2 Documents to the Seller...........................................................................43
12.3 Retired Partners Agreement.........................................................................44
ARTICLE XIII THE SELLER AND THE TRUSTS'CLOSING DELIVERIES........................................................44
ARTICLE XIV CLOSING; TERMINATION.................................................................................44
14.1 Closing...........................................................................................44
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
14.2 Termination.......................................................................................45
ARTICLE XV INDEMNIFICATION.......................................................................................46
15.1 Indemnification by the Seller and the MP Active Partners Trust....................................46
15.2 Indemnification by HRB............................................................................47
15.3 Tender of Defense for Damages.....................................................................48
15.4 Construction......................................................................................48
15.5 Limitation........................................................................................48
ARTICLE XVI MISCELLANEOUS PROVISIONS.............................................................................49
16.1 Amendment and Modification........................................................................49
16.2 Waiver of Compliance; Consents....................................................................49
16.3 Expenses..........................................................................................49
16.4 Investigations; Survival of Representations, Warranties and Indemnification Obligations...........49
16.5 Right to Offset...................................................................................50
16.6 Notices...........................................................................................50
16.7 Definition of Laws and the Seller's Knowledge.....................................................52
16.8 Assignment........................................................................................52
16.9 Counterparts......................................................................................52
16.10 Neutral Interpretation...........................................................................52
16.11 Headings.........................................................................................52
16.12 Governing Law....................................................................................52
16.13 Arbitration......................................................................................52
16.14 Entire Agreement.................................................................................54
</TABLE>
LIST OF SCHEDULES
LIST OF EXHIBITS
v
<PAGE> 7
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of
June 28, 1999 is made by and among MCGLADREY & PULLEN, LLP (the "Seller"), an
Iowa limited liability partnership, EACH OF THE MEMBERS OF THE BOARD OF
DIRECTORS OF SELLER (the "McGladrey Board"), THE OFFICE OF MANAGING PARTNER OF
THE SELLER, MP ACTIVE PARTNERS TRUST, CLIFFORD NEWMAN, TRUSTEE (the "MP Active
Partners Trust"), MP RETIRED PARTNERS TRUST, CLIFFORD NEWMAN, TRUSTEE (the "MP
Retired Partners Trust") (collectively, the MP Active Partners Trust and the MP
Retired Partners Trust are referred to as the "Trusts"), and HRB BUSINESS
SERVICES, INC., a Delaware corporation ("HRB"), MGP BUSINESS SERVICES, INC., a
Delaware corporation (the "Buyer"). H&R BLOCK, INC. ("Block") joins in the
execution hereof solely for purposes of making certain representations and
warranties set forth in Article V hereof, to obtain certain rights granted to it
herein, and in connection with its guarantee of certain payment obligations of
the Buyer to the Seller and the Partners (as defined in Section 3.2) below
pursuant to this Agreement.
RECITALS
WHEREAS, the Seller desires to sell, and the Buyer desires to
purchase, certain assets of the Seller, the Seller desires to assign to the
Buyer, and the Buyer desires to assume, certain liabilities of the Seller, and
the parties desire to enter into certain other arrangements, pursuant to the
terms and conditions of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual premises and
the covenants, representations and warranties herein contained, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
PURCHASE AND SALE; CONSIDERATION
1.1 Purchase and Sale of the Included Assets. Subject to the
terms and conditions contained herein, at the Closing (as defined below) and in
the manner herein provided, the Seller shall sell, convey, transfer and deliver
to the Buyer, free and clear of all Liens (as defined below) except Permitted
Liens (as defined below), all right, title and interest of the Seller in and to
all of the assets of the Seller which are used or are useful in the operation of
the businesses of the Seller as conducted on the Closing Date (as defined in
Section 14.1) excluding only (a) those assets identified on Schedule 1.1 hereto,
which Schedule shall include, without limitation, cash and cash equivalents of
the Seller, (b) those business records, working papers, and any agreements or
engagements of the Seller to the extent they relate to the performance of public
<PAGE> 8
accounting services which the Buyer is not permitted to perform (because it is
not a licensed and/or certified public accounting firm or otherwise) pursuant to
applicable laws and regulations of, or enforced by (i) the United States
Securities and Exchange Commission (the "SEC") or (ii) state accountancy boards
or agencies having competent jurisdiction in locations where the Seller
maintains offices or performs such services ("Public Accounting Services"); and
(c) client relationships to the extent they exclusively relate to the provision
of Public Accounting Services. The assets identified on Schedule 1.1 are
sometimes referred to herein as the "Excluded Assets." The assets being sold to
the Buyer hereunder are sometimes referred to herein as the "Included Assets."
1.2 Assumption of Included Liabilities.
(a) Subject to the terms and conditions contained herein,
at the Closing, the Seller shall assign and transfer to the Buyer and the
Buyer shall assume only those liabilities identified on Schedule 1.2 (the
"Included Liabilities").
(b) Neither the Buyer nor Block shall, and they each do
not assume or agree to, become liable for or successor to any
liabilities other than the Included Liabilities. Any and all other
obligations of the Seller, the Trusts or any Partner, whether known or
unknown, liquidated or unliquidated, accrued or contingent, asserted or
unasserted, or due or not due, which are not Included Liabilities and thus
specifically assumed by the Buyer herein (collectively, the "Excluded
Liabilities"), shall be and remain the sole obligations and liabilities of
the Seller, the Trusts and/or such Partner(s), as the case may be, and
neither the Buyer, HRB nor Block shall be obligated in any respect
therefor. The Seller and the MP Active Partners Trust each hereby
indemnifies and holds harmless the Buyer and Block from and against any and
all Damages relating to or arising from Excluded Liabilities.
1.3 Purchase Price. Subject to the terms and conditions of
this Agreement and in reliance on the covenants, representations and warranties
of the Seller and the Trusts herein contained, and in consideration of the sale,
conveyance, transfer and delivery of the Included Assets and other premises
provided for in this Agreement, the Buyer agrees to pay to the Seller an
aggregate purchase price as set forth in this Section 1.3 and in Section 1.4
below (the "Purchase Price"), as follows:
(a) Base Purchase Price. The aggregate amount (without
interest) of Two Hundred Forty Million Dollars ($240,000,000), subject to
offset pursuant to Section 16.5 hereof and subject to adjustment pursuant
to Sections 1.3(h) and 2.11, payable in installments, without interest, as
follows:
(i) Sixty Million Dollars ($60,000,000) payable at the
Closing (the "First Installment");
(ii) Sixty Million Dollars ($60,000,000) payable on the
first anniversary of the Closing Date;
(iii) Forty Million Dollars ($40,000,000) payable on the
second
2
<PAGE> 9
anniversary of the Closing Date;
(iv) Forty Million Dollars ($40,000,000) payable on the
third anniversary of the Closing Date;
(v) Forty Million Dollars ($40,000,000) payable on the
fourth anniversary of the Closing Date (less, however Five Million
Eight Hundred Forty Thousand Two Hundred Forty Six Dollars
($5,840,246) in the event that the Year 4 Cumulative EBITDA is less
than One Billion Three Hundred Forty-Three Million Five Hundred
Sixty-Eight Thousand Four Hundred Ninety-Eight Dollars
($1,343,568,498);
(b) Future Payments Defined. Payments under clauses (ii),
(iii), (iv) and (v) of Section 1.3(a), above, are each referred to as a
"Future Payment" and collectively as the "Future Payments".
(c) Retired Partners Agreement. Amounts due and owing pursuant
to the Retired Partners Agreement substantially in the form attached hereto
as Exhibit 1.3(c) hereof (the "Retired Partners Agreement").
(d) A/R & WIP Payment. The purchase amount of accounts
receivable ("A/R") and work in process ("WIP") on the books of the Seller
at the Closing, which shall be determined within 30 days after the Closing
Date (the "A/R & WIP Payment"). For purposes of reference only, the Seller
shall estimate the A/R and WIP on the books of the Seller at the date
hereof and provide such estimates on Schedule 1.3(d) hereof. The A/R & WIP
Payment shall be equal to one hundred percent (100%) of the aggregate book
value of the A/R and eighty-four percent (84%) of the aggregate book value
of WIP as of the Closing Date.
(e) Prepaid Amount Payment (or Credit). The amount, if any, by
which, as of the Closing Date, those prepaid expenses included in Included
Assets (the "Closing Date Prepaids") exceed the amount of those liabilities
included in Included Liabilities (the "Closing Date Liabilities"), which
shall be determined within 30 days after the Closing Date; provided that if
the amount of the Closing Date Liabilities exceeds the amount of the
Closing Date Prepaids such excess shall be paid by the Seller to the Buyer
(or the Buyer may, at its election, offset such amount against amounts
owing under the Post-Closing Payment). The payments provided for by this
Subsection (e) are hereinafter referred to as the "Net Prepaid Payment".
For purposes of reference only, the Seller shall estimate, as of the date
hereof, the prepaid expenses included in Included Assets and the amount of
those liabilities included in Included Liabilities and provide those
estimates on Schedule 1.3(e) hereof.
(f) Reimbursement of Certain Pre-Closing Development
Expenditures. The amount of those expenditures actually incurred and made
by the Seller for Development Purposes after the date hereof and prior to
the Closing Date (the "Pre-Closing Development Expenditure Reimbursement"),
which shall be determined within 30 days after the Closing Date, but only
to the extent of those expenditures
3
<PAGE> 10
permitted in Schedule 1.3(f) hereof (the "Pre-Closing Development
Expenditures Budget").
(g) Manner of Making Payment. The Buyer shall make the
payments described above in the following manner:
(i) The First Installment due the Seller (the "Closing
Payment") shall be made by delivery to the Seller of funds by wire
transfer to the account(s) designated in writing by the Seller and
delivered to the Buyer in writing no later than five (5) business days
prior to the Closing Date.
(ii) On or before a date thirty (30) days following the
Closing Date, the Seller shall notify the Buyer of its calculations of
the amounts of A/R & WIP Payment, the Net Prepaid Payment and the
Pre-Closing Development Expenditure Reimbursement (collectively, the
"Post-Closing Payments"; such notice, the "Calculation Notice"). The
Buyer shall have ten (10) days after receipt of the Calculation Notice
to accept or reject any or all of the amounts of any Post-Closing
Payment. If the Buyer rejects any of the Post-Closing Payment amounts,
it shall so notify the Seller (a "Buyer Rejection Notice") and the
Buyer and the Seller shall work, in good faith, to mutually agree on
such disputed amount (and the payment thereof) within ten (10) days
after delivery of the Buyer Rejection Notice (such period, the
"Negotiation Period") but failing such agreement, at the end of the
Negotiation Period the issue shall be submitted to
mediation/arbitration pursuant to Section 16.13. Any Post-Closing
Payment included in the Calculation Notice and not rejected by the
Buyer shall be paid on or before twenty (20) days after delivery of
the Calculation Notice. The Post-Closing Payments shall be made by
delivery to the Seller of funds by wire transfer to the account(s)
designated in writing by the Seller and delivered to the Buyer in
writing no later than five (5) business days prior to the required
payment date.
(iii) Any Future Payment or Earnout Payment due the Seller
shall be made by delivery to the MP Active Partners Trust on behalf of
the Seller of funds by wire transfer to the account(s) designated by
the MP Active Partners Trust and delivered to the Buyer in writing no
later than five (5) business days prior to the due date of such
payment.
(h) Adjustment to Base Purchase Price. The payment of the Base
Purchase Price as set forth in Section 1.3(a) hereof is subject to
reallocation and corresponding adjustment for the Closing Date lump sum
payments (discounted by an eight percent (8%) annual discount rate) to be
made to up to five (5) Partners or employees of the Seller (in lieu of
Future Payments) who will resign from the Seller at or immediately after
the Closing in connection with the sale of the Mutual Fund Business.
1.4 Additional Consideration. The Buyer shall pay to the
Seller as additional consideration, the amounts, if any, calculated and payable
pursuant to the terms and conditions set forth in this Section 1.4 (the "Earnout
Payments").
4
<PAGE> 11
(a) Definitions. For purposes of this Agreement, the following
terms have the meanings set forth below:
(i) "Adjusted EBITDA" shall mean
(A) the net income (determined in accordance
with generally accepted accounting principles consistently
applied ("GAAP") and it being acknowledged that such net
income is net of any compensation and benefits payable,
distributable or provided to Partners of the Seller, whether
such compensation is payable or distributable by the Buyer or
the Seller or any other entity owned by the Buyer or the
Seller) of Group (and accounting and consulting firms
acquired, or whose substantial assets have been acquired, by
Group with the consent of Block after the Closing Date
("Post-Closing Acquisitions"), but only with respect to the
net income of such acquired firm for the period after the
acquisition thereof), but adjusted to:
(B) exclude:
(1) any expense for Interest Expense, income
taxes, depreciation, amortization and any
expenses included in such net income pertaining to
Post Closing Development Expenditures (as defined
below);
(2) any income for any gain or expense for any
loss of the Seller, or any income for funds
received by the Buyer, on the sale of the Mutual
Fund Business;
(3) any expense for incremental direct
expenses incurred or paid by Group (without
reimbursement from outside Group) that are material
and attributable directly to the business,
operations or management of the Foundation Firms,
Foundation Firm Managers or Prior Add-On Firms (it
being understood that such expenses shall not
include allocations of overhead of Group to such
Foundation Firms, Foundation Firm Managers or Prior
Add-On Firms); and
(C) include the expense for a hypothetical annual
cost of capital charge for Post-Closing Acquisitions in an
amount equal to 15% of the aggregate purchase price (as it is
paid but excluding purchase price in the form of stock
options) of such Post Closing Acquisitions.
For purposes of determining Adjusted EBITDA the minimum
reserve and write-off of uncollected accounts receivable and
unbilled work in process of Group after the Closing Date shall
be
5
<PAGE> 12
based upon the formula attached hereto as Schedule 1.4(a)(i).
(ii) "Interest Expense" shall mean interest expense incurred
by Group after the Closing of the transactions contemplated hereby
(the "Acquisition") for (i) accrued pension obligations; (ii) deferred
purchase price obligation discounting; and (iii) working capital
borrowings (including those provided pursuant to the Operations
Agreement).
(iii) "Group" shall mean the Seller and the Buyer (or such
other Block Entity that serves as the Contractor under the
Administrative Services Agreement) and their respective wholly owned
subsidiaries (but specifically excluding TPS (as defined in Section
6.15)); provided, however, that Group (and firms acquired, or whose
substantial assets have been acquired, by Group) shall not include (i)
those foundation firms listed as such on Schedule 1.4(a)(iv) (the
"Foundation Firms"), (ii) HRB, or any of its subsidiaries acting as
Foundation Firm managers and listed as such on Schedule 1.4(a)(iv)
(the "Foundation Firm Managers"), (iii) any accounting firms or
business or financial services firms of which the substantial (50% or
more) assets or equity has been acquired by a Foundation Firm,
Foundation Firm Manager or a subsidiary of a Foundation Firm Manager
prior to the Closing Date (including but not limited to those "add-on"
firms listed as such on Schedule 1.4(a)(iv) (the "Prior Add-On Firms")
or after the Closing Date (the "Subsequent Add-On Firms") or (iv) a
Block Entity which functions in an administrative services
relationship with a Prior Add-On Firm or Subsequent Add-On Firm (a
"New Add-On Firm Contractor").
(iv) "Block Entity" shall mean Block or any of its direct or
indirect subsidiaries.
(v) "Year 1 Contingency Base" shall mean six (6) times
Adjusted EBITDA for the 12-month period commencing on the first day of
the calendar month next following the Closing Date (the "Commencement
Date"), provided, however, that if the Closing Date is August 1, 2 or
3, 1999, the Commencement Date shall be deemed August 1, 1999.
(vi) "Year 2 Contingency Base" shall mean six (6) times
Adjusted EBITDA for the 12-month period commencing on the first
anniversary of the Commencement Date.
(vii) "Year 3 Contingency Base" shall mean six (6) times
Adjusted EBITDA for the 12-month period commencing on the second
anniversary of the Commencement Date.
(viii) "Year 4 Contingency Base" shall mean six (6) times
Adjusted EBITDA for the 12-month period commencing on the third
anniversary of the Commencement Date.
(ix) "Year 1 Cumulative EBITDA" shall mean an amount equal
6
<PAGE> 13
to the Year 1 Contingency Base.
(x) "Year 2 Cumulative EBITDA" shall mean the sum of (i) the
Year 1 Cumulative EBITDA and (ii) the Year 2 Contingency Base.
(xi) "Year 3 Cumulative EBITDA" shall mean the sum of (i) Year
2 Cumulative EBITDA and (ii) the Year 3 Contingency Base.
(xii) "Year 4 Cumulative EBITDA" shall mean the sum of (i)
Year 3 Cumulative EBITDA and (ii) the Year 4 Contingency Base.
(xiii) "Year 2 Average EBITDA" shall mean Year 2 Cumulative
EBITDA divided by 2.
(xiv) "Year 3 Average EBITDA" shall mean Year 3 Cumulative
EBITDA divided by 3.
(xv) "Year 4 Average EBITDA" shall mean Year 4 Cumulative
EBITDA divided by 4.
(xvi) "Year 2 Adjusted Contingency Base" shall mean Year 2
Average EBITDA less the Hurdle Amount.
(xvii) "Year 3 Adjusted Contingency Base" shall mean Year 3
Average EBITDA less the Hurdle Amount.
(xviii) "Year 4 Adjusted Contingency Base" shall mean Year 4
Average EBITDA less the Hurdle Amount.
(xix) "Hurdle Amount" means Two Hundred Fifty-Seven Million
Eight Hundred Eighty-One Thousand One Hundred Forty-Three Dollars
($257,881,143) less the cash purchase price for the sale of the Mutual
Fund business pursuant to Section 2.11.
(xx) "Post-Closing Development Expenditures" means capital
provided to the Buyer by Block or any direct or indirect subsidiary of
Block pursuant to the Operations Agreement for development
expenditures in an amount not to exceed Six Million Dollars
($6,000,000) per year for each of the one year periods commencing on
the Closing Date and each of the first four anniversary dates of the
Closing Date, respectively, regardless of whether such development
expenditures are capitalized or expensed for accounting purposes. Such
capital shall be used for the development of the Buyer's
infrastructure, mergers, integration resources, branding or related
promotional efforts, acquisitions or similar purposes ("Development
Purposes") set forth in an annual preliminary budget (for each such
annual period) and for which a year end (for each such annual period)
accounting is prepared by the Buyer and delivered to Block. For
purposes of this Section 1.4, it is assumed that such Six Million
Dollars ($6,000,000) annual amount is expended ratably over the course
of such year.
7
<PAGE> 14
(b) Earnout Payment Calculations. In addition to the payments
set forth in Section 1.3 above and subject to adjustment for Earnout
Accounting Changes pursuant to Section 7.5 hereof, the Buyer shall pay to
the Seller the Earnout Payments, if any, calculated and payable as set
forth below. An economic model developed by the Buyer and the Seller (the
"Model") to illustrate, for purposes of example only, the Earnout Payment
Calculations is set forth on Schedule 1.4(b) attached hereto. The Earnout
Payments are subject to the True-Up Adjustment which is also set forth in
Schedule 1.4(b) attached hereto.
