SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities act of 1934
Date of Report (Date of earliest event reported):
June 25, 1996
PAYCHEX, INC.
(Exact name of Registrant as specified in its charter)
Delaware 0-11330 16-1123166
___________________________________________________________________________
(State or other (Commission (I.R.S. Employer
jurisdiction File No.) Identification
of incorporation) No.)
911 Panorama Trail South Rochester, New York 14625
___________________________________________________________________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (716) 385-6666
______________
N/A
___________________________________________________________________________
(Former name or former address, if changed, since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 25, 1996 Paychex, Inc. ("Paychex"), Paychex Merger Corp., a
wholly owned subsidiary of Paychex, and National Business Solutions, Inc.
("NBS") together with the four shareholders of NBS entered into an Agreement
and Plan of Merger whereby Paychex, through a reverse triangular merger of
Paychex Merger Corp. into NBS, will acquire all of the issued and outstanding
common stock of NBS in exchange for Paychex common stock valued at
approximately $140,000,000. The transaction will be accounted for as a
pooling of interests.
The transaction is subject to receipt of a favorable decision on filings
made under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as well
as any and all approvals required by the Florida Board of Professional
Leasing Companies and the Texas Board of Staff Leasing Services.
ITEM 7. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
(a) The pooling acquisition does not involve a "significant" amount of
assets as defined by Item 2(b)4. However, the following historical
financial statements of National Business Solutions, Inc. and
Affiliates are provided at the option of the Registrant:
a. Audited Consolidated Statements of Income for years
ended December 31, 1995, 1994 and 1993 (unaudited).
b. Audited Consolidated Balance Sheets as of December 31,
1995 and 1994.
c. Audited Consolidated Statements of Cash Flows for years
ended December 31, 1995, 1994 and 1993 (unaudited).
<PAGE>
COMBINED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
NATIONAL BUSINESS SOLUTIONS, INC.
AND AFFILIATES
DECEMBER 31, 1995 AND 1994
<PAGE>
CONTENTS
________
Page
____
Report of Independent Certified Public Accountants 1
Combined Statements of Earnings 2
Combined Balance Sheets 3
Combined Statement of Stockholders' Equity 4
Combined Statements of Cash Flows 5
Notes to Combined Financial Statements 6-13
<PAGE>
Grant Thornton LLP
Suite 3850
101 East Kennedy Blvd.
Tampa, FL 33602-5154
Report of Independent Certified Public Accountants
__________________________________________________
Board of Directors and Stockholders
National Business Solutions, Inc. and Affiliates
We have audited the combined balance sheets of National Business Solutions,
Inc. and Affiliates as of December 31, 1995 and 1994 and the related combined
statements of earnings, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In accordance with your instructions, we did not audit the combined
statements of earnings, stockholders' equity, and cash flows for the year
ended December 31, 1993 and therefore, we express no opinion on them.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of National
Business Solutions, Inc. and Affiliates as of December 31, 1995 and 1994, and
the results of their combined operations and their combined cash flows for
the years then ended in conformity with generally accepted accounting
principles.