(i) The "Year 2 Earnout Payment," shall equal the product of
(A) (.33) multiplied by (B) the Year 2 Adjusted Contingency Base. Any
amount payable pursuant to this Subsection (b)(i) would be paid in the
manner provided in Section 1.3(g)(iii) no later than 60 days following
the second anniversary of the Closing Date.
(ii) The "Year 3 Earnout Payment," shall equal the product of
(A) (.67) multiplied by (B) the Year 3 Adjusted Contingency Base, less
the Year 2 Earnout Payment. Any amount payable pursuant to this
Subsection (b)(ii) would be paid in the manner provided in Section
1.3(g)(iii) no later than 60 days following the third anniversary of
the Closing Date.
(iii) The "Year 4 Earnout Payment," shall equal the Year 4
Adjusted Contingency Base, less the sum of (x) the Year 3 Earnout
Payment and (y) the Year 2 Earnout Payment. Any amount payable
pursuant to this Subsection (b)(iii) would be paid in the manner
provided in Section 1.3(g)(iii) no later than 60 days following the
fourth anniversary of the Closing Date.
1.5 Allocation of Consideration Paid. For purposes of the
parties' respective financial accounting and tax reporting:
(a) The payment of the First Installment, plus any Included
Liabilities, shall be allocated specifically to the sale of fixed assets
and other tangible property to the extent of the book value of such fixed
assets and other tangible property (other than accounts receivable and work
in process), with any remainder of the First Installment allocated to the
sale of intangible assets.
(b) The payment of the Future Payments and payments
pursuant to the Retired Partners Agreement shall be specifically allocated
to the sale of intangible assets.
(c) The payment of the A/R & WIP Payment shall be
specifically allocated to the sale of accounts receivable and work in
process.
(d) The payment of the Earnout Payments shall be
specifically allocated to the sale of intangible assets.
1.6 Bill of Sale; Assignment and Assumption Agreement. In
connection with the purchase and sale of the Included Assets and assumption of
the Included Liabilities, the Seller
8
<PAGE> 15
shall provide to the Buyer a Bill of Sale, substantially in the form attached
hereto as Exhibit 1.6(a), and the Seller shall enter into with the Buyer an
Assignment and Assumption Agreement, substantially in the form attached hereto
as Exhibit 1.6(b).
1.7 Included Assets and Included Liabilities Not Transferred
at the Closing. In the event that an assignment or transfer of any contract,
obligation or instrument which is either an Included Asset or an Included
Liability could cause a breach thereof and if any required consent to such
assignment or transfer has not been obtained by the Closing Date, then at the
Buyer's election and in its sole discretion, such contract, obligation or
instrument shall not be then assigned or transferred, but the Seller shall act
as agent or representative for the Buyer, at the request and pursuant to the
instructions of the Buyer, in order to obtain for the Buyer the rights and
benefits under such obligation or instrument, to the extent permitted by
applicable law and until a valid and permitted assignment or transfer to the
Buyer (or the Buyer's nominee) after the Closing Date (if so elected by the
Buyer in its sole discretion) has been made.
CERTAIN RELATED AGREEMENTS
2.1 Excluded Assets and Liabilities. On or before the first
business day of calendar year 2000, the Seller shall adopt such resolutions,
complete such documentation and otherwise take such action as may be reasonably
necessary to transfer to the MP Active Partners Trust the ownership of all
Excluded Assets (except any books and records identified on Schedule 1.1 and any
contracts to the extent they provide for performance of services relating to or
arising from performance by the Seller of Public Accounting Services, which
books and records and contracts shall remain owned by and in the possession of
the Seller). Neither of the Trusts shall engage in any business activity and
each shall exist solely for the purpose of liquidating certain assets and
liabilities of the Seller, as the case may be.
2.2 Option to Purchase M&P Fixed Assets. For the period
beginning the Closing Date and ending ten (10) years thereafter, the Buyer shall
have the option to purchase from the Seller the fixed assets which are Excluded
Assets on the Closing Date, at the Seller's net book (depreciated) value thereof
on the date such option is exercised. Exercise of the option shall be made by
written notice thereof from the Buyer to the Seller and payment shall be in cash
or immediately available funds.
2.3 Change of Name of the Buyer. After the date hereof and
prior to the Closing Date, the Buyer and the Seller shall endeavor to change the
name of the Buyer to a mutually acceptable name such as "RSM McGladrey, Inc." or
such other name (including the word "McGladrey") as permitted by applicable law.
2.4 Stock Options.
(a) As of the close of business on the Closing Date, in
consideration of the employment of the Partner Employees by the Buyer and
the employment of certain other employees of the Seller who become
employees of the Buyer at the Closing (as
9
<PAGE> 16
agreed by the Seller, the Buyer and, with respect to their individual
employment, each such employee; each, a "New Employee") and pursuant to
prior written approval of the Chief Executive Officer of Block or the
Compensation Committee of the Block Board of Directors ("Compensation
Committee") in compliance with the Stock Option Plan, Block shall grant
options for an aggregate 600,000 shares (in addition to options granted to
Scally and Rotherham) of Block common stock, no par value ("Block Common
Stock") to such Partner Employees, New Employees and a reserve established
for subsequently hired employees of the Buyer (whether reserved or granted
pursuant to Section 2.4(a) or 2.4(b), "Reserved Options"), in the
respective individual amounts set forth on Schedule 2.4 (the "Closing Block
Options"). The Closing Block Options shall (i) be granted and governed in
accordance with the terms of the H&R Block, Inc. 1993 Long Term Executive
Compensation Plan, a copy of which is attached hereto as Exhibit 2.4(a)
(the "Stock Option Plan") and (ii) be evidenced by stock option agreements
in the standard form of Stock Option Agreement attached hereto as Exhibit
2.4(b) ("Stock Option Agreements"). Except for Reserved Options, the
Closing Block Options shall (x) have an option exercise price per share
equal to the closing price for the Block Common Stock on the New York Stock
Exchange ("NYSE") on the Closing Date (or, if the Closing Date is a date on
which such Block Common Stock is not traded on the NYSE, on the last date
preceding the Closing Date on which the Block Common Stock was traded on
the NYSE) (the "Closing Date Price") and (y) vest as follows: 40% upon the
third anniversary of the Closing Date; 30% upon the fourth anniversary of
the Closing Date; and 30% upon the fifth anniversary of the Closing Date
provided that such vesting shall be accelerated upon retirement at or after
age 55.
(b) On or within twenty (20) days after the first
anniversary of the Closing and pursuant to prior approval of the
Compensation Committee, Block shall grant options for an aggregate of
600,000 shares (in addition to options granted to Scally and Rotherham) of
Block Common Stock to Partner Employees, New Employees and a reserve
established for subsequently hired employees of the Buyer (the "Post
Closing Block Options"), to be allocated among such persons (and reserve)
as recommended by the Executive Management Committee and approved in
writing by the Chief Executive Officer of Block or the Compensation
Committee in compliance with the Stock Option Plan. The Post Closing Block
Options shall (i) be granted and governed in accordance with the terms of
the Stock Option Plan, and (ii) be evidenced by Stock Option Agreements.
Except for Reserved Options, the Post-Closing Block Options shall (x) have
an option exercise price per share equal to the greater of the Closing Date
Price or the closing price of Block Common Stock on the NYSE on the date of
such future grant (or, if such grant date is a date on which the Block
Common Stock is not traded on the NYSE, on the last date preceding such
grant date on which the Block Common Stock was traded on the NYSE) and (y)
vest as follows: 40% after the third anniversary of the grant date; 30%
after the fourth anniversary of the grant date; and 30% after the fifth
anniversary of the grant date (provided that such vesting shall be
accelerated upon retirement at or after age 55).
(c) The prospective grant of the Reserved Options to
subsequently hired employees of the Buyer shall be made on a case by case
basis, with the option
10
<PAGE> 17
exercise price per share equal to the closing price for the Block Common
Stock on the NYSE on the date of hire (or, if the date of hire is a date on
which such Block Common Stock is not traded on the NYSE, on the last date
preceding the date of hire on which the Block Common Stock was traded on
the NYSE) and vesting 40% upon the third anniversary of the date of hire,
30% upon the fourth anniversary of the date of hire and 30% upon the fifth
anniversary of the date of hire and having such other terms and conditions
as recommended by the Executive Management Committee of the Buyer's Board
of Directors ("Executive Management Committee") and approved in writing by
the Chief Executive Officer of Block or the Compensation Committee in
compliance with the Stock Option Plan. Any Reserved Options designated in
Schedule 2.4 and not issued prior to the first anniversary of the Closing
Date shall continue to be reserved for issuance on the same terms during
the twelve-month period immediately following such first anniversary. Any
Reserved Options not granted by the second anniversary of the Closing Date
will be canceled.
(d) The Seller acknowledges and agrees that (i) the
provisions of the Stock Option Plan permit modification, changes or
amendments to the Stock Option Plan (as applied generally and not just to
options granted pursuant to this Section 2.4) from time to time within
certain conditions set forth in the Stock Option Plan, and the Closing
Block Options and Post-Closing Block Options are subject to any such
modifications, changes or amendments so made, and (ii) any stock options
granted by Block to the Partner Employees, New Employees or other employees
of the Buyer other than pursuant to this Section 2.4 shall be granted, if
at all, in the absolute discretion of the Chief Executive Officer of Block
or the Compensation Committee in accordance with the terms of the Stock
Option Plan or such other plan as Block may choose, as may be amended from
time to time.
2.5 Administrative Services Agreement. At the Closing, the
Seller and the Buyer shall execute and deliver an Administrative Services
Agreement substantially in the form attached hereto as Exhibit 2.5 (the
"Administrative Services Agreement").
2.6 Guaranty. At the Closing, Block shall execute and deliver
a Guaranty substantially in the form attached hereto as Exhibit 2.6 (the
"Guaranty") guaranteeing the payment of the Future Payments and the Earnout
Payments to the Seller and the payment of the obligations of the Buyer under the
Retired Partners Agreement to the MP Retired Partners Trust.
2.7 Loan Agreement At the Closing, the Buyer (or its
assignee) and the Seller shall execute and deliver a revolving loan agreement
and promissory note substantially in the form attached hereto as Exhibit 2.7
(the "Loan Agreement"), providing for certain revolving loan commitments.
2.8 Operations Agreement At the Closing, the Buyer and the
Seller shall execute and deliver an operations agreement substantially in the
form attached hereto as Exhibit 2.8 (the "Operations Agreement").
2.9 Restrictive Covenants. The Seller acknowledges and agrees
that in exchange for the consideration paid to the Seller pursuant to this
Agreement, the Seller agrees to
11
<PAGE> 18
certain restrictive covenants, including but not limited to non-competition and
non-solicitation covenants which restrictive covenants are set forth in the
Operations Agreement.
2.10 Related Agreements Defined. For purposes of this
Agreement, "Related Agreements" shall mean the Assignment and Assumption
Agreement, Managing Director Employment Agreements, Senior Managing Director
Employment Agreements, Scally and Rotherham Employment Agreements (as defined
below), Administrative Services Agreement, Supplemental Partners Agreement, Loan
Agreement, Guaranty, Conditional Purchase Agreement (as defined in Section 6.15
below) and the Operations Agreement.
2.11 Sale of Mutual Fund Business The Seller shall use
commercially reasonable efforts to sell its accounting and other business
relating to mutual funds and investment companies regulated under the Investment
Company Act of 1940 ("Mutual Fund Business") to an unaffiliated third party for
cash at a price and on such terms as approved by the Buyer. The gross proceeds
of such sale shall either (i) be applied to reduce the Closing Payment dollar
for dollar, if such sale occurs before or simultaneously with the Closing or
(ii) be paid to the Buyer (or its assigns), if such sale occurs after the
Closing.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer and Block as
follows, each of which representations and warranties is true and correct on the
date hereof.
3.1 Organization, Etc. The Seller is a limited liability
partnership, duly organized, validly existing and in good standing under the
laws of the State of Iowa with all requisite legal power and authority to carry
on its business as it is now being conducted and to own, operate and lease its
respective properties and assets. The Trusts have been duly formed under Iowa
common law pursuant to proper action taken by the Partners in accordance with
the Seller Partnership Agreement. Clifford Newman is the duly appointed and sole
trustee of the Trusts. Schedule 3.1 lists each of the jurisdictions in which the
Seller maintains an office or is otherwise required to be licensed or authorized
as a foreign limited liability partnership (the "Jurisdictions"). The Seller has
provided the Buyer complete and correct copies of its (a) Articles of
Partnership, (b) Seller Partnership Agreement, and (c) certificates of authority
and public accounting licenses for the Jurisdictions, each as amended to date.
The Seller has all federal, state, local and foreign licenses, permits or other
approvals required for the operation of its businesses as now being conducted
(without giving effect to the Acquisition). Specifically, but not by way of
limitation, the Seller is appropriately licensed, as required, as a certified
public accounting firm in the State of Minnesota and each of the other
Jurisdictions. The Jurisdictions are the only states where the Seller is
required to obtain a license to practice Public Accounting Services due to the
operations of the Seller as of the Closing Date, except for de minimis
exceptions where the aggregate effect of such exceptions does not breach any
other representation or warranty herein.
3.2 Interests in the Seller. The persons who own any interest
in the Seller and
12
<PAGE> 19
their designation (Equity Partner, Partner or principals) and respective
percentage interests (equity, income and voting) (each a "Partner" and
collectively the "Partners") are as set forth on Schedule 3.2. The retired
partners, terminated partners and corporate partners to whom the Seller still
owes any payment obligations relating to outstanding "AAV" balances or otherwise
as provided in Articles 16 and 17 of the Seller Partnership Agreement ("Retired
Partners"), and a description (including amounts, if applicable) of such
obligations, are as set forth on Schedule 3.2 (the "Retired Partner
Obligations"). The present value (discounted at eight percent (8%)) of the
Retired Partner Obligations, assuming the mortalities and interest rates set
forth in Schedule 3.2, is Fifty-Two Million Seven Hundred Twenty-Seven Thousand
Seven Hundred Ninety-Seven Dollars ($52,727,797) (the "Retired Partners
Amount"). To the Seller's Knowledge, the equity or ownership interest(s) in the
Seller owned by each Partner is owned free and clear of all Liens (as defined
below) of any type whatsoever, except as expressly noted on Schedule 3.2. No
person or entity other than the Partners owns any equity, investment, ownership
or similar interest of any kind in the Seller.
3.3 Subsidiaries and Identified Affiliates. Except as set
forth on Schedule 3.3, the Seller does not currently have, nor since January 1,
1996 has the Seller had, any:
(a) subsidiaries (wholly-owned or otherwise);
(b) Identified Affiliates (as defined below);
(c) equity or financial investments in any other entity
or business operation (except as represented by accounts receivable arising
in the ordinary course of business and investments of excess cash in
certificates of deposit, money market accounts or marketable securities).
The term "Identified Affiliate" shall mean any corporation,
company, partnership, trusts or other entity in which the Seller or, to the
Seller's Knowledge, any Partner is a controlling person, as that term is defined
in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended,
but not including those entities which (i) are not, and are not affiliated with,
clients, vendors or suppliers of the Seller, (ii) represent personal estate
planning devices, such as trusts or partnerships, of a Partner in passive
investments, or (iii) are not, and not affiliated with firms or companies
engaged in the accounting profession or the business of financial services,
mortgage lending or brokerage, or tax return preparation.
3.4 Authorization; Enforceability. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized, approved and ratified by all necessary action on the
part of the Seller and the Trusts. To the Seller's Knowledge, each Partner has
duly, competently and validly executed and delivered this Agreement, intending
to be bound thereby. Certified copies of all required resolutions,
authorizations, consents, approvals and/or ratifications are attached as
Schedule 3.4 hereto and no such resolution, authorization, consent or approval
has been altered, amended, rescinded, repealed or revoked in whole or in part.
Pursuant to such resolutions, authorizations, consents, approvals and/or
ratifications, and otherwise, the Seller and the Trusts (and to the Seller's
Knowledge, the Partners) have full authority to enter into and deliver this
Agreement, to perform their respective obligations hereunder, and to consummate
the transactions contemplated hereby. Assuming the
13
<PAGE> 20
due execution and delivery hereof by the Buyer, this Agreement is the legal,
valid and binding obligation of the Seller and the Trusts (and to the Seller's
Knowledge, the Partners), and is enforceable against the Seller and the Trusts
(and to the Seller's Knowledge, the Partners) according to its terms, except to
the extent that (i) its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditor's
rights generally, (ii) the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
such proceeding may be brought and (iii) restrictions of public policy apply.
3.5 No Violation. Except as set forth on Schedule 3.5,
neither the Seller nor the Trusts (nor, to the Seller's Knowledge, the Partners)
are subject to or obligated under any (i) agreement, article or certificate of
incorporation or organization, bylaw, partnership agreement, operating
agreement, (ii) Law (as defined in Section 16.7), or (iii) agreement,
instrument, license, franchise or permit, which could be breached or violated in
any respect material thereto by the execution, delivery and performance by the
Seller or the Trusts (or to the Seller's Knowledge, by any Partner) of this
Agreement or of any agreement referred to herein. Neither the execution,
delivery, nor performance of this Agreement or of any agreement referred to
herein will violate or result in a breach of any Contract (as defined below),
agreement, instrument, license, franchise, obligation or permit by which the
Seller or the Trusts (or, to the Seller's Knowledge, any Partner) is bound.
3.6 Governmental Authorities; Licensure. To the Seller's
Knowledge, except for actions being taken by the Seller, Trusts, Partners and/or
the Buyer pursuant to the memorandum entitled "Regulatory Compliance Actions"
prepared by the Seller and the Buyer, neither the Seller, Trusts nor, to the
Seller's Knowledge, any Partner is required to submit any notice, report or
other filing with, or obtain any consent, approval or authorization from, any
governmental or regulatory authority, including but not limited to the authority
which licenses public accountants in any of the Jurisdictions, in connection
with the execution, delivery, consummation or performance of this Agreement or
the transactions contemplated hereby. The Seller and, to the Seller's Knowledge,
each Partner and any employee of the Seller who is required by Law to obtain and
maintain a public accounting license in any of the Jurisdictions has obtained a
license in each Jurisdiction where same is required, which license is in full
force and effect. A copy of each such license issued to the Seller and to each
such Partner or employee has been made available to the Buyer. Except as set
forth on Schedule 3.6, neither the Seller, any Partner nor any employee of the
Seller is subject to any restrictions on the scope of practice imposed by the
SEC or any governmental, regulatory or self-regulatory authority.
3.7 Financial Statements. Except as set forth on Schedule
3.7, the Seller has provided the Buyer complete and accurate copies of the
Seller's statements of financial position as of April 30 for each of the years
1995 through 1999 and statements of income, cash flows and partner's equity for
the fiscal years 1995 through 1999, and statements of financial position as of
July 31, 1998 and October 31, 1998 and statements of income, cash flows and
partner's equity for the three (3) months and six (6) months, respectively, then
ended (collectively, the "Financial Statements'). The Financial Statements have
not been audited. Except as set forth on Schedule 3.7, the Financial Statements
fairly present the financial position of the Seller as of the respective dates
thereof, and the results of operations for the periods therein referred to, all
in
14
<PAGE> 21
accordance with GAAP consistently applied throughout the periods indicated
(except as stated therein). The statement of financial position of the Seller as
of October 31, 1998, is referred to as the "Balance Sheet." October 31, 1998, is
referred to as the "Financial Statement Date."
3.8 No Undisclosed Liabilities. To the Seller's Knowledge, it
has no liabilities, asserted or unasserted, liquidated or unliquidated, accrued,
absolute, contingent, or otherwise of a nature or amount that should be
reflected in the Financial Statements or a balance sheet prepared at the Closing
Date in accordance with GAAP consistently applied. To the Seller's knowledge
there is no basis for any claim against the Seller for any such liability except
for liabilities (a) properly reflected or reserved against in the Balance Sheet,
(b) set forth on Schedule 3.8, or (c) incurred in the ordinary course of
business consistent with past practices since the Financial Statement Date, none
of which such liabilities, individually or in the aggregate, has or would likely
have an adverse effect upon the assets, business, prospects, condition
(financial or otherwise), earnings or operations of the business of the Seller
greater than Two Hundred Fifty Thousand Dollars ($250,000).
3.9 Absence of Certain Changes Subsequent to October 31,
1998. Except as set forth on Schedule 3.9, since the Financial Statement Date
there has not been any (a) adverse change (amounting to or involving more than
Two Hundred Fifty Thousand Dollars ($250,000) in aggregate with other changes)
in the business, prospects, condition (financial or otherwise), earnings or
operations of the Seller's business; (b) damage, destruction or loss, whether
covered by insurance or not, adversely affecting the Seller's properties
comprising Included Assets or necessary for the conduct of the Seller's
business; (c) increase in the compensation payable or to become payable by the
Seller to its directors, officers, employees, Affiliates or any Partner or any
adoption of, or increase in, any bonus, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with any such individual
other than changes in the ordinary course of business consistent with past
practice and not material to the item changed; (d) entry by the Seller into any
commitment or transaction, including, without limitation, any borrowing or
capital expenditure other than in accordance with Schedule 3.19; (e) change by
the Seller in accounting methods, practices or principles; (f) to the Seller's
Knowledge, adoption of any Law, statute, rule, regulation or order which
adversely affects or would likely adversely affect the Seller or the Trusts; (g)
termination or waiver of any rights of value to the business of the Seller, not
including accounts receivable compromised by the Seller consistent with its
ordinary course of business and which do not, in the aggregate, constitute a
material portion of the accounts receivable of the Seller; (h) other transaction
or event other than in the ordinary course of the Seller's business; (i)
transaction or conduct of a material or significant nature or amount
inconsistent with the Seller's past business practices; (j) adoption or
amendment of any collective bargaining, bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, or other plan,
agreement, trusts, fund or arrangement for the benefit of employees except for
the termination of such plans which are provided for in this Agreement; or (k)
agreement or understanding made or entered into to do any of the foregoing. The
term "Affiliate" shall mean (i) any Identified Affiliate, (ii) each partner,
principal, manager, officer and Significant Employee of the Seller, (iii) the
respective Family Members of each person identified in clause (ii). The term
"Significant Employee" shall mean any employee of the Seller who has annual
salary and bonus compensation (or partner draws) in excess of One Hundred
Thousand Dollars ($100,000). The term "Family Member" shall include the parents,
siblings, spouses and children of the person
15
<PAGE> 22
identified, whether such relationship arises by blood, adoption or marriage.
3.10 Contracts. Schedule 3.10 identifies (including the type
of agreement, parties and effective date) all Contracts (as defined below) to
which the Seller is a party. Schedules 3.10(a), (b), (c), and (d) are true and
complete copies of the form of the Seller's engagement letters for audit,
review, business valuations and consulting, respectively. The term "Contracts"
shall mean all oral (which shall be summarized on Schedule 3.10) and written (i)
contracts, agreements, agency agreements, loan agreements, mortgages,
indentures, deeds of Trusts, guarantees, binding commitments, joint venture
agreements, purchase and/or sale agreements, collective bargaining, union,
consulting and/or employment contracts, leases of real or personal property,
easements, distribution or dealer agreements, service agreements, license
agreements and advertising agreements to the extent that the Seller's
obligations or benefits exceed One Hundred Thousand Dollars ($100,000) in any
twelve (12) month period or to the extent that the term of such contract extends
for more than twelve (12) months past the Closing and (ii) all contracts
material to the operation of the business of the Seller. The Seller is not in
default or alleged to be in default under any Contract nor is the Seller aware
of any default by any other party to any Contract, and there exists no event,
condition or occurrence which, after notice or lapse of time, or both, could
constitute a default under any Contract. All of the Contracts are in full force
and effect and constitute legal, valid and binding obligations of the Seller
and, to the Seller's Knowledge, the other parties thereto in accordance with
their terms, and neither this execution, delivery and performance of this
Agreement nor the Acquisition will violate any of the provisions of the
Contracts.
3.11 True and Complete Copies. Copies of all agreements,
Contracts and documents delivered and to be delivered hereunder by the Seller
and the Trusts or received by the Buyer as part of the Buyer's due diligence are
and will be true and complete copies of such agreements, Contracts and
documents. All written summaries of oral Contracts are and will be true and
complete.
3.12 Title and Related Matters.
(a) General. Except as set forth on Schedule 3.12, the
Seller has good and marketable title to all of the Included Assets (for
which one can have good and marketable title) free and clear of all
mortgages, security interests, liens, pledges, claims, escrows, options,
rights of first refusal, indentures, easements, licenses, security
agreements or other agreements, arrangements, contracts, charges or
encumbrances of any kind or character (collectively "Liens") except for
liens securing Included Liabilities to the extent such liens are so
identified on Schedule 3.12 ("Permitted Liens"). The Seller owns or leases,
directly or indirectly, all of the Included Assets, and is a party to all
licenses and other agreements presently used to carry on the business or
operations of the Seller as presently conducted. To the Seller's Knowledge,
no Partner owns all or any portion of any asset, tangible or intangible,
which is (i) used in the operations of the Seller or the Trusts and (ii) of
a type which is owned generally in the industry by the accounting firm and
not the individual Partner.
16
<PAGE> 23
(b) Real Property.
(i) The Seller does not own any interest in any
land, buildings or improvements, except as described on Schedule 3.12.
(ii) The Seller is not a tenant under any lease(s)
of real property used by the Seller except as described on Schedule
3.12. With respect to the leased real property described on Schedule
3.12 and except as set forth on Schedule 3.12: (A) all such leases are
in full force and effect and constitute valid and binding obligations
of the Seller and, to the Seller's Knowledge, the other parties
thereto; (B) there have not been and there currently are not any
defaults thereunder by the Seller; (C) there have not been (within the
past twelve months) nor are there currently any defaults thereunder by
any lessor thereof; (D) no event has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any
other event) could constitute a default thereunder entitling the lessor
to terminate the lease or modify the terms thereof; and (E) neither the
execution, delivery and performance of this Agreement nor the
Acquisition will violate any provisions of such leases under the
current rentals and other current terms thereof ((A) through (E) are
hereinafter collectively referred to as "Lease Restrictions").
(iii) Except as shown on Schedule 3.12, each parcel
of real property, building, structure and improvement, leased or
otherwise utilized pursuant to easement, license, profit, covenant or
similar agreement or right by the Seller (collectively, the "Premises")
conforms in all material respects to all applicable Laws, including
zoning regulations, none of which prohibits the use of such properties,
buildings, structures or improvements, for the purposes for which they
are now utilized. The Premises are in good condition and working order,
reasonable wear and tear excepted, are adequate for their intended
purposes and to the Seller's Knowledge have no structural or other
substantial deficiencies.
(c) Personal Property. The personal property of the
Seller included in the Included Assets is in the aggregate is in good
condition and working order, and each individual item of personal property
is in good condition and working order, reasonable wear and tear excepted.
Except as set forth on Schedule 3.12 and with respect to office equipment
leased in the ordinary course, none of the personal property is subject to
any (i) contracts of sale or lease; or (ii) Liens of any kind or character,
except for Permitted Liens. Except as set forth on Schedule 3.12, there are
no Lease Restrictions with respect to the personal property leased by the
Seller.
(d) No Disposition of Assets. There has not been since
the Financial Statement Date any sale, lease, license or any other
acquisition, disposition or distribution by the Seller of any of its assets
or properties or any other assets now or hereafter owned by it, except
transactions in the ordinary and regular course of business consistent with
past practices of the Seller or as otherwise consented to by the Buyer.
3.13 Litigation. Except as previously provided by the Seller
to the Buyer, there
17
<PAGE> 24
is no suit, action, claim, investigation or proceeding pending for which service
of process or other written notice has been made or, to the Seller's Knowledge,
threatened or otherwise pending against the Seller, the Trusts or any Partner
which could adversely affect (in an amount greater than One Hundred Thousand
Dollars ($100,000)) the business, prospects, operations, earnings, properties or
the condition, financial or otherwise, of the Seller, nor is there any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against the
Seller, the Trusts or, to the Seller's Knowledge, any Partner having, or which,
insofar as can be reasonably foreseen, in the future may have, any such effect.
There is no suit, action, claim or proceeding now pending for which service of
process or other written notice has been made or, to the Seller's Knowledge,
threatened or otherwise pending, before any court, grand jury, administrative or
regulatory body, Government agency, arbitration or mediation panel or similar
body involving the Seller, the Trusts or, to the Seller's Knowledge, any Partner
which could prevent or delay the consummation of the transactions contemplated
by this Agreement. The document entitled "Litigation" previously provided by the
Seller to the Buyer contains a complete list of all suits, claims, actions,
investigations and proceedings (including those settled or otherwise resolved)
filed or otherwise asserted in writing against the Seller, the Trusts or, to the
Seller's Knowledge, any Partner since January 1, 1994 before any court, grand
jury, administrative or regulatory body, Government agency, arbitration or
mediation panel or similar body.
3.14 Tax Matters. The term "Taxes" means all net income,
capital gains, gross income, gross receipts, sales, use, transfer, ad valorem,
franchise, profits, license, capital, withholding, payroll, employment, excise,
goods and services, severance, stamp, occupation, premium, property, windfall
profits, customs, duties or other taxes, fees or assessments, or other
governmental charges of any kind whatsoever, together with any interest, fines
and any penalties, additions to tax or additional amounts incurred or accrued
under applicable Law or assessed, charged or imposed by any governmental
authority, domestic or foreign, provided that any interest, penalties, additions
to tax or additional amounts that relate to Taxes for any taxable period
(including any portion of any taxable period ending on or before the Closing
Date) shall be deemed to be Taxes for such period, regardless of when such items
are incurred, accrued, assessed or imposed. For the purposes of this Section
3.14, the Seller shall be deemed to include any predecessor of the Seller or any
person or entity from which the Seller incurs a liability for Taxes as a result
of any transferee liability.
(a) For the past five (5) years, except as provided in
Schedule 3.14, the Seller has duly and timely filed (and prior to the
Closing Date will duly and timely file) true, correct and complete tax
returns, prepared in accordance with applicable Laws, for all years and
periods (and portions thereof) and for all jurisdictions (whether federal,
state, local or foreign) in which any such returns are or were due. All
Taxes shown as due and payable on such returns have been paid, and there is
no current liability for any Taxes due and payable in connection with any
such returns. All known taxes of the Seller not yet due and payable have
been fully accrued on the books of the Seller. Accruals and reserves for
Taxes provided for on the financial statements delivered or to be delivered
pursuant to Section 3.7 are adequate, and there are no unpaid assessments
for additional Taxes (greater than $100,000) for any period (nor is there
any basis therefor).
18
<PAGE> 25
(b) The Seller is not, and never has been, a member of
any consolidated, combined or unitary group for federal, state, local or
foreign tax purposes.
(c) Except as provided in Schedule 3.14, for the past
five (5) years, the Seller has (i) withheld all required amounts from its
employees, agents, contractors and nonresidents and remitted such amounts
to the proper agencies; (ii) paid all employer contributions and premiums;
and (iii) filed all federal, state, local and foreign returns and reports
with respect to employee income tax withholding, and social security and
unemployment taxes and premiums, all in compliance with the withholding tax
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
as in effect for the applicable year or any prior provision thereof and
other applicable Laws.
(d) Except as described in Schedule 3.14, for the past
five (5) years no deficiencies or reassessments for any Taxes have been
proposed, asserted or assessed against the Seller by any federal, state,
local or foreign taxing authority. Schedule 3.14 describes the status of
any federal, state, local or foreign tax audits or other administrative
proceedings, discussions or court proceedings that are presently pending
with regard to any Taxes or tax returns of the Seller (including a
description of all issues raised by the taxing authorities in connection
with any such audits or proceedings), and no additional issues are being
asserted against the Seller in connection with any existing audits or
proceedings.
(e) Except as set forth on Schedule 3.14, for the past
five (5) years the Seller has not executed or filed any agreement or other
document extending the period for assessment, reassessment or collection of
any Taxes, except for normal extensions of time within which to file the
Seller's returns, and no power of attorney granted by the Seller with
respect to any Taxes is currently in force.
(f) Except as set forth on Schedule 3.14, the Seller has
not entered into any closing or other agreement with any taxing authority
which affects any taxable year of the Seller ending after the Closing Date.
The Seller is not a party to any tax sharing agreement or similar
arrangement now in effect for the sharing of tax liabilities or benefits.
(g) The Seller has not agreed to nor is it required to
make any adjustment by reason of a change in accounting methods that
affects any taxable year ending after the Closing Date. The IRS has not
proposed to the Seller any such adjustment or change in accounting methods
that affects any taxable year ending after the Closing Date. The Seller
does not have an application pending with any taxing authority requesting
permission for any changes in accounting methods that relate to its
business or operations and that affects any taxable year ending after the
Closing Date.
(h) No asset of the Seller is property that the Seller is
required to treat as being owned by any other person pursuant to the safe
harbor lease provision of former Code Section 168(f)(8).
3.15 Compliance with Law. Except as set forth on Schedule
3.15, neither the Seller nor the Trusts nor, to the Seller's Knowledge, any
Partner is currently failing to comply (in
19
<PAGE> 26
all respects material thereto) with any applicable Laws relating to the
operation of the business of the Seller or the Trusts except for such
noncompliance which does not involve any of the following: (i) any criminal
incarceration, penalty or fine, (ii) any injunction, cease and desist order,
restraining order, revocation of license or qualification; (iii) any equitable
remedy or enforcement that limits the business conduct of the Seller, Trusts or
a Partner; or (iii) civil fine, lien, penalty or judgment greater than, in the
aggregate for all noncompliance, One Hundred Thousand Dollars ($100,000). In
particular, but without limiting the generality of the foregoing, the Seller,
the Trusts and, to the Seller's Knowledge, each Partner are in compliance with
all applicable Laws and licensing requirements (in all material respects
thereto) relating in any way to the conduct of their business, anti-competitive
practices, price fixing, to health and safety, environmental, employment or
discrimination matters. There are no proceedings of record and no proceedings
are pending in either case for which service of process or written notice has
been made on the Seller, the Trusts or, to the knowledge of the Seller, any
Partner, or to the Seller's Knowledge, otherwise pending or threatened, nor has
the Seller, the Trusts or, the Seller's Knowledge, any Partner received any
notice regarding any violation of any Law, including, without limitation, any
requirement of OSHA or any pollution or environmental control agency (including
air and water).
3.16 ERISA and Related Employee Benefit Matters.
(a) Welfare Benefit Plans. Schedule 3.16 lists each
"employee welfare benefit plan" (within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974 ("ERISA")) maintained by
the Seller or to which the Seller contributes or is required to contribute,
including any multiemployer plan ("Welfare Benefit Plan"), lists all plan
documents, determination letters and reporting and disclosure filings
required under ERISA or the Code for the last three (3) years for each
Welfare Benefit Plan and sets forth as of the most recent valuation date
(i) the amount of any liability of the Seller for payments due with respect
to any Welfare Benefit Plan, (ii) the amount of any payment made and to be
made, stated separately, by the Seller with respect to any Welfare Benefit
Plan for the plan year during which the Closing is to occur, and (iii) with
respect to any Welfare Benefit Plan to which Code Section 505 applies, a
statement of assets and liabilities for such Welfare Benefit Plan as of the
most recent valuation date. Without limiting the foregoing, Schedule 3.16
discloses any obligations of the Seller to provide retiree health benefits
to current or former employees of the Seller.
(b) Pension Benefit Plans. Schedule 3.16 lists each
"employee pension benefit plan" (within the meaning of Section 3(2) of
ERISA) maintained by the Seller or to which the Seller contributes or is
required to contribute, including any multiemployer plan ("Pension Benefit
Plan") and lists all plan documents, determination letters and reporting
and disclosure filings required under ERISA or the Code for the last three
(3) years for each Pension Benefit Plan. All costs of the Pension Benefit
Plans have been provided for on the basis of consistent methods and, if
applicable, in accordance with sound actuarial assumptions and practices
that are acceptable under ERISA. With respect to each Pension Benefit Plan
that is not subject to Title I, Part 3 of ERISA, Schedule 3.16 sets forth
as of the valuation date (A) the amount of any liability of the Seller for
any contributions due with respect to such Pension Benefit Plan, and (B)
the amount of any contribution paid and to be paid, stated separately, by
the Seller with respect to such Pension Benefit Plan
20
<PAGE> 27
for the plan year during which the Closing is to occur.
(c) Compliance with Applicable Law. Each of the Welfare
Benefit Plans, Pension Benefit Plan, any related Trusts agreements, annuity
contracts, and other funding instruments, comply with the provisions of
ERISA and the Code and all other statutes, orders, governmental rules and
regulations applicable to such Welfare Benefit Plans and Pension Benefit
Plans. The Seller has performed all of its obligations currently required
to have been performed under all Welfare Benefit Plans and Pension Benefit
Plans. There are no actions, suits or claims (other than routine claims for
benefits) pending or threatened against or with respect to any Welfare
Benefit Plans, Pension Benefit Plans or the assets of such plans, and no
facts exist that could give rise to any actions, suits or claims (other
than routine claims for benefits) against such plans or the assets of such
plans. Each Pension Benefit Plan is qualified in form and operation under
Code Section 401(a). No event has occurred that will or could give rise to
a disqualification of any Pension Benefit Plan under Code Section 401(a).
No event has occurred that will or could subject any Welfare Benefit Plan
or Pension Benefit Plan to tax under Code Section 511.
(d) Administration of Plans. Each Welfare Benefit Plan
and each Pension Benefit Plan has been administered to date in compliance
with the requirements of ERISA and the Code. No plan fiduciary of any
Welfare Benefit Plan or Pension Benefit Plan has engaged in (i) any
transaction in violation of Section 406(a) or (b) of ERISA, or (ii) any
"prohibited transaction" (within the meaning of Section 4975(c)(1) of the
Code or Section 406 of ERISA) for which no exemption exists under Section
408 of ERISA or Section 4975(d) of the Code.
(e) Title IV Plans. There is no Pension Benefit Plan
which is subject to the provisions of Title IV of ERISA in which the Seller
(for purposes of this Section the Seller shall include each trade or
business, whether or not incorporated, which is a member of a group of
which the Seller is a member and which is under common control within the
meaning of Code Section 414 and the regulations thereunder) participates or
has participated.
(f) Other Employee Benefit Plans and Agreements. Schedule
3.16 lists each fringe benefit, profit sharing, deferred compensation,
bonus, stock option, stock purchase, pension, retainer, consulting,
retirement, welfare, or other incentive plan or agreement or employment
agreement not terminable on 30 days or less written notice, and any other
employee benefit plan, agreement, arrangement, or commitment not previously
listed on Schedule 3.16 that is maintained by the Seller or to which the
Seller contributes or is required to contribute, together with a list of
all plan documents, determination letters and reporting and disclosure
filings required under ERISA or the Code for the last three (3) years for
each such plan. Schedule 3.16 also contains a complete list of all
employees of the Seller and the amount of vacation pay currently accrued to
each such employee.
(g) Continuation Coverage Requirements for Health Plans.
All group health plans of the Seller (including any plans of Affiliates of
the Seller that must be taken
21
<PAGE> 28
into account under Code Section 4980B) have been operated in compliance
with the group health plan continuation coverage requirements of Section
4980B of the Code and Title I, Part 6 of ERISA. The Seller shall remain
solely responsible for compliance with Section 4980B of the Code and Title
I, Part 6 of ERISA for all group health plans of the Seller.
(h) Valid Obligations. All Welfare Benefit Plans, Pension
Benefit Plans, related Trusts agreements, annuity contracts or other
funding instruments, and all plans, agreements, arrangements and
commitments referred to in Subsection (f) of this Section are legal, valid
and binding and in full force and effect, and there are no defaults
thereunder. Except as specified on Schedule 3.16, none of the rights of the
Seller thereunder will be impaired by the consummation of the transactions
contemplated by this Agreement without the consent or agreement of any
other party other than consents and agreements specifically listed on
Schedule 3.16.
(i) Severance; Non-Deductible Payments. Except as set
forth on Schedule 3.16, the consummation of the transactions contemplated
by this Agreement will not (A) entitle any current or former employee of
the Seller to severance pay, unemployment compensation or any other
payment, except as expressly provided in this Agreement, (B) except as
provided on Schedule 3.16, accelerate the time of payment or vesting, or
increase the amount of compensation due to any such employee or former
employee, (C) result in any prohibited transaction described in Section 406
of ERISA or Section 4975 of the Code for which an exemption is not
available.
3.17 Labor Relations.
(a) Except as set forth on Schedule 3.17, there have been
no strikes, work stoppages or any demands for collective bargaining by any
union or labor organization and there is no collective bargaining
relationship between the Seller and any union; there is no dispute or
controversy with any union or other organization of the employees of the
Seller, and there are no arbitration proceedings pending or to the Seller's
Knowledge, threatened involving such a dispute or controversy. The Seller
and the Trusts are in compliance with all Laws (in all respects material
thereto) respecting employment and employment practices, terms and
conditions of employment and wages and hours including, without limitation,
the Fair Labor Standards Act, the Family and Medical Leave Act of 1993, the
Americans with Disabilities Act of 1990, the Veterans Reemployment Rights
Act, the Equal Employment Opportunities Act, as amended by the Civil Rights
Act of 1991, the Occupational Safety and Health Act, the Employee
Retirement Income Security Act of 1974, the Immigration Reform and Control
Act of 1986, the Age Discrimination in Employment Act, Title VII of the
Civil Rights Act of 1964, the Older Workers Benefit Protection Act, and all
other Laws, each as amended to date, relating to employer/employee rights
and obligations. No severance obligations of any nature (whether accrued
vacation pay, other accrued employment benefit or otherwise) are due to any
employee of the Seller or to any Partner except as is set forth on Schedule
3.17.
(b) No present or former employee of the Seller has given
written or oral notice to the Seller or the Trusts of, and, there is no
valid claim or any basis for, any
22
<PAGE> 29
claim against the Seller or the Trusts (whether under Law, any employment
agreement or otherwise) on account of or for (i) overtime pay, other than
overtime pay for the current payroll period, (ii) wages or salary
(excluding current bonus, accruals and amounts accruing under pension and
profit-sharing plans) for any period other than the current payroll period,
(iii) vacation, time off or pay in lieu of vacation or time off, other than
that earned in respect of the current fiscal year, or (iv) any violation of
any Law relating to minimum wages or maximum hours of work.
(c) No person or entity (including, but not limited to,
Government agencies of any kind) has asserted any claim or notified the
Seller or to the Seller's Knowledge, any Partner, of its intention to
assert a claim against the Seller or any Partner arising out of any Law
relating to discrimination in employment or employment practices or
occupational safety and health standards. Neither the Seller nor the Trusts
nor, to the Seller's Knowledge, any Partner has received any written or
other notice from any federal, state, local or foreign Government entity
alleging a violation of occupational safety or health standards. There are
no pending workers compensation claims involving the Seller. The Seller has
delivered to the Buyer a true, correct and complete list of all workers
compensation claims made over the three years preceding the date hereof.
3.18 Insurance. Schedule 3.18 lists all of the Seller's
existing insurance policies, the premiums therefor, and the coverage and term of
each policy. Such policies and the amount of coverage and the risks insured are,
in the aggregate, reasonably sufficient to protect and insure the Seller against
perils which good business practice demands be insured against or which are
normally insured against by other industry members similarly situated, and will
remain in full force and effect up to and through the Closing Date, unless
otherwise agreed to by the parties.
3.19 Capital Expenditures. The Seller has outstanding
commitments for capital expenditures as set forth on Schedule 3.19, which
Schedule also includes a schedule of substantially all monies disbursed on
account of capital expenditures made by the Seller between the Financial
Statement Date and the date hereof.
3.20 Dealings with Affiliates. Schedule 3.20 sets forth a
complete list (including the parties) and a detailed summary in the case of an
oral Contract, of all oral or written Contracts, arrangements or other
agreements between the Seller and any Affiliate at any time from January 1,
1996, to the date hereof.
3.21 Competition. Except as set forth on Schedule 3.21,
neither the Seller nor the Trusts nor, to the Seller's Knowledge, any Partner is
a party to any agreement, Contract or covenant limiting the Seller or the Trusts
or such Partner from competing in any line of business or with any person or
other entity in any geographic area.
3.22 Bank Accounts. Schedule 3.22 is a list of all bank
accounts, lock boxes, post office boxes and safe deposit boxes maintained in the
name of or controlled by the Seller or the Trusts and the names of the persons
having access thereto.
3.23 Compensation. Schedule 3.23 lists the job title and total
remuneration (including, without limitation, salary, commissions and bonuses)
for each Partner and for each
23
<PAGE> 30
officer, manager, principal, director, employee, consultant, agent or
independent contractor of the Seller (i) as of the Financial Statement Date and
(ii) as of the most recent practicable date.
3.24 Clients. The Seller has previously furnished to the Buyer
a complete and accurate listing setting forth the identity of the clients of the
Seller, except for clients for which the Seller performs solely attest work, (i)
generating annual billings of at least Fifty Thousand Dollars ($50,000) during
the period from January 1997, through the Financial Statement Date, or (ii)
reasonably expected to generate such level of billings for the calendar year
1999, and with respect to such clients, the nature of the engagement for each
client and whether services are being provided to such client at the date
hereof.
3.25 Intellectual Property.
(a) Schedule 3.25 contains a true, complete and accurate
list of all the Intellectual Property (as hereinafter defined) owned by or
licensed to the Seller. Schedule 3.25 accurately identifies, where
appropriate, one or more of the following for each item of the Intellectual
Property: filing date, issue date, classification of invention or goods
covered, country of origin, licensor, license date and licensed subject
matter. Schedule 3.25 contains a complete and accurate list of all property
and licenses and other rights granted by or to the Seller to or from any
third party with respect to any item of the Intellectual Property, other
than licenses associated with sales of products to customers in the
ordinary course of business.
(b) (i) The Intellectual Property is valid and
encompasses all proprietary rights necessary for the operation of the
Seller's business as presently conducted or proposed to be conducted (in
each case free and clear of all Liens except Permitted Liens); (ii) the
Seller has good and lawful title to all of its Intellectual Property (where
such title is possible); (iii) the Seller has taken all actions necessary
to maintain and protect its Intellectual Property; (iv) the owners of the
Intellectual Property licensed to the Seller have, to the Seller's
Knowledge, taken all actions necessary or desirable to maintain and protect
the Intellectual Property subject to such licenses; (v) there has been no
claim made against the Seller asserting the invalidity, misuse or
unenforceability of any of the Intellectual Property or challenging the
Seller's right to use or ownership of any of the Intellectual Property, and
to the Seller's Knowledge there are no grounds for any such claim or
challenge; (vi) to the Seller's Knowledge, there is no infringement or
misappropriation of any of the Intellectual Property or of any facts
raising a possibility of infringement or misappropriation; (vii) subject to
obtaining the consents referenced on Schedule 3.5 or Schedule 3.6, the
conduct of the business of the Seller has not infringed or misappropriated,
and does not infringe or misappropriate, any intellectual property or
proprietary right of any other person or entity; (viii) no loss of any of
the Intellectual Property is pending or to the Seller's Knowledge,
threatened or reasonably foreseeable; and (ix) the consummation of the
transactions contemplated by this Agreement will not alter, impair or
extinguish any of the Intellectual Property.
(c) For purposes of this Agreement, "Intellectual
Property" shall mean all of the following (in whatever form or medium)
which are owned by or licensed to the Seller: (i) patents, trademarks,
service marks and copyrights and (ii) applications for
24
<PAGE> 31
patents and for registration of trademarks, service marks and copyrights.
3.26 Outside Financial Interests. Except as set forth on
Schedule 3.26, to the Seller's Knowledge, no Partner, director or officer of the
Seller has any direct or indirect financial interest in any competitor with, or
supplier or customer of, the Seller; provided, however, that for this purpose
ownership of corporate securities having no more than five percent (5%) of the
outstanding voting power of any competitor, supplier or customer, which
securities are listed on any national securities exchange or authorized for
quotation on the Nasdaq National Market or the Nasdaq Small Cap Market, shall
not be deemed to be such a financial interest, provided that such Partner,
director or officer has no other connection or relationship with such
competitor, supplier or customer.
3.27 Guarantees. Except as set forth on Schedule 3.27, the
Seller is not a guarantor, indemnitor, surety or accommodation party or
otherwise liable for any indebtedness of any other person, firm or corporation,
except as endorser of checks received and deposited in the ordinary course of
business.
3.28 Books and Records. The books of account and other
partnership or corporate records, if any, delivered by the Seller or the Trusts
to the Buyer at Closing are true, complete and accurate, have been maintained in
accordance with good business practices, and the matters contained therein are
accurately reflected on the Financial Statements, to the extent appropriate
3.29 Indebtedness to and from Partners, Officers, Directors
and Others. Except as set forth on Schedule 3.29, (a) the Seller is not indebted
to any Partner, director, officer, employee, agent or independent contractor of
the Seller or the Trusts except for amounts due as normal salaries, wages,
employee benefits and bonuses and in reimbursement of ordinary expenses on a
basis consistent with the past practices of the Seller or the Trusts, and (b) no
partner, director, officer, employee, agent or independent contractor of the
Seller or the Trusts is indebted to the Seller or the Trusts, respectively,
except for advances for ordinary business expenses on a current basis consistent
with the past practices of the Seller or the Trusts.
3.30 Seller's Files. To the extent consistent with Laws, the
Buyer and its representatives have been given access to all books, records and
files relating to the Seller (other than files and workpapers relating to the
Public Accounting Services or which contain information the disclosure to the
Buyer of which is prohibited by the terms of a binding client agreement,
applicable law, or applicable accounting rules and regulations) and its
business, property rights, assets and liabilities. Schedule 3.30 identifies any
records, etc. to which the Buyer has not been given access and the reasons
therefor.
3.31 Reserved.
3.32 Year 2000 Compliance. The Seller has performed a good
faith assessment of the extent to which the Seller is Year 2000 Compliant, and
the Seller has disclosed to the Buyer such assessment. For purposes of this
Section 3.32, "Year 2000 Compliant" means, with respect to information
technology ("IT") (whether in the form of computer hardware, operating system or
software, telecommunications hardware, operating system or software, any other
type
25
<PAGE> 32
of hardware, operating system or software, embedded microchips, security or
locking systems or otherwise), the IT is designed to be used prior to, during,
and after calendar year 2000 A.D., and during each such time period will
accurately receive, provide and process date/time data (including, but not
limited to, calculating, comparing and sequencing,) from, into and between the
twentieth and twenty-first centuries, including the years 1999 and 2000, and
leap year calculations and will not malfunction, cease to function, or provide
invalid or incorrect results as a result of date/time data, to the extent that
other information technology being acquired or used in combination with IT
properly exchanges date/time data with it. For the Seller to be Year 2000
Compliant (with respect to its IT existing at the Closing Date) shall not
require future expenditures greater than Twenty-Five Thousand Dollars ($25,000).
For purposes of determining such future expenditures, the amounts used to
procure the PeopleSoft computer system shall not be considered.
3.33 Consultants, Brokers and Finders. Neither the Seller, the
Trusts nor, to the Seller's Knowledge, any Partner has retained any consultant,
broker or finder in connection with the transactions contemplated by this
Agreement to whom or which any commission is payable by any party to this
Agreement.
3.34 Affiliate and Network Relationships Attached hereto as
Schedule 3.34 is a list of the name, address, phone number and contact person
for each accounting, consulting or other firm with which the Seller has an
affiliate or "network" relationship. A copy of the form(s) of agreement
evidencing such relationship has/have been provided by the Seller to the Buyer.
3.35 Peer Review. Attached hereto as Schedule 3.35 is a true
and correct copy of the most recent peer review prepared by Ernst & Young LLP.
Any suggestions contained in any of such reports for changes in practices or
methods of the Seller or, to the Seller's Knowledge, any Partner are being
complied with by the Seller and the Partners.
3.36 Disclosure. No representation or warranty made by the
Seller, the Trusts or, to the Seller's Knowledge, any Partner in this Agreement
or in any agreement, instrument, document, certificate, statement or letter
furnished to the Buyer, by or on behalf of the Seller, the Trusts or any Partner
in connection with any of the transactions contemplated by this Agreement,
contains any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements herein or therein not misleading in
light of the circumstances in which they are made.
3.37 Interest Rate Risk Management Instruments. The Seller has
not entered into any interest rate swaps, caps, floors, option agreements or
other interest rate risk management arrangements.
3.38 Trusts Assets. Except as set forth on Schedule 3.38, the
Trusts do not have and have never had assets, liabilities, employees or any
business activity other than executing and delivering this Agreement and
consummating the transactions specifically described in this Agreement.
26
<PAGE> 33
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby makes the following representations and
warranties to the Seller and the Trusts.
4.1 Corporate Organization. The Buyer is duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Buyer is qualified to do business as a foreign corporation in Minnesota and
Iowa. Certified copies of the Buyer's Certificate of Incorporation, Bylaws, and
certificate of qualification as a foreign corporation in Minnesota and Iowa have
been provided to the Seller. The Buyer has all federal, state, local or foreign
licenses, permits or other approvals by any governmental entity for the
performance by the Buyer of its obligations hereunder.
4.2 Authorization; Enforceability. The Buyer has full
corporate power and authority to enter into this Agreement and to perform its
obligations thereunder. Assuming the due execution and delivery hereof by the
Seller and Block, this Agreement is the legal, valid and binding obligation of
the Buyer and is enforceable against the Buyer, according to its terms, except
to the extent that (i) its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditor's rights generally, and (ii) the availability of equitable remedies,
including specific performance, is subject to the discretion of the court before
which any such proceeding may be brought and (iii) restrictions of public policy
apply.
4.3 No Violation. The Buyer is not subject to or obligated
under (i) its Certificate of Incorporation, Bylaws, or any agreement or
instrument, or any license, franchise or permit or (ii) to the knowledge of the
Buyer, any Law that would be breached or violated by the execution, delivery or
performance of this Agreement (provided, however, that no representations or
warranties are made with respect to the effect or implementation of any SEC,
AICPA, ISB, or state public accounting regulatory provision, regulation or Law).
4.4 Governmental Authorities. Except for the foreign
qualification referred to in Section 4.1 above, and any foreign qualifications
which may be required in any other of the Jurisdictions and for any filings
required under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as
amended (the "H-S-R Act") and the expiration or termination of the premerger
waiting period under the H-S-R Act, neither the Buyer nor Block is required to
submit any notice, report or other filing with and no consent, approval or
authorization is required by any governmental or regulatory authority in
connection with the Buyer's execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby.
4.5 Consultants, Brokers and Finders. The Buyer has not
retained any consultant, broker or finder in connection with the transactions
contemplated by this Agreement to whom or which any commission is payable by any
party to this Agreement.
27
<PAGE> 34
REPRESENTATIONS AND WARRANTIES OF BLOCK AND HRB
Block and/or HRB, as the case may be, hereby make the
following representations and warranties to the Seller and the Trusts.
5.1 Corporate Organization. Block and HRB are duly organized,
validly existing and in good standing under the laws of the State of Missouri
and Delaware, respectively.
5.2 Authorization. Block has full corporate power and
authority to enter into this Agreement and the Guaranty, and HRB has full
corporate power and authority to enter into this Agreement, and to perform their
respective obligations thereunder. Assuming the due execution and delivery
hereof by the Seller and the Trusts, this Agreement is the legal, valid and
binding obligation of Block and HRB and is enforceable against Block and HRB,
according to its terms, except to the extent that (i) its enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditor's rights generally and (ii) the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any such proceeding may be brought.
5.3 No Violation. Neither Block nor HRB is subject to or
obligated under (i) its Articles of Incorporation, Bylaws, or any agreement or
instrument, or any license, franchise or permit or (ii) to the knowledge of
Block and HRB, any Law that would be breached or violated by the execution,
delivery or performance of this Agreement (provided, however, that no
representations or warranties are made with respect to the effect or
implementation of any SEC, ISB, AICPA or other federal, state, professional or
industry public accounting regulatory provision, regulation or Law).
5.4 SEC Reports Block has filed all forms, reports and
documents required to be filed by it with the SEC since the filing of its annual
report on Form 10-K for the fiscal year ended April 30, 1998 ("1998 Form 10-K").
Block has delivered or made available to the Seller copies in the form filed
with the SEC (and as amended, if applicable) of its:
(a) 1998 Form 10-K;
(b) quarterly reports on Form 10-Q for each of the
first three fiscal quarters in the fiscal year ended April 30, 1999;
(c) current reports on Form 8-K filed since April 30,
1998;
(d) proxy statement for the 1998 annual meeting of
shareholders and special meeting of shareholders, if any, held since such
meeting;
(e) other forms, reports, registration statements and
other documents (other than preliminary materials if the corresponding
definitive materials have been provided to the Seller and materials for
which confidential treatment has been granted) filed by Block with the SEC
since April 30, 1998 (the forms, reports, registration
28
<PAGE> 35
statements ad other documents referred to in clauses (a), (b), (c), (d)
and (e) above are, collectively, the "Block SEC Reports").
The Block SEC Reports conform in all material respects to the requirements of
the Securities Act of 1933, as amended (the "1933 Act") and the Securities
Exchange Act of 1934, as amended (the "1934 Act"), as the case may be, and the
rules and regulations thereunder.
5.5 Major Franchisees. A list of Block's "major" franchisees
principally for its tax preparation business and their respective geographic
territories is attached hereto as Schedule 5.5.
CERTAIN PRECLOSING COVENANTS OF THE
SELLER AND MP ACTIVE PARTNERS TRUST
The Seller and the MP Active Partners Trust each covenant and
agree with the Buyer that, from and after the date of this Agreement and until
the Closing Date, the Seller will conduct the business of the Seller in the
ordinary course and subject to the following provisions and limitations:
6.1. Operation of the Business. Without the prior written
consent of the Buyer, the Seller will not:
(a) grant any increase in the rate of pay of any Partner
or any of its employees, grant any increase in the salaries of any Partner,
officer, employee or agent, enter into or increase the benefits provided
under any bonus, profit-sharing, incentive compensation, pension,
retirement, medical, hospitalization, life insurance or other insurance
plan or plans, or other contracts or commitments, or in any other way
increase in any amount the benefits or compensation of any such officer,
employee or agent except, however, (i) the ordinary profit distributions
payable to Partners consistent with past practice and (ii) ordinary merit
increases not unusual in character or amount made in the ordinary course of
the business to employees who are not Partners;
(b) enter into any employment contract (except for
renewals or extensions of existing contracts, or new employment contracts
involving wage or partner compensation less than One Hundred Fifty Thousand
Dollars ($150,000) per annum provided the term of such contract is not
longer than 1 year ) or collective bargaining agreement;
(c) enter into any contract or commitment or engage in
any transaction which is not in the ordinary course of the business or
which is inconsistent with past practices;
(d) sell or dispose of or encumber any assets outside of
the Seller's ordinary course of business (except for the sale of the Mutual
Fund Business pursuant to Section 2.11);
(e) make, or enter into any contract for, any capital
expenditure or enter into any lease of capital equipment or real estate not
included in the pre-Closing capital budget
29
<PAGE> 36
attached hereto as Schedule 6.1(e);
(f) enter into any contract, whether for the purchase or
sale of inventory, supplies, other products or services or otherwise, and
whether in the ordinary course of the business or otherwise (other than
contracts for providing services), involving more than One Hundred Fifty
Thousand Dollars ($150,000) or enter into any series of such contracts with
one party or affiliated group of parties involving more than One Hundred
Fifty Thousand Dollars ($150,000) in the aggregate;
(g) create, assume, incur or guarantee any indebtedness
other than (i) in the ordinary course of the business and with a maturity
date of less than one year or (ii) incurred pursuant to existing Contracts
disclosed in the Schedules delivered pursuant hereto;
(h) make or institute any unusual or novel method of
transacting business or change any accounting procedures or practices or
its financial structure;
(i) make any amendments to or changes in its
organization documents or agreements (except for the Amended Partnership
Agreement);
(j) perform any act, or attempt to do any act, or permit
any act or omission to act, which could cause a breach of any contract,
commitment or obligation to which the Seller is a party; or
(k) take any action which, if taken or incurred prior to
the date of this Agreement, would be required to be disclosed on any
Schedule hereto.
6.2. Preservation of Business. The Seller shall carry on the
business diligently and substantially in the same manner as heretofore conducted
and shall use its best efforts to keep its business organizations intact,
including its present employees and present relationships with suppliers,
clients and customers and others having business relations with the Seller.
6.3. Insurance and Maintenance of Property. The Seller shall
keep in full force and effect insurance covering the Included Assets and the
Seller's business not less in amount and coverage than that now maintained by
the Seller but in no event less than prudent industry standards and will
operate, maintain and repair all of such property in a careful, prudent and
efficient manner.
6.4. Full Access. Representatives of the Buyer shall have
full access at all reasonable times to all premises, properties, books, records,
contracts, tax records, personnel and documents of the Seller, and the Seller
will furnish to the Buyer any information in respect of the business as the
Buyer may from time to time request of Rotherham. Such examination and
investigation by the Buyer, and any discovery of facts resulting therefrom,
shall not affect the warranties and representations of the Seller contained in
this Agreement.
6.5. Books, Records and Financial Statements. The Seller
shall maintain its books and financial records in accordance with GAAP
consistently applied, and on a basis consistent with the past practices of the
Seller. Said books and financial records shall fairly and
30
<PAGE> 37
accurately reflect the operations of the business. The Seller shall furnish to
the Buyer promptly, as available, monthly financial statements and operating
reports applicable to the Seller, all of which shall be prepared in accordance
with GAAP consistently applied and shall present fairly the financial position
and results of operations of the Seller at the dates and for the periods
indicated.
6.6. Other Governmental Filings. The Seller will cooperate
with the Buyer in making, as soon as practicable following the execution hereof,
all filings required by any government agency (including without limitation
premerger notifications required to be filed with the Federal Trade Commission
and the United States Department of Justice) in connection with the transactions
contemplated by this Agreement. All information provided by the Seller in
connection with such filings will be true, accurate and complete and will comply
with all applicable Laws. The Buyer will initially pay the filing fee required
under the H-S-R Act, and the Seller will reimburse the Buyer one-half (1/2) of
such fee within two (2) business days after Buyer pays such fee.
6.7. Tax Matters.
(a) The Seller and the Trusts shall pay all applicable
sales, use or other similar transfer or income or gain Taxes that are, or
become, due or payable as a result of the Acquisition whether levied on the
Partners, the Trusts, the Buyer, the Included Assets or the Seller. The
Seller and Trusts shall prepare and timely file any tax returns required in
respect of such Taxes.
(b) All real estate, personal property, ad valorem and
any other local or state Taxes relating to the Included Assets or the
business of the Seller which shall be accrued but unpaid as of the Closing
Date, or which shall be paid as of the Closing Date which relate in whole
or in part to periods after the Closing Date, shall be prorated to the
Closing Date. Any st uch prorated Taxes which may be ultimately assessed
after the Closing Date shall be paid by the Seller to the Buyer or the
Buyer to the Seller, as the case may be, within thirty (30) days of such
determination.
(c) The Seller shall report the Buyer's purchase of the
Included Assets pursuant to Code Section 1060 and other applicable Laws as
set forth on Schedule 6.7(c) and shall take no position contrary thereto.
The Seller shall be responsible for the preparation of any statements and
forms to be filed by it pursuant to Code Section 1060 or in accordance with
other applicable Law.
(d) The parties agree to cooperate and furnish or cause
to be furnished, upon request, as promptly as practicable, such information
and assistance (including access to personnel, books and records) relating
to the Included Assets as is reasonably necessary for the preparation of
any return of the Seller or the Buyer (or any Affiliate of the Buyer or the
Seller) for Taxes associated with the transactions contemplated in this
Agreement, claims for refund or audit or prosecution or defense of any
claim, suit or proceeding relating to any proposed adjustment of Taxes
paid.
(e) The parties agree to cooperate and use reasonable
efforts to provide or obtain from any taxing authority any certificate or
other document necessary to
31
<PAGE> 38
mitigate, reduce or eliminate any Taxes (including additions thereto or
interest and penalties thereon) that otherwise would be imposed with
respect to the transactions contemplated in this Agreement.
(f) The Seller shall furnish to the Buyer, as provided in
Code Section 1445(b)(2), an affidavit pursuant to Code Section 1445(a),
stating under penalties of perjury, its United States taxpayer
identification number and affirming that it is not a foreign person.
6.8. Releases Regarding Liens on Included Assets. On the
Closing Date, the Seller shall deliver to the Buyer the written release of all
Liens relating to the Included Assets, and of any indebtedness (whether or not
secured by such Liens) executed by the holder of or parties to each such Lien
("Lien Releases"). The Lien Releases shall be satisfactory to substance and form
to the Buyer and its counsel.
6.9. Seller's Release. On the Closing Date, the Seller shall
deliver a duly executed release, substantially in the form attached hereto as
Exhibit 6.9 (the "Seller's Release").
6.10. Excluded Liabilities. The Seller agrees that any
Excluded Liability not satisfied in full prior to the Closing, will be
performed, discharged, paid off, or otherwise eliminated as and when same
becomes due, except as contested in good faith.
6.11. Notification. For the period beginning the date of this
Agreement and ending the Closing Date, the Seller will promptly notify the Buyer
in writing if it becomes aware of any fact or condition which makes untrue any
representation or breaches any warranty made by the Seller in this Agreement or
if it becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) make untrue any such representation or breach any such warranty had
such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in any Schedule hereto if such Schedule were dated the date of the
occurrence or discovery of any such fact or condition, the Seller shall deliver
to the Buyer a supplement to the applicable Schedule specifying such change.
Delivery of such supplements shall be for information purposes only and shall
not modify in any such respect any representation, warranty, covenant or
condition contained herein. During the same period, the Seller will promptly
notify the Buyer of the occurrence of any breach of any covenant of the Seller
set forth in this Article VI or of the occurrence of any event that may make the
satisfaction of the conditions set forth in Articles X or XI impossible or
unlikely. In addition to the foregoing, the Seller shall give prompt written
notice to the Buyer of any suit, action, claim or proceeding against the Seller,
the Trusts or any Partner of which the Seller becomes aware which either (i)
asserts a liability or damages in excess of $100,000 or (ii) seeks to prevent or
delay the consummation of the transactions contemplated by the Agreement.
6.12. No Negotiation. The Seller shall not, solicit or
entertain offers from, negotiate with, or in any manner discuss, encourage,
recommend or agree to any proposal of, any other potential buyer or buyers of
the assets or partnership interests of the Seller. The Seller shall promptly
notify the Buyer of any such proposals or inquiries. If the Seller breaches any
provision of this Section 6.12 relating to exclusivity and the transactions
contemplated by this Agreement
32
<PAGE> 39
are not consummated, notwithstanding anything to the contrary herein, the Seller
shall reimburse the Buyer and Block for all out-of-pocket expenses incurred by
the Buyer and Block in connection with all matters relating to this Agreement
and transactions contemplated hereby.
6.13. Commercially Reasonable Efforts. Between the date of
this Agreement and the Closing Date, the Seller will use commercially reasonable
efforts to cause the conditions specified in Articles X and XI to be satisfied.
6.14. No Amendments. None of the Trusts or the Seller will
amend any of their organizational documents (except for the amendment of the
Partnership Agreement that results in the Amended Partnership Agreement).
6.15. Formation of TP Services. The Seller shall form a new
wholly-owned subsidiary, TP Services, L.L.C. ("TPS"), pursuant to an operating
agreement substantially in the form previously provided to the Buyer and,
effective upon the Closing Date, shall transfer, assign and convey to TPS those
assets and liabilities necessary to conduct tax return preparation and other
services described by the Buyer to the Seller in which Block's tax return
preparation franchises engage pursuant to the terms of their respective
franchise agreements in the territories listed by the Buyer. The Seller shall
own all the membership interests in TPS, and the Buyer shall have the ability to
purchase such membership interests in TPS pursuant to that certain conditional
purchase agreement (the "Conditional Purchase Agreement") a form of which
attached hereto as Exhibit 6.15.
6.16. Billing of WIP. For purposes of Section 1.3(d) and the
books of the Seller at the Closing, on or before fifteen (15) days after the
Closing the Seller shall bill to clients (as accounts receivable to the Seller)
those amounts of WIP then outstanding such that any remaining WIP will be less
than or equal to, on a client by client basis, the greater of (i) $1,000 or (ii)
the last thirty days of WIP chargeable to such client.
6.17. Partnership Agreement. Effective upon the Closing and
pursuant to the Supplemental Partners Agreement, the Seller shall solicit and
use its best efforts to cause the Partners of the Seller, who are all listed on
Schedule 3.2 hereto, to amend the Partnership Agreement of the Seller (the
"Seller Partnership Agreement") to provide that each partner of the Seller other
than the Retired Partners (each a "Partner Employee"), whether a partner at the
Closing Date or first becoming a partner after the Closing Date to the extent
permitted by Law, to enter into and become bound by the then current version of
either a Managing Director Employment Agreement or a Senior Managing Director
Employment Agreement (both as defined below) and certain other matters as may be
agreed by the parties. The Seller's Partnership Agreement, as so amended, is
referred to herein as the "Amended Partnership Agreement".
6.18. Employment Agreements. At the Closing and pursuant to
the Supplemental Partners Agreement, the Seller shall solicit and use its best
efforts to cause each Partner Employee to execute and deliver an employment
agreement providing for the Buyer's employment of such Partner Employee,
substantially in one of the forms attached hereto as Exhibit 6.18(a) and Exhibit
6.18(b) (respectively, a "Managing Director Employment Agreement" or a "Senior
Managing Director Employment Agreement").
33
<PAGE> 40
6.19. Supplemental Agreement of Partners. On the date hereof,
the Seller shall solicit and use its best efforts to cause each of the Partners
to enter into with Block, the Buyer and the Seller an agreement substantially in
the form attached hereto as Exhibit 6.19 (the "Supplemental Partners
Agreement"). In the event that at July 15, 1999 less than 80% (per capita) of
the current Partners have not executed and delivered, for purposes of the
Closing, the Supplemental Partners Agreement, Block may, at its discretion,
terminate this Agreement pursuant to Section 14.2(a)(vi).
6.20. Scally and Rotherham Employment Agreements. At Closing,
the Buyer and each of Mark W. Scally ("Scally") and Thomas G. Rotherham
("Rotherham"), respectively, shall execute and deliver employment agreements
providing for the Buyer's employment of Scally and Rotherham, respectively,
substantially in the form attached hereto as Exhibits 6.20(a) and 6.20(b)
(collectively the "Scally and Rotherham Employment Agreements").
CERTAIN OTHER COVENANTS OF THE SELLER AND THE TRUSTS
The Seller and the Trusts covenant and agree as follows
provided that in no event (except for fraud or intentional misrepresentation or
breach by the MP Retired Partners Trust) shall the principal or income of the MP
Retired Partners Trust be reduced in connection with any such covenant or any
claim for indemnification, damages, losses, expenses or similar claim against or
in connection with the MP Retired Partners Trust arising out of a breach of the
covenants set forth herein:
7.1 Further Assurances. From time to time after the Closing,
at the Buyer's request and without further consideration from the Buyer, the
Seller and the Trusts shall execute and deliver such other instruments of
conveyance and transfer and take such other action as the Buyer reasonably may
require to convey, transfer to and vest in the Buyer and to put the Buyer in
possession of the Included Assets to be sold, conveyed, transferred and
delivered hereunder.
7.2 Confidentiality. Except as required by Law and to the
extent legally necessary to enforce the rights of the MP Retired Partners Trust
or the Retired Partners under the Retired Partners Agreement in mediation,
arbitration or in a court of law, the Seller and the Trusts will hold in strict
confidence and not disclose to any other party (other than its counsel and other
advisors) without the prior written consent of the Buyer, (a) any confidential
information received by the Seller or the Trusts from the Buyer or any of the
Buyer's officers, directors, employees, agents, counsel or auditors in
connection with the transactions contemplated hereby, or (b) any information
regarding the negotiation, content or terms of this Agreement or any agreement
referred to herein. As used herein, confidential information shall not include
information which is in the public domain or is received by the Seller or the
Trusts from a source with no obligation of confidentiality to the Buyer.
7.3 Ownership of Assets. After the Closing, the Seller will
not own or lease any property or assets of any kind except such assets or
properties as are necessary for and used solely and specifically in the practice
of public accountancy by the Seller, or the ownership or
34
<PAGE> 41
lease of which has been approved in advance in writing by the Buyer.
7.4 Licensure of the Seller; Compliance with Laws. The Seller
shall take such actions and execute and deliver such documents as reasonably
requested by the Buyer to (i) ensure that the Seller remains licensed as a
certified public accounting firm in the Jurisdictions, (ii) ensure that the
Seller and its Partners upon and after the Closing satisfy the independence and
similar requirements imposed by the SEC, ISB and AICPA for the practice of
public accounting and (iii) obtain a license for the Seller as a certified
public accounting firm in such other Jurisdictions as the Seller and the Buyer
may agree. The Seller and the Trusts will comply will all applicable Laws in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby.
7.5 Accounting For Earnout.
(a) For purposes of determining the Earnout Payments, the
Seller and the Buyer shall use the same GAAP accounting methods, practices
and principles which the Seller used in connection with preparation of its
projections provided to the Buyer during negotiations of this Agreement
(which differ from certain non-GAAP accounting methods, practices and
principles otherwise used by the Seller historically prior to the date
hereof) without (subject to paragraph (b) of this Section 7.5) giving
effect to any future changes in either (x) the Seller's post-closing
accounting methods, practices or principles or (y) GAAP or any
interpretations thereof.
(b) In the event there is any change in GAAP (or any
interpretations thereof) with respect to accounting for stock options
granted to employees of the Buyer or employees or equity owners of the
Seller (regardless of whether such options are granted pursuant to Section
2.4 of this Agreement or otherwise), such changes shall be given effect in
determining the Earnout Payment, notwithstanding any provision to the
contrary in paragraph (a) of this Section 7.5; provided, however, to the
extent any such change results in additional compensation or other expense
being incurred by the Buyer, the first One Hundred Thousand Dollars
($100,000) in such compensation or other expense in any applicable
twelve-month period for which an Earnout Payment is calculated shall not be
treated as an expense for purposes of calculating such Earnout Payment.
7.6 Acknowledgment of Certain Covenants. The Seller
acknowledges that this Agreement, and the Buyer's payments hereunder, together
with other good and valuable consideration, provide additional consideration for
its covenants contained in Section 13 of the Operations Agreement.
35
<PAGE> 42
COVENANTS OF THE BUYER
The Buyer hereby covenants and agrees with the Seller that:
8.1. Confidentiality. Prior to the Closing, the Buyer will
hold in strict confidence and not disclose to any other party (other than its
counsel and other advisors), without prior consent of the Seller's
Representative (as set forth on Schedule 15.1), any confidential information
received by the Buyer from the Seller, the Trusts or any Partner, any of the
Seller's officers, directors, managers, members, employees, agents, counsel or
auditors in connection with the transactions contemplated hereby, except as may
be required by Law or as otherwise contemplated herein. As used herein,
confidential information shall not include information which is in the public
domain or is received by the Buyer from a source with no obligation of
confidentiality to the Seller, the Trusts or any Partner, and with respect to
this Section 8.1 (and not with respect to Section 7.2), shall not include
information about the terms of this Agreement or any agreement referred to
herein or executed in connection herewith, or information about the operation of
the Seller following the Closing Date.
8.2. Further Assurances. From and after the Closing, at the
request of the Seller's Representative and without further consideration, the
Buyer shall execute and deliver such other instruments of conveyance and
transfer and take such other actions as the Seller's Representative may
reasonably request to assume the Included Liabilities.
8.3. No Negotiation. During the period beginning after the
date hereof until the earlier to occur of the Closing or the termination of this
Agreement, the Buyer shall not solicit or entertain offers from, negotiate with,
or in any manner discuss, encourage, recommend or agree to any acquisition
proposal of, any member of a Group B accounting firm with annual revenues
greater than $50 million or any "Big 5" accounting firm, except with the prior
written approval of the Seller.
8.4. Employee Compensation. Following the Closing and subject
to the policy established by the Executive Management Committee of the Buyer,
the Buyer shall be obligated to provide, in the aggregate together with any base
compensation paid by the Seller, the base compensation paid by the Seller prior
to the Closing (as described on Schedule 8.4 hereof) for the Partner Employees
and New Employees of the Buyer, substantially on the terms and conditions in
effect immediately prior to the Closing and continuing at least through the end
of the period during which any Earnout Payments might accrue and become payable
pursuant to Section 1.4 (not to exceed five years after the Closing Date, the
"Earnout Period") with such obligation for aggregate base compensation paid to
each such Employees being fairly and ratably divided between the Seller and the
Buyer based upon work done by each such Employee for the Seller and the Buyer,
respectively; provided, however, that nothing in this Section shall be deemed to
be a guaranty or offer of employment for any employee of the Buyer or the Seller
or an obligation of the Buyer or the Seller to pay compensation to any employee
beyond the term of such employee's employment with the Buyer. The Buyer, acting
through its Executive Management Committee shall administer the compensation
program for Senior Managing Directors and Managing
36
<PAGE> 43
Directors of the Buyer consistent with the Seller's past practice, subject to
the approval of Block and the Compensation Committee.
8.5. Access to Information Regarding Foundation Firms and
Add-On Firms. To the extent permitted by applicable confidentiality agreements,
Block and the Buyer will provide to the Seller access, during reasonable
business hours and upon appropriate conditions of confidentiality, to "due
diligence" information it has received from the Foundation Firms and Add-On
Firms regarding the financial condition, business and operations of such firms.
8.6. Commercially Reasonable Efforts. Between the date of this
Agreement and the Closing Date, the Buyer will use commercially reasonable
efforts to cause the conditions specified in Article XI to be satisfied,
provided, however, that the Buyer has no obligation to use such efforts in the
event that, in its sole discretion, the Buyer elects not to proceed with the
Closing as scheduled because of regulatory concerns or conflicts with Foundation
Firms.
8.7. Benefit Plans. After the Closing, as permitted by
applicable law and as the Buyer and the Seller mutually agree, the Buyer will,
or will cause a Block subsidiary to, either (i) merge the Seller's retirement
and/or benefit plans into plans maintained by Block or a subsidiary of Block;
(ii) maintain the Seller's retirement and/or welfare benefit plans separate from
any Block plans; or (iii) terminate the retirement and/or welfare benefit plans.
If the Seller's retirement and/or benefit plans are maintained after the
Closing, the Seller's employees shall be covered by such plans and not the Block
plans. To the extent permitted under applicable plans or policies, the Buyer
agrees to treat the full period of services rendered by employees of the Seller,
any Seller Subsidiary, or predecessor (including A.M. Pullen & Co.) as if it had
been service with the Buyer for purposes of such employee benefit plans of the
Buyer.
8.8. Incremental Costs of TPS. The Buyer agrees to pay to the
Seller the incremental costs of operating TPS, subject to prior approval of the
Buyer, which approval will not be unreasonably withheld.
OTHER AGREEMENTS
The Buyer, the Seller, Block and the Trusts agree as follows,
provided that in no event (except for fraud or intentional misrepresentation or
breach by the MP Retired Partners Trust) shall the principal or income of the MP
Retired Partners Trust be reduced in connection with any obligation set forth
herein or with any claim for indemnification, damages, losses, expenses or
similar claim against or in connection with the MP Retired Partners Trust
arising out of a breach of the agreements set forth herein:
9.1 Agreement to Defend. All parties agree to use their best
efforts, and to otherwise cooperate, to defend any action, suit, proceeding or
investigation which is commenced, seeking to restrain, prevent, delay or change
the transactions contemplated hereby or questioning the validity or legality of
any of such transactions or seeking damages in connection with any such
transactions. Out-of-pocket direct costs incurred in connection with such best
efforts will be
37
<PAGE> 44
borne as follows:
(a) by Block, if related to Block's franchise firms or
the Foundation Firms;
(b) by the Seller, if related to or involving actions
commenced by or including as opposing parties any Partners, Retired
Partners or employees of the Seller;
(c) by the Buyer, if related to interpretation or
enforcement of applicable Law or accounting regulations by an applicable
authority.
9.2 Adverse Regulatory Action. In the event that, the SEC,
ISB, AICPA or any applicable federal or state regulatory or professional agency
or body either does not permit or acts (or in writing threatens to act within
its jurisdiction) to restrict or adversely affect in any material way (including
but not limited to license revocation or nonrenewal, issuance of "Tandy" or
similar letters or announcements, or imposition of significant review and/or
approval requirements regarding the structure of this transaction or performance
by the parties thereof) the performance by (i) the Buyer of non-attest
accounting and consulting services which are not Public Accounting Services or
(ii) the Seller of Public Accounting Services, despite good faith efforts by the
parties in compliance with the provisions of this Agreement (an "Adverse
Regulatory Action") after the Closing, there shall be no indemnification claim
or offset by any of the parties hereto with respect to such Adverse Regulatory
Action or Damages arising therefrom, it being acknowledged that any such Adverse
Regulatory Action may likely adversely impact the financial condition of the
Buyer and/or the Seller and the amounts payable (i) as Earnout Payments, (ii) to
partners and employees of the Seller, and (iii) under the Managing Director
Employment Agreement and the Senior Managing Director Employment Agreement,
among other things.
9.3 Agreement Regarding Network Firm. The parties shall use
their commercially reasonable efforts to reach agreement with the Seller's
Network Firms (a list of which is provided in Schedule 9.3 hereof) and the
Foundation Firms regarding territorial and other matters, pursuant to the
related provisions in the Operations Agreement.
9.4 Media Relations. Neither the Buyer nor the Trusts nor the
Seller shall issue a public announcement or make any public statement regarding
this Agreement or the transactions contemplated herein without prior approval
from all of the other parties, except as required by applicable Law, it being
acknowledged that Block intends to (i) disclose the existence and certain of the
material terms of this Agreement and the related transactions by filing with the
SEC a current report on Form 8-K (or to include such disclosure in an otherwise
filed Form 10-K or Form 10-Q) and (ii) issue related press releases promptly
after the execution and delivery of this Agreement occurs. Approval by the
Seller's Representative (as set forth on Schedule 15.1) shall constitute
approval by the Seller, the Trusts and the Partners. The Buyer and the Seller
shall jointly develop a press release and other public announcements and
communications regarding this Agreement and the transactions contemplated
herein. Further, each party agrees to designate a single individual to handle
all media communications regarding this Agreement and the transactions
contemplated herein. The designated media representatives for each party shall
38
<PAGE> 45
coordinate the responses to media inquiries and to public communication
initiatives with respect to this Agreement and the transactions contemplated
herein.
9.5 Income Tax Reporting. On their respective applicable tax
returns or reports, the parties shall report the payment of the Closing Payment,
the Post-Closing Payments, the Future Payments, the Retired Partners Agreement
and the Earnout Payments as installment payments to the Seller in exchange for
the Included Assets, and the portion of such payments being made to the MP
Active Partners Trust and the MP Retired Partners Trust shall be treated as made
pursuant to installment obligations issued to the Seller and distributed by the
Seller to its partners. The MP Active Partners Trust and the MP Retired Partners
Trust shall be treated as grantor trusts whose income is taxed to the Partners
under the provisions of Section 671 through 679 of the Code.
9.6 A/R Buyback. Effective January 1, 2000, the Seller shall
pay to the Buyer the sum equal to (i) the Estimated Collectible Amount of A/R
purchased by the Buyer as provided in Section 1.3(d) hereof plus (ii) eight
percent (8%) of the aged balance of such A/R that has not been collected by the
Buyer on or before December 31, 1999 minus (iii) the amount of such A/R that has
been collected by the Buyer on or before December 31, 1999. Effective January 1,
2000, the Buyer shall transfer back to the Seller any such remaining uncollected
A/R, with the Seller acknowledging and agreeing that upon any such transfer it
must engage only in prudent, commercially reasonable collection efforts with
respect to such transferred A/R in compliance with applicable Law and consistent
with the Seller's past practice.
9.7 Breaches That Become Known; Supplemental Schedules. The
Buyer and Block, on one hand, and the Seller and the Trusts, on the other hand,
each shall promptly notify the other party in writing if they become aware after
the date hereof and before the Closing of any fact, information or condition
which indicates the untruth or incorrectness of any representation made by them
or results or implicates a breach of any warranty made them in this Agreement,
whether such fact, information or condition (i) existed (whether or not known by
the representing/warranting party for representations or warranties not
predicated on such party's knowledge) before the date hereof (a "Breach Event")
or (ii) came into existence after the date hereof (a "Subsequent Development").
Should any such fact, information or condition require any change in or any
schedule to this Agreement in order to correct the applicable representation or
warranty, the representing/warranting party shall deliver to the other party a
draft supplemental schedule (a "Draft Supplemental Schedule") specifying such
fact or condition and the resulting corrective change. If the Draft Supplemental
Schedule is accepted by the Receiving Party without objection (which objection
shall not be unreasonably made), then the Draft Supplemental Schedule shall
amend and, if applicable, replace the original Schedule to which it relates.
CONDITIONS TO THE OBLIGATIONS OF THE BUYER, HRB AND BLOCK
Each and every obligation of the Buyer, HRB and Block under
this Agreement shall be subject to the satisfaction, on or before the Closing
Date, of each of the following
39
<PAGE> 46
conditions unless waived in writing by the Buyer, HRB or Block, as the case may
be:
10.1 Representations and Warranties; Performance. The
representations and warranties made by the Seller and the MP Active Partners
Trust herein shall be true and correct on the date of this Agreement and on the
Closing Date with the same effect as though made on the Closing Date. The Seller
and the Trusts shall each have performed and complied with all agreements,
covenants and conditions required by this Agreement to be performed and complied
with by them prior to the Closing Date; the Seller shall have, and shall have
caused the Office of the Managing Partner of the Seller to have delivered to the
Buyer a certificate, dated the Closing Date, substantially in the form attached
hereto as Exhibit 10.1 (the "Seller's Certificate").
10.2 General Consents and Approvals. All consents, approvals
and filing with, and registrations and licenses from third parties, regulatory
authorities and governmental agencies required to be obtained by the Seller or
the Buyer, or any combination thereof, to consummate the transactions
contemplated hereby, or which, either individually or in the aggregate, if not
obtained, could result in an adverse effect on the Included Assets or the
Seller's financial condition or business shall have been obtained and delivered.
10.3 Licensure in the Jurisdictions. The Seller shall be duly
licensed and certified to provide Public Accounting Services (and all other
services provided by the Seller) at or from each of the Seller's offices in each
of the Jurisdictions.
10.4 Lease Consents. The landlords of each location where the
Seller leases real property or any interest therein shall have consented in
writing to the assignment of leases to such property to the Buyer on terms which
are acceptable to the Buyer.
10.5 Information Systems. The owners, licensors and/or
lessors to the Seller of any information technology, whether hardware, software
(whether operating system, application or other type) or telecommunications have
consented in writing to the assignment to the Buyer of all the Seller's rights
in and to such information technology on terms which are acceptable to the
Buyer.
10.6 Indebtedness. The holders of any indebtedness of the
Seller which is to be an Included Liability shall have consented in writing to
the assignment and assumption to the Buyer of the Seller's obligations to repay
or otherwise satisfy such indebtedness.
10.7 Supplemental Partners Agreement Signed by All Partners.
The Supplemental Partners Agreement shall have been executed and delivered, for
purposes of the Closing, by all of the then Partners, and there shall not have
been a change of more than 15% (by capita) of the identity of the Partners at
the date hereof and as of the Closing Date.
10.8 No Adverse Change. There shall have been no adverse
change (greater than Two Hundred Fifty Thousand Dollars ($250,000)) since the
Financial Statement Date in the business, prospects, condition (financial or
otherwise), earnings or operations of the Seller's business.
40
<PAGE> 47
10.9 No Proceeding or Litigation. No action, suit or
proceeding before any court or any governmental or regulatory authority shall
have been commenced or threatened, and no investigation by any governmental or
regulatory authority shall have been commenced or threatened against the Seller,
any Partner, the Buyer or any of their respective principals, officers or
directors seeking to restrain, prevent, delay or change the transactions
contemplated hereby or questioning the validity or legality of any of such
transactions or seeking damages in connection with any of such transactions.
10.10 No Restrictions. There shall exist no conditions,
restrictions or reservations affecting the title to or utility of the Included
Assets and the rights under the Included Liabilities which would prevent the
Buyer from occupying and utilizing the Included Assets and Included Liabilities,
or any part thereof, to the same full extent that the Seller might continue to
do so if the sale and transfer contemplated hereby did not take place.
10.11 Consents. All consents and approvals necessary to
ensure that the Buyer will continue to have the same full rights in respect to
the Included Assets and Included Liabilities as the Seller had immediately prior
to the consummation of the transaction contemplated hereby shall have been
obtained.
10.12 Documents. The Seller shall furnish the Buyer with such
other and further documents and certificates of its officers and others as the
Buyer shall reasonably request to evidence compliance with the conditions set
forth in this Agreement.
10.13 Seller Closing Deliveries. The Seller Closing
Deliveries shall have been made for purposes of the Closing.
10.14 Compliance with Applicable Law. The filing and waiting
period requirements of the H-S-R Act and any other applicable Law relating to
consummation of the transactions hereby shall have been duly complied with and
neither the Federal Trade Commission, nor the United States Department of
Justice, nor any other agency shall have instituted any review of or claim
regarding the Acquisition.
10.15 Formation of the Trusts and TPS . The Trusts and TPS
shall have been duly formed or organized, and neither of the Trusts nor TPS
shall have (or shall ever have had) any operations, liabilities or employees or
engage or engaged in any business (except as contemplated herein) at the Closing
Date.
10.16 Due Diligence. The Buyer shall be satisfied in all
respects with the results of its due diligence review of the Seller and its
business, including without limitation, customer, vendor and other third party
relationships and environmental, tort, securities, corporate, employee benefits,
taxation and insurance matters.
10.17 Regulatory Analysis. The Buyer shall be satisfied, in
its sole and absolute discretion, with its review and analysis of any possible
Adverse Regulatory Action and the application and effect of the rules,
regulations and orders of the SEC, AICPA, ISB and any applicable federal and
state regulatory authorities with respect to the consummation of the
41
<PAGE> 48
Acquisition and the ongoing practice, operations and regulatory compliance of
the Buyer and the Seller.
10.18 Bank Consents. The Buyer and its affiliates shall have
received the consent of Chase Manhattan Bank, individually and as agent for all
banks in the syndicate, pursuant to the Credit and Guarantee Agreement dated
November 11, 1998.
CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND THE TRUSTS
Each and every obligation of the Seller and the Trusts under
this Agreement shall be subject to the satisfaction, on or before the Closing
Date, of each of the following conditions unless waived in writing by the
Seller:
11.1. Representations and Warranties; Performance. The
representations and warranties made by the Buyer herein shall be true and
correct in all material respects on the date of this Agreement and on the
Closing Date with the same effect as though made on such date; the Buyer shall
have performed and complied with all agreements, covenants and conditions
required by this Agreement to be performed and complied with by it prior to the
Closing Date; the Buyer shall have delivered to the Seller a certificate of its
President, dated the Closing Date, certifying to the fulfillment of the
conditions set forth herein, substantially in the form attached hereto as
Exhibit 11.1 (the "Buyer's Certificate").
11.2. No Proceeding or Litigation. No action, suit or
proceeding before any court or any governmental or regulatory authority shall
have been commenced, or threatened, and no investigation by any governmental or
regulatory authority shall have been commenced, or threatened, against the
Seller, any Partner, the Buyer or any of their respective principals, officers
or directors, seeking to restrain, prevent or change the transactions
contemplated hereby or questioning the validity or legality of any of such
transactions or seeking damages in connection with any of such transactions.
11.3. Buyer Closing Deliveries.. The Buyer Closing Deliveries
shall have been made for purposes of the Closing.
11.4. General Consents and Approvals. All consents, approvals
and filing with, and registrations and licenses from third parties, regulatory
authorities and governmental agencies required to be obtained by the Seller, any
Partner or the Buyer, or any combination thereof, to consummate the transactions
contemplated hereby, or which, either individually or in the aggregate, if not
obtained, could result in an adverse effect on the Included Assets or the
Seller's financial condition or business shall have been obtained and delivered.
11.5. Lease Consents. The landlords of each location where
the Seller leases real property or any interest therein shall have consented in
writing to the assignment of leases to such property to the Buyer on terms which
are acceptable to the Buyer.
42
<PAGE> 49
11.6. Information Systems Technology. The owners, licensors
and/or lessors to the Seller of any information technology, whether hardware,
software (whether operating system, application or other type) or
telecommunications have consented in writing to the assignment to the Buyer of
all the Seller's rights in and to such information technology on terms which are
acceptable to the Buyer.
11.7. Consents. All consents and approvals necessary to
ensure that the Buyer will continue to have the same full rights in respect to
the Included Assets and Included Liabilities as the Seller had immediately prior
to the consummation of the transaction contemplated hereby shall have been
obtained or shall have been waived by the Buyer.
11.8. Documents. The Buyer shall furnish the Seller with such
other and further documents and certificates of its officers and others as the
Seller shall reasonably request to evidence compliance with the conditions set
forth in this Agreement.
11.9. Compliance with Applicable Law. The filing and waiting
period requirements of the H-S-R Act and any other applicable Law relating to
consummation of the transactions hereby shall have been duly complied with and
neither the Federal Trade Commission, nor the United States Department of
Justice, nor any other agency shall have instituted any review of or claim
regarding the Acquisition.
11.10. Regulatory Analysis. The Seller shall be satisfied, in
its reasonable discretion, with its review and analysis of any possible Adverse
Regulatory Action (including but not limited to (i) the inability of the Seller
to perform Public Accounting Services pursuant to an adverse determination by
the SEC or (ii) the disapproval of the transactions contemplated herein by an
individual state or such state's regulatory agency or body if such state is the
source of at least ten percent (10%) of the Seller's revenue) and the
application and effect of the rules, regulations and orders of the SEC, AICPA,
ISB and any applicable federal and state regulatory authorities with respect to
the consummation of the Acquisition and the ongoing practice, operations and
regulatory compliance of the Buyer and the Seller.
THE BUYER'S CLOSING DELIVERIES
At the Closing, the Buyer shall execute and deliver or cause
to be delivered, the following (the "Buyer Closing Deliveries"):
12.1. Purchase Price. The Buyer shall deliver the Closing
Payment owing pursuant to Section 1.3 hereof:
12.2. Documents to the Seller. The Buyer will deliver, or will
cause to be delivered to the Seller on the Closing Date the following executed
documents:
(a) the Related Agreements; and
43
<PAGE> 50
(b) an opinion of counsel to the Buyer dated the Closing
Date substantially in the form attached hereto as Exhibit 12.2, with such
additional exceptions and qualifications as reasonably acceptable to the
Seller (the "Buyer's Counsel Opinion").
12.3. Retired Partners Agreement. The Buyer will deliver to
the MP Retired Partners Trust on the Closing Date the Retired Partners
Agreement.
THE SELLER AND THE TRUSTS' CLOSING DELIVERIES
At the Closing, the Seller and the Trusts shall execute and
deliver, or cause to be executed and delivered or shall solicit and encourage
the Partners to deliver to the Buyer, the following documents duly executed by
the Seller, the Trusts and/or the Partners and any other appropriate third party
(collectively, the "Seller Closing Deliveries"):
(a) Bill of Sale;
(b) Amended Partnership Agreement;
(c) the Related Agreements;
(d) Power of Attorney (in the form of Exhibit 1.4 of the
Administrative Services Agreement);
(e) Seller's Release;
(f) Lien Releases;
(g) Landlord Consents and Estoppels;
(h) Other third-party consents; and
(i) opinions of the Seller's counsel, dated the Closing
Date, substantially in the form attached hereto as Exhibits 13(a) and
13(b), with such additional exceptions and qualifications as reasonably
acceptable to the Buyer (the "Sellers' Counsel Opinion").
CLOSING; TERMINATION
14.1. Closing. The Closing shall be held at the office of the
Seller, or at such place or places as the parties may mutually agree, on August
2, 1999, or at such earlier or later date as the Buyer and the Seller shall
agree (the "Closing Date"). Each party shall cooperate, as to matters under such
party's control, in the satisfaction of conditions to the obligations of the
44
<PAGE> 51
parties at the Closing; provided, that the foregoing shall not require any party
to waive any condition herein to its obligations at the Closing or to incur any
substantial cost not otherwise required hereunder.
14.2. Termination.
(a) This Agreement may be terminated and abandoned on or
prior to the Closing Date as follows:
(i) by mutual consent of all parties hereto;
(ii) by the Seller if the conditions precedent
contained in Article XI hereof have not been fulfilled or waived in writing
on or prior to the Closing Date;
(iii) by the Buyer if the conditions precedent
contained in Article X hereof have not been fulfilled or waived in writing
on or prior to the Closing Date;
(iv) by the Buyer or the Seller, because of a
misrepresentation or breach of warranty by the Seller or Trusts (in the
case of termination by the Buyer) or by Block or the Buyer (in the case of
termination by Seller) that is either a Breach Event or because of a
Subsequent Development and such misrepresentation or breach is or would
likely be adverse in a material way to the terminating party in its
reasonable discretion (and the terminating party is not itself in breach of
this Agreement);
(v) by the Buyer or the Seller if the Closing has not
occurred by October 31, 1999; or
(vi) by the Buyer in accordance with Section 6.19.
(b) In the event of termination by any party pursuant to
Section 14.2(a), written notice thereof shall promptly be given by the
terminating party to the other party.
(c) In the event of termination by any party pursuant to
Section 14.2(a)(i), (ii), (iii), (v) or (vi), each party shall pay its own
expenses incident to the preparation for the consummation of this Agreement
and the transactions contemplated hereby.
(d) In the event of termination pursuant to Section
14.2(a)(iv), the misrepresenting/breaching party shall pay to the
terminating party the sum of $250,000 for reimbursement of the terminating
party's costs (and not as liquidated damages).
(e) Except for a termination pursuant to Section
14.2(a)(v) or as provided in Section 14.2(f), a termination under the
provisions of Section 14.2(a) shall not prejudice any claim of the
terminating party for damages that such party may have
45
<PAGE> 52
hereunder or in law or in equity.
(f) In the event that (i) a party is notified by the
other party of a Breach Event or Subsequent Development prior to Closing,
(ii) the notified party either accepts the Draft Supplemental Schedule
addressing such Breach Event or Subsequent Development in accordance with
Section 9.7 or does not elect to terminate this Agreement because of such
Breach Event or Subsequent Development pursuant to Section 14.2(a)(iv) and
(iii) the Closing occurs, then the notified party shall be deemed to have
waived such Breach Event or Subsequent Development (and the resulting
misrepresentation or breach of warranty) and shall not be entitled to
indemnification for Damages relating thereto under Article XV.
INDEMNIFICATION
15.1. Indemnification by the Seller and the MP Active Partners
Trust. Subject to the limitations set forth in Sections 15.5 and 16.4, the
Seller and the MP Active Partners Trust, jointly and severally, agree to
indemnify the Buyer, Block, HRB and each of their respective officers,
directors, employees, agents and Affiliates (each a "Buyer Indemnitee") against
any loss, damage, or expense (including but not limited to reasonable attorneys'
fees) (collectively, "Damages"), incurred or sustained by any Buyer Indemnitee
as a result of (a) any breach by the Seller or the Trusts of any term,
provision, covenant or agreement contained in this Agreement, claim for which is
made in writing prior to the expiration of the survival period, if any, under
Section 16.4 (the "Survival Period"); (b) any inaccuracy in any of the
representations or warranties made by the Seller or the Trusts in Article III of
this Agreement, claim for which is made prior to the expiration of the Survival
Period; (c) any inaccuracy or misrepresentation in any certificate or other
document or instrument delivered by the Seller or the Trusts in accordance with
any provision of this Agreement, claim for which is made in writing prior to the
expiration of the Survival Period; (d) any act or omission of the Seller or the
Trusts on or prior to the Closing Date which breaches the terms hereof or of any
agreement referred to herein, claim for which is made in writing prior to the
expiration of the Survival Period; (e) the operation, structure, status,
condition, actions or omissions of the Seller or the Trusts on or prior to the
Closing Date, claim for which is made in writing prior to the expiration of the
Survival Period; (f) any amounts payable pursuant to Section 6.7, claim for
which is made in writing prior to the expiration of the Survival Period or (g)
the ownership of the Excluded Assets or the Excluded Liabilities after the
Closing Date, whether or not claim regarding same is made in writing prior to
the expiration of the Survival Period. In the event that the Buyer suffers any
Damages after the Closing Date as a result of the operations, structure, status
or condition of the Seller before the Closing Date, the Seller and the Trusts
shall jointly and severally defend and indemnify the Buyer from such Damages
notwithstanding the knowledge or absence of knowledge of the Buyer, the Seller
and the Trusts of the operations, structure, status or condition causing same or
the accuracy or inaccuracy of any representation or warranty made or given under
Article III of this Agreement which may relate or apply to any such operations,
structure, status or condition. The Seller and the Trusts shall not be obligated
to indemnify the Buyer Indemnitees with respect to any Damages arising or
alleged to arise directly or indirectly from an Adverse Regulatory Action caused
or
46
<PAGE> 53
relating to the Acquisition. The acting Buyer Indemnitee shall give written
notice to a representative of the Seller (the "Seller's Representative") whose
name shall be set forth on Schedule 15.1 stating specifically the basis for the
claim for Damages, the amount thereof and shall tender defense thereof to the
Seller as provided in Section 15.3. The Buyer Indemnitees shall then be
entitled, but not obligated, to offset all such claims for Damages against any
Future Payments, dollar for dollar, in satisfaction of the amount of such
Damages (but any such offset amount shall not affect the Earnout Payments or any
compensation amounts payable to the Buyer employees). The amount of Damages
payable under this Section 15.1 shall be limited as described in Section 15.5
hereof, and claims for Damages shall be subject to the limitations set forth in
Section 16.4. To the extent that Damages are not applied to offset as provided
above, all payments of Damages under this Section 15.1 shall (at the Buyer's
election) be made directly to Block without being considered Adjusted EBITDA (as
used in Section 1.4(a)(i) hereof) or having any effect upon the calculation or
payment of Earnout Payments or any purchase price under this Agreement or any
compensation amounts payable to the Buyer employees. Amounts due shall be paid
within thirty (30) days after demand unless disputed by any of the Seller
Indemnitees, in which case such dispute shall be subject to
mediation/arbitration pursuant to Section 16.13 hereof.
15.2. Indemnification by HRB. Subject to the limitations set
forth in Sections 15.5 and 16.4, HRB agrees to indemnify the Seller or the MP
Active Partners Trust or the MP Retired Partners Trust (the "Seller
Indemnitees") against any Damages incurred by the Seller Indemnitees as a result
of (a) any breach by the Buyer Indemnitees of any term, provision, covenant or
agreement contained in this Agreement or any other agreement, document,
instrument, statement, letter or certificate delivered to the Seller Indemnitees
at the Closing, claim for which is made in writing prior to the expiration of
the Survival Period; (b) any inaccuracy in any of the representations or
warranties made by any of the Buyer Indemnitees in Articles IV and/or V of this
Agreement or in any certificate or other document or instrument delivered by the
Buyer Indemnitees in accordance with this Agreement, claim for which is made in
writing prior to the expiration of the Survival Period; (c) any act or omission
of the Buyer Indemnitees after the Closing Date which breaches the terms hereof
or of any agreement referred to herein, claim for which is made in writing prior
to the expiration of the Survival Period; (d) the operation of the Buyer (after
the Closing Date), claim for which is made in writing prior to the expiration of
the Survival Period; or (e) ownership of the Included Assets or the assumption
of the Included Liabilities after the Closing Date, claim for which is made in
writing prior to the expiration of the Survival Period. Notwithstanding anything
to the contrary herein, the Buyer Indemnitees shall have no liability to the
Seller or the Trusts or any other person under this Section 15.2 for Damages to
the extent arising in whole or in part from acts or omissions of the Seller
Indemnitees, provided, however, that the provisions of this sentence shall not
be construed to eliminate or prohibit either (i) any indemnification by the
Buyer of officers and directors of the Buyer to the extent provided for in the
articles of incorporation or by-laws of the Buyer; or (ii) coverage of the
Seller or the Trusts by any insurance policies maintained from time to time by
either the Seller, the Trusts or the Buyer, to the extent the terms of such
policies provide such coverage. Further, to make more specific the provisions of
the preceding sentence, but not by way of limitation, none of the Buyer
Indemnitees shall be obligated to indemnify the Seller or the Trusts, or any
other person or entity with respect to any Damages arising or alleged to arise
directly or indirectly from any Adverse Regulatory Action caused or relating to
the Acquisition or for any activity by any regulatory, certifying or similar
body challenging any license, certificate or similar status
47
<PAGE> 54
maintained by the Seller, the Trusts, any Partner, or any such person or entity.
The Seller Indemnitees shall give written notice to the Buyer stating
specifically the basis for the claim for Damages, the amount thereof and shall
tender defense thereof to the Buyer as provided in Section 15.3. Amounts due
shall be paid within thirty (30) days after demand unless disputed by any of the
Buyer Indemnitees, in which case such dispute shall be subject to
mediation/arbitration pursuant to Section 16.13 hereof. The amount of Damages
payable under this Section 15.2 shall be limited as described in Section 15.5
hereof, and claims for Damages shall be subject to the limitations set forth in
Section 16.4.
15.3. Tender of Defense for Damages. Promptly upon receipt by
either the Buyer, the Seller's Representative or either of the Trusts of a
notice of a claim by a third party which may give rise to a claim for Damages,
the indemnified party shall give written notice thereof to the other party. No
reasonable delay of indemnified party in the performance of the foregoing shall
relieve, reduce or otherwise affect the indemnifying party's obligations and
liability to indemnify the indemnified party pursuant to this Agreement. If the
indemnifying party gives to the indemnified party an agreement in writing, in a
form reasonably satisfactory to indemnified party's counsel, to defend such
claim for Damages, the indemnifying party may, at its sole expense, undertake
the defense against such claim and may contest or settle such claim on such
terms, at such time and in such manner as the indemnifying party, in its sole
discretion, shall elect and the indemnified party shall execute such documents
and take such steps as may be reasonably necessary in the opinion of counsel for
the indemnifying party to enable the indemnifying party to conduct the defense
of such claim for Damages. If the indemnifying party fails or refuses to defend
any claim for Damages, the indemnifying party may nevertheless, at its own
expense, participate in the defense of such claim by the indemnified party and
in any and all settlement negotiations relating thereto. In any and all events,
the indemnifying party shall have such access to the records and files of the
indemnified party relating to any claim for Damages as may be reasonably
necessary to effectively defend or participate in the defense thereof.
15.4. Construction. The parties intend that each
representation, warranty, and covenant herein shall have independent
significance. If any party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty, or covenant, as the case may be.
15.5. Limitation. The maximum amount of Damages payable by
Block, HRB and the Buyer (collectively), on one hand, and the Seller and the MP
Active Partners Trust (collectively), on the other hand, under this Article XV
shall be the unpaid remaining amount of Future Payments (determined at the time
notice of the claim for indemnification under this Article XV is made; such
remaining amount, the "Remaining Future Payment Amount"), provided, however,
that such limitation shall not apply to Damages related to or arising from (i)
any fraud or intentional misrepresentation or breach or (ii) any third party
professional liability claims, and related expenses (including but not limited
to attorneys' fees). For purposes of this Article XV and elsewhere in this
Agreement, "Damages" shall not include (A) consequential, exemplary or punitive
damages or (B) diminution in value or loss of bargain type damages which
multiply or
48
<PAGE> 55
increase direct or out-of-pocket damages. In the case of a claim made by the
Buyer, the Buyer shall be entitled only to offset the amount of such claim
against the Remaining Future Payment Amount in accordance with Section 16.5
hereof. In the event that such offset is (or is determined by a competent court
to be) not legal, permitted or otherwise valid (or subject to penalty or other
adverse consequence) under applicable law, then the Buyer may so notify the
Seller whereupon the Seller and the MP Active Partners Trust shall pay to the
Buyer the amount of Damages claimed by the Buyer or, at the Buyer's discretion,
the parties may enter into a mutually agreeable alternative form of transaction
resulting in prompt payment of such amount to the Buyer.
MISCELLANEOUS PROVISIONS
16.1. Amendment and Modification. This Agreement may be
amended, modified and supplemented only by written agreement of the Seller's
Representative, the Trusts, the Buyer and Block.
16.2. Waiver of Compliance; Consents. Any failure of the
Seller or the Trusts on the one hand, or the Buyer on the other hand, to comply
with any obligation, covenant, agreement or condition herein may be waived in
writing by the Buyer, the Seller or the Trusts respectively, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires or
permits consent by or on behalf of any party hereto, such consent shall be given
in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 16.2.
16.3. Expenses. Except as otherwise expressly provided in this
Agreement, each party will pay its own legal, accounting and other expenses
incurred by such party or on its behalf in connection with this Agreement and
the transactions contemplated herein, provided that the Seller shall bear all
reasonable costs, not to exceed Thirty Thousand Dollars ($30,000) incurred by
the MP Retired Partners Trust, and the Buyer shall bear the out-of-pocket costs
incurred by the Buyer or the Seller after the date hereof and prior to the
Closing in connection with correspondence and discussions with applicable
regulators concerning the alternative practice structure involved in this
Acquisition (but not in connection with any licensing or certification of any
individual Partner or employee of the Seller in the ordinary course of
business). The Seller may pay the expenses of the Partners, if any, incurred for
services rendered or products delivered prior to the Closing Date to the extent
such payments do not cause the cash on hand of the Seller as of the Closing Date
to be less than zero dollars.
16.4. Investigations; Survival of Representations, Warranties
and Indemnification Obligations. The respective representations and warranties
of the Seller, the Trusts and the Buyer contained herein or in any certificates
or other documents delivered prior to or at the Closing shall not be deemed
waived (except to the extent waived in writing pursuant to Section 16.2) or
otherwise affected by any investigation made by any party hereto or by the
occurrence of the Closing. Except to the extent set forth herein to the
contrary, each and every such representation and warranty and indemnification
obligation of any party hereunder other than an indemnification
49
<PAGE> 56
obligation resulting from intentional, fraudulent or willful actions or
omissions, misrepresentations or breaches shall survive until July 31, 2003;
provided, however, all representations and warranties under Sections 3.2
[Interests], 3.4 [Approval and Enforceability of Agreement], 3.12 [Title and
Related Matters], 3.13 [Litigation], 3.14 [Tax Matters], 3.16 [ERISA and Related
Employee Benefit Matters] and all covenants and obligations under Section 6.7
[Tax Matters] shall survive the Closing until the expiration of any applicable
statute of limitations and actions for intentional, fraudulent or willful
actions or omissions, misrepresentations or breaches shall survive indefinitely;
and provided, further, that any claim for indemnification pursuant to Article XV
made within the applicable survival period shall survive until finally resolved
notwithstanding expiration of the applicable survival period.
16.5. Right to Offset. The Buyer shall have the right to
offset any amount that the Buyer owes to a Partner, the MP Active Partners Trust
or to the Seller under the Future Payments provided herein against amounts due
from the Seller or the Trusts to the Buyer, HRB or Block under this Agreement,
the Administrative Services Agreement and/or the Managing Director Employment
Agreements and the Senior Managing Director Employment Agreements (such
agreements, the "Offset-Applicable Agreements"); provided, however, that no
offset shall be permitted against the compensation payable to a Partner under
any Managing Director Employment Agreement or Senior Managing Director
Employment Agreement unless: (i) all other present and owing obligations which
could be offset under the Offset-Applicable Documents have been offset; or (ii)
the amount being offset is owed under the Managing Director Employment Agreement
or Senior Managing Director Employment Agreement. In no event shall offset be
permitted against base salary payable under such Managing Director Employment
Agreement or Senior Managing Director Employment Agreement unless the amount
being offset is owed under such Managing Director Employment Agreement or Senior
Managing Director Employment Agreement. Except as otherwise provided in this
Section 16.5, any offset permitted under this Section may be applied against
payments owed in any order determined in the discretion of the Buyer.
16.6. Notices. Any notice, request, consent or communication
(collectively, a "Notice") under this Agreement shall be effective only if it is
in writing and (a) personally delivered, (b) sent by certified or registered
mail, return receipt requested, postage prepaid, (c) sent by a nationally
recognized overnight delivery service, with delivery confirmed, or (d) telexed
or telecopied, with receipt confirmed, addressed as follows:
(i) If to the Seller to:
McGladrey & Pullen, LLP
3600 West 80th Street, Suite 500
Bloomington, MN 55431
Attention: Thomas G. Rotherham
Facsimile: (612) 921-7701
50
<PAGE> 57
with a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, IL 60606
Attention: William J. McGrath, Esq. and David J
Duez, Esq.
Facsimile: (312) 984-7700
(ii) If to the Trusts, to:
c/o McGladrey & Pullen, LLP
102 West Second Street, 2nd Floor
Davenport, IA 52801
Attention: Clifford Newman, Trustee
(iii) If to the Buyer or HRB, to:
H&R Block, Inc.
4400 Main Street
Kansas City, MO 64111
Attention: Bret G. Wilson
Facsimile:(816) 753-8628
with a copy to:
H&R Block, Inc.
4400 Main Street
Kansas City, MO 64111
Attention: James H. Ingraham, Esq.
Facsimile:(816) 753-8628
and
Bryan Cave LLP
One Kansas City Place
1200 Main, Suite 3500
Kansas City, MO 64105
Gregory G. Johnson, Esq.
Facsimile: (816) 374-3300
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) three (3) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a Notice
sent by an overnight delivery service is confirmed by such overnight delivery
service, or (4) when receipt of the telex or telecopy is confirmed, as the case
may be.
51
<PAGE> 58
16.7. Definition of Laws and the Seller's Knowledge. For the
purpose of this Agreement, "Laws" shall include, without limitation, all
foreign, federal, state and local laws, statutes, rules, regulations, codes,
ordinances, plans, orders, judicial decrees, writs, injunctions, notices,
decisions or demand letters issued, entered or promulgated pursuant to any
foreign, federal, state or local law, and "Seller's Knowledge", "knowledge of
Seller" or phrases of similar import shall mean the actual knowledge of the
Seller, with the Seller being deemed to have actual knowledge of those matters
of which Scally, Rotherham, and/or any managing or executive partner, officer or
director of the Seller has actual knowledge.
16.8. Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by the Seller without the prior written consent of the Buyer. The Buyer
may at any time, in its discretion, assign this Agreement to any direct or
indirect subsidiary or affiliate firm or corporation of Block (each a "Block
Subsidiary"), but the Buyer may not assign this Agreement to any firm or
corporation other than a Block Subsidiary without the prior written consent of
the Seller, which consent shall not be unreasonably withheld.
16.9. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.10. Neutral Interpretation. This Agreement constitutes the
product of the negotiation of the parties hereto and the enforcement hereof
shall be interpreted in a neutral manner, and not more strongly for or against
any party based upon the source of the draftsmanship hereof.
16.11. Headings. The article and section headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
16.12. Governing Law. The provisions hereof shall be governed
and interpreted in all respects pursuant to the internal and substantive laws of
the State of Iowa without regard to conflict of laws principles which might
cause the law of another jurisdiction to apply.
16.13. Arbitration. Any controversy, claim, or dispute
arising out of or relating to this Agreement or any breach thereof, including
without limitation any dispute concerning the scope of the arbitration clause
set forth below, shall be resolved as set forth below. Any party may seek
injunctive relief pending the completion of mediation and arbitration under this
Agreement.
(a) In the event a dispute arises relating to this
Agreement, any party may demand mediation by notifying the American
Arbitration Association ("AAA") in the location where any mediation would
be conducted as set forth below, in writing with copies to all other
parties involved in the dispute. The notification will state with
specificity the nature of the dispute and the amount of any claims. Upon
receipt of the mediation demand, the AAA will immediately convene a
pre-mediation telephone
52
<PAGE> 59
conference of the parties hereto. The parties will make a representative,
with full authority to settle, available for such a conference within five
(5) business days of being contacted by the AAA or its designated mediator
("Mediator"). During the pre-mediation telephone conference, the parties
will agree on mediation procedures or, in the event they cannot agree,
Mediator will set the mediation procedures. The mediation procedures will
provide for the mediation to be completed within thirty (30) business days
of the date of the initial demand for mediation. The parties will
participate in good faith in the mediation and will use their best efforts
to reach a resolution within the thirty (30) day time period. Each party
will make available in a timely fashion a representative with authority to
resolve the dispute. In the event that the dispute has not been resolved
within thirty (30) days, the mediation may continue if the parties so
desire. If not, the Mediator will so notify the parties and declare the
mediation terminated. In the event that the mediation continues beyond
thirty (30) days, but is not resolved within what Mediator believes is a
reasonable time thereafter, the Mediator will so notify the parties, and
declare the mediation terminated. Fees of the mediator shall be split
equally between the Buyer on the one hand and the Seller or the Trusts and
or the Partners on the other hand.
(b) After the mediation has been declared terminated, the
matters in dispute shall be settled by binding arbitration in accordance
with the Commercial Arbitration Rules (the "Rules") of the AAA as
supplemented herein and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. The governing law
of this Agreement shall be the law used by the arbitrators in rendering
their award, except that the Federal Rules of Evidence shall apply. There
shall be three arbitrators. Each party shall choose one arbitrator, and the
two chosen arbitrators shall choose the third arbitrator. Pending final
award, the arbitrators' compensation and expenses shall be advanced equally
by the parties. The AAA shall hold an administrative conference with
counsel for the parties within twenty (20) days after the filing of the
demand for arbitration by any one or more of the parties. The parties and
the AAA shall thereafter cooperate in order to complete the appointment of
three arbitrators as quickly as possible. Within 15 days after all three
arbitrators have been appointed, an initial meeting (which, if the
arbitrators so determine, may be by phone) among the arbitrators and
counsel for the parties shall be held for the purpose of establishing a
plan for administration of the arbitration, including: (1) definition of
issues; (2) scope, timing, and types of discovery, which may at the
discretion of the arbitrators include production of documents in the
possession of the parties, but may not without consent of all parties
include depositions; (3) exchange of documents and filing of detailed
statements of claims, prehearing memoranda and dispositive motions; (4)
schedule and place of hearings; and (5) any other matters that may promote
the efficient, expeditious, and cost-effective conduct of the proceeding.
Each party shall have the right to request the arbitrator to make specific
findings of fact.
(c) The majority decision of the arbitrators shall
contain findings of facts on which the decision is based, including any
specific factual findings requested by either party, and shall further
contain the reasons for the decision with reference to the legal principles
on which the arbitrators relied. Such decision of the arbitrators shall be
final and binding upon the parties. The arbitration shall take place in
Chicago, Illinois.
53
<PAGE> 60
The final award shall award to the prevailing party its reasonable
attorneys' fees and costs incurred in connection with the arbitration (but
if the prevailing party is not awarded all of the damages sought, only to
the extent, pro rata, of its award compared to the damages sought) and may
grant such other, further, and different relief as authorized by the Rules,
including damages and out-of-pocket costs but which may not include
exemplary, consequential or punitive damages.
16.14. Entire Agreement. This Agreement, which term as used
throughout includes the Schedules and Exhibits hereto, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, representations,
warranties, covenants or undertakings other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
[SIGNATURES ON THE FOLLOWING PAGE]
54
<PAGE> 61
THIS AGREEMENT IS SUBJECT TO AN ARBITRATION PROVISION THAT IS
BINDING ON THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of
the date first herein above set forth.
<TABLE>
<CAPTION>
<S> <C>
MCGLADREY & PULLEN, LLP MGP BUSINESS SERVICES, INC.
/S/ MARK W. SCALLY By: /S/ BRET G. WILSON
- ------------------ ------------------
Mark W. Scally Name: Bret G. Wilson, Vice President
/S/ THOMAS G. ROTHERHAM
- -----------------------
Thomas G. Rotherham
BEING ALL THE MEMBERS OF THE
OFFICE OF THE MANAGING PARTNER
MP ACTIVE PARTNERS TRUST
By: /S/ MARK W. SCALLY
------------------
Name: Mark W. Scally
Title: Chairman of the Board By: /S/ CLIFFORD NEWMAN
-------------------
Clifford Newman, Trustee
By: /S/ JAMES BLAYNEY MP RETIRED PARTNERS TRUST
-----------------
Name: James Blayney
Title: Board Member
By: /S/ CLIFFORD NEWMAN
-------------------
Clifford Newman, Trustee
By: /S/ KAREN BOWMAN
----------------
Name: Karen Bowman
Title: Board Member H&R BLOCK, INC.
By: /S/ JEFFERY CANNON
------------------
Name: Jeffery Cannon By: /S/ FRANK L. SALIZZONI
----------------------
Title: Board Member Name: Frank L. Salizzoni
Title: President
By: /S/ STEVE HAMMES
----------------
Name: Steve Hammes HRB BUSINESS SERVICES, INC.
Title: Board Member
By: /S/ BRET G. WILSON
------------------
</TABLE>
55
<PAGE> 62
<TABLE>
<CAPTION>
<S> <C>
Name: Bret G. Wilson, Vice President
By: /S/ ROBERT LINDEMAN
-------------------
Name: Robert Lindeman
Title: Board Member
By: /S/ MICHAEL MARTIN
------------------
Name: Michael Martin
Title: Board Member
By: /S/ PATRICIA MURPHY-KESSINGER
-----------------------------
Name: Patricia Murphy-Kessinger
Title: Board Member
By: /S/ GORDON OPLAND
-----------------
Name: Gordon Opland
Title: Board Member
By: /S/ DEWAYNE SCHEER
------------------
Name: DeWayne Scheer
Title: Board Member
By: /S/ GARY KRAMER
---------------
Name: Gary Kramer
Title: Board Member
By: /S/ ROBERT EARLY
----------------
Name: Robert Early
Title: Board Member
BEING ALL THE MEMBERS OF THE
MCGLADREY & PULLEN, LLP BOARD OF
DIRECTORS
</TABLE>
56
<PAGE> 63
LIST OF SCHEDULES
TO
ASSET PURCHASE AGREEMENT
<TABLE>
<CAPTION>
SCHEDULES TITLE
- --------- -----
<S> <C>
Schedule 1.1 Excluded Assets
Schedule 1.2 Included Liabilities
Schedule 1.3(d) A/R & WIP Estimate
Schedule 1.3(e) Net Prepaid Estimate
Schedule 1.3(f) Pre-Closing Development Expenditures Budget
Schedule 1.4(a)(i) A/R & WIP Reserve and Write-off
Schedule 1.4(a)(iv) Foundation Firms; Foundation Firm Managers; Prior Add-On
Firms
Schedule 1.4(b) Model and True-Up Adjustment
Schedule 2.4 Closing Block Options
Schedule 3.1 Office Locations and Foreign Qualifications;
Schedule 3.2 Interests in the Seller; Retired Partner Obligations
Schedule 3.3 Subsidiaries and Identified Affiliates
Schedule 3.4 Resolutions and Consents
Schedule 3.5 Violations
Schedule 3.6 Governmental Authorities; Licensure
Schedule 3.7 Financial Statements
Schedule 3.8 Undisclosed Liabilities
Schedule 3.9 Changes Subsequent to Financial Statement Date
Schedule 3.10 Contracts
Schedule 3.10(a) Form of Engagement Letter - Audit
Schedule 3.10(b) Form of Engagement Letter - Review
Schedule 3.10(c) Form of Engagement Letter - Business Valuation
Schedule 3.10(d) Form of Engagement Letter - Consulting
Schedule 3.12 Liens; Real Property; Leases
</TABLE>
57
<PAGE> 64
<TABLE>
<CAPTION>
SCHEDULES TITLE
- --------- -----
<S> <C>
Schedule 3.14 Tax Matters
Schedule 3.15 Non-Compliance
Schedule 3.16 Benefit Plans
Schedule 3.17 Labor Relations
Schedule 3.18 Insurance
Schedule 3.19 Capital Expenditures
Schedule 3.20 Dealings with Affiliates
Schedule 3.21 Competition
Schedule 3.22 Bank Accounts
Schedule 3.23 Compensation
Schedule 3.25 Intellectual Property
Schedule 3.26 Outside Financial Interests
Schedule 3.27 Guarantees
Schedule 3.29 Partner Indebtedness
Schedule 3.30 Seller's Files
Schedule 3.34 Affiliate and Network Relationships
Schedule 3.35 Ernst & Young Peer Review
Schedule 3.38 Trusts Assets
Schedule 5.5 Major Franchisees
Schedule 6.1(e) Pre-Closing Capital Budget
Schedule 6.7(c) Tax Reporting
Schedule 8.4 Employee Compensation
Schedule 9.3 Network Firms
Schedule 15.1 Seller's Representative
</TABLE>
58
<PAGE> 65
LIST OF EXHIBITS
TO
ASSET PURCHASE AGREEMENT
<TABLE>
<CAPTION>
EXHIBIT TITLE
- ------- -----
<S> <C>
Exhibit 1.3(c) Form of Retired Partners Agreement
Exhibit 1.6(a) Form of Bill of Sale
Exhibit 1.6(b) Form of Assignment and Assumption Agreement
Exhibit 2.4(a) Stock Option Plan
Exhibit 2.4(b) Form of Stock Option Agreement
Exhibit 2.5 Form of Administrative Services Agreement
Exhibit 2.6 Form of Guaranty
Exhibit 2.7 Form of Loan Agreement
Exhibit 2.8 Form of Operations Agreement
Exhibit 6.9 Form of Seller's Release
Exhibit 6.15 Form of Conditional Purchase Agreement
Exhibit 6.18(a) Form of Managing Director Employment Agreement
Exhibit 6.18(b) Form of Senior Managing Director Employment Agreement
Exhibit 6.19 Form of Supplemental Partners' Agreement
Exhibit 6.20(a) Form of Scally Employment Agreement
Exhibit 6.20(b) Form of Rotherham Employment Agreement
Exhibit 10.1 Form of Seller's Certificate
Exhibit 11.1 Form of Buyer's Certificate
Exhibit 12.2 Form of Buyer's Counsel Opinion
Exhibits 13(a) and Form of Seller's Counsel Opinion
13(b)
</TABLE>
59
<PAGE> 1
EXHIBIT 99.1 TO FORM 8-K
[H&R BLOCK LOGO]
NEWS RELEASE
FOR FUTHER INFORMATION
MEDIA RELATIONS: Linda McDougall, H&R Block, 816-932-7542
Connie Smith-Benning, McGladrey & Pullen, 319-324-0447
INVESTOR RELATIONS: Brian Schell, H&R Block, 816-932-7561
H&R BLOCK AND McGLADREY & PULLEN SIGN AGREEMENT
Transaction will be U.S. Industry's Largest Accounting Firm Acquisition
FOR RELEASE TUESDAY, JUNE 29, 1999
KANSAS CITY, Mo. - H&R Block Inc. and McGladrey & Pullen, LLP today
announced they have signed an agreement under which H&R Block will acquire
substantially all of the non-attest assets of McGladrey & Pullen, the nation's
seventh largest accounting and consulting firm. The transaction will be the
largest accounting firm acquisition and the first combination of its kind
between a major financial services company and a top-10 accounting firm.
Under the terms of the agreement, Block will purchase most of
McGladrey & Pullen's non-attest assets for $240 million in cash payments over
four years plus the assumption of certain pension liabilities with a present
value of approximately $50 million. Block will also make contingency payments
tied to future performance. The acquisition, which is subject to regulatory
approvals and other normal closing conditions, is expected to be completed in
August.
McGladrey & Pullen is the eighth accounting firm acquired by Block
since it began developing a national network of accounting, tax and consulting
practices in May 1998. Because of McGladrey's size and industry leadership
serving mid-sized companies, the firm will provide a strong platform to build a
leading national practice focused on the needs of the middle market, one of the
fastest growing markets in the country.
"Combining McGladrey's and Block's accounting practices significantly
accelerates our shared strategy of building an industry-leading firm," said
Frank L. Salizzoni, president and chief executive officer of H&R Block.
"McGladrey will be a strong, well-capitalized competitor, and with this solid
foundation in place, we will continue to expand our national practice."
1
<PAGE> 2
"We're excited about this business combination because H&R Block shares
our vision of creating the leading national accounting, tax and consulting firm
serving mid-sized companies," said Mark Scally, chairman of the board and
managing partner of McGladrey & Pullen.
"Our clients will continue to be served by the same team of skilled
professionals in our local offices," Scally explained. "Our agreement with
Block, however, provides us with the resources to strengthen and deepen our
existing industry and functional specialization, invest in new services, and
offer advice tailored to our business clients' needs."
Following the acquisition, Block intends to integrate its previously
acquired accounting firms within HRB Business Services and McGladrey & Pullen
into one firm known as RSM McGladrey Inc. This national accounting, tax and
consulting practice will share a single client service philosophy and have
approximately 470 managing directors and nearly 4,000 employees in more than 70
offices nationwide. In addition, as the intended name indicates, RSM McGladrey
will continue to be a prominent member of RSM International, the world's tenth
largest accounting and consulting organization with 400 offices in 75 countries.
McGladrey & Pullen's attest business-including audits, reviews and other
engagements in which the firm issues written opinions evaluating client
financial statements - will remain in a partnership owned by McGladrey & Pullen
partners.
The acquisition of McGladrey & Pullen is a major step in Block's
strategy to broaden its customer base and build financial advisory-based
relationships with both accounting firm clients and existing H&R Block tax
clients, although Block's individual tax return business will remain separate
from RSM McGladrey. Since the summer of 1997, Block has been expanding its
business to include mortgage origination, financial planning and investment
services, and accounting and consulting services while at the same time
enhancing and growing its core tax preparation business.
"The transaction continues Block's long-term strategy to attract new
customers and offer a diverse range of financial services through
accounting-based service professionals," Mr. Salizzoni said. "We have already
begun to develop financial products and services for our 16 million U.S. tax
clients. Likewise, RSM McGladrey will develop appropriate additional products
and services that meet the unique needs of their business clients."
In 1998, McGladrey & Pullen, based in Minneapolis, Minn., generated
approximately $300 million in services for mid-sized companies and tax exempt
organizations. On a pro forma basis, the eight acquired accounting firms,
including McGladrey & Pullen, generated revenues of approximately $400 million
in 1998.
Founded in 1955, H&R Block Inc. (NYSE:HRB) is a diversified company
with subsidiaries offering tax preparation, mortgage services, business
services, and financial products and services. H&R Block Tax Services Inc.
served 18.9 million tax customers in 1999 primarily in the United States,
Canada, Australia and the United Kingdom. Option One Mortgage Corporation and
H&R Block Mortgage Company offer a full range of home mortgage products. Block
Financial Corporation develops and publishes consumer financial and personal
productivity software, such as Kiplinger TaxCut(R). Quarterly results and other
2
<PAGE> 3
information regarding H&R Block are available on the company's Web site at
www.hrblock.com.
McGladrey & Pullen, LLP is the nation's seventh largest certified
public accounting and consulting firm and among the 40 largest consulting firms
serving American businesses. McGladrey & Pullen serves clients from 63 offices
nationwide and is linked with 82 independently owned CPA firms in the United
States and Puerto Rico through the McGladrey Network. Internationally, McGladrey
& Pullen operates from more than 400 offices in more than 75 countries. More
information is available on the company's web site at www.mcgladrey.com.
###
3