April 16, 1996
Tampa, Florida Grant Thornton LLP
<PAGE>
National Business Solutions, Inc. and Affiliates
COMBINED STATEMENTS OF EARNINGS
Year Ended December 31,
<TABLE>
<CAPTION>
1995 1994 1993
______________ ____________ _____________
(Unaudited)
<S> <C> <C> <C>
Revenues $191,896,419 $119,540,685 $86,543,859
Direct Costs:
Salaries and wages of worksite employees 163,395,079 101,560,780 74,891,776
Benefits and payroll taxes 21,682,288 14,173,837 9,296,638
____________ ____________ ___________
Total direct costs 185,077,367 115,734,617 84,188,414
Gross profit 6,819,052 3,806,068 2,355,445
Operating expenses:
Administrative personnel 2,971,835 1,914,774 1,214,708
General and administrative expenses 1,047,183 740,119 501,319
Sales and marketing 487,816 272,754 189,672
Depreciation and amortization 92,050 46,062 32,730
____________ ____________ ___________
Total operating expenses 4,598,884 2,973,709 1,938,429
____________ ____________ ___________
Income from operations 2,220,168 832,359 417,016
____________ ____________ ___________
Other income (expense):
Interest income 219,639 47,328 18,193
Interest expense - - (6,162)
Other, net (24,896) - -
____________ ____________ ____________
Total other income 194,743 47,328 12,031
____________ ____________ ____________
NET EARNINGS $ 2,414,911 $ 879,687 $ 429,047
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
National Business Solutions, Inc. and Affiliates
COMBINED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
ASSETS 1995 1994
______ ___________ ___________
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,517,445 $ 1,698,885
Marketable securities-at market 150,933 35,561
Accounts receivable 5,598,896 3,283,683
Due from stockholders and related party 45,083 108,300
Prepaid expenses 143,043 96,708
___________ ___________
Total current assets 11,455,400 5,223,137
CERTIFICATES OF DEPOSIT AND OTHER ASSETS 268,401 177,945
FURNITURE AND EQUIPMENT, NET 464,231 227,093
___________ ___________
$12,188,032 $ 5,628,175
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
____________________________________
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,744,244 $ 1,288,163
Accrued salaries, wages and payroll taxes 5,498,550 3,091,345
Accrued workers compensation claims 658,455 -
___________ ___________
Total current liabilities 7,901,249 4,379,508
ACCRUED WORKERS COMPENSATION CLAIMS 864,927 -
CUSTOMER DEPOSITS 980,400 535,284
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY 2,441,456 713,383
___________ ___________
$12,188,032 $ 5,628,175
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
National Business Solutions, Inc. and Affiliates
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Unrealized Gain (Loss)
Additional on Marketable
Common Stock Paid-in Securities Retained
Amount Capital Available-for-Sale Earnings Total
____________ __________ ______________________ ________ _____
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 (unaudited) $126,900 $ 3,200 $ - $ 65,406 $ 195,506
Common stock issued (unaudited) 8,000 - - - 8,000
Common stock purchased by
the Company and retired (unaudited) (11,900) - - (85,918) (97,818)
Additional affiliate (unaudited) 20,000 (1,359) - - 18,641
Net earnings for the year (unaudited) - - - 429,047 429,047
Net change in unrealized gain
(losses) in marketable securities
available-for-sale (unaudited) - - 30,135 - 30,135
Distributions to stockholders (unaudited) - - - (133,534) (133,534)
_______ ________ ________ __________ __________
Balance, December 31, 1993 143,000 1,841 30,135 275,001 449,977
Common stock issued 100 - - - 100
Net earnings for year - - - 879,687 879,687
Net change in unrealized gain (losses)
in marketable securities
available-for-sale - - (59,764) - (59,764)
Distributions to Stockholders - - - (556,617) (556,617)
_______ ________ _______ _________ _________
Balance, December 31, 1994 143,100 1,841 (29,629) 598,071 713,383
Common stock issued 2,767 4,816 - - 7,583
Additional affiliate 100 900 - - 1,000
Net earnings for year - - - 2,414,911 2,414,911
Net change in unrealized gain
(losses) in marketable securities
available-for-sale - - 52,502 - 52,502
Distributions to stockholders - - - (747,923) (747,923)
_________ _________ _______ _________ _________
Balance, December 31, 1995 $145,967 $ 7,557 $ 22,873 $2,265,059 $2,441,456
========= ========= ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
National Business Solutions, Inc. and Affiliates
COMBINED STATEMENTS OF CASH FLOWS
Year Ended December 31,
<TABLE>
<CAPTION>
1995 1994 1993
_________ ________ _________
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $2,414,911 $ 879,687 $ 429,047
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 92,050 45,718 32,729
Gain on sale of assets (3,113) - -
Loss on sale of marketable securities 28,009 - -
Stock received from demutualization (90,909) - -
(Increase) decrease in:
Accounts receivable (2,315,213) (1,288,227) (222,488)
Due from stockholders and related party 63,217 (29,509) (78,791)
Prepaid expenses (46,335) (74,754) 68,760
Other assets (1,837) 233,075 (249,815)
Increase (decrease) in:
Accounts payable and accrued expenses 456,079 815,238 29,791
Accrued salaries, wages and payroll taxes 2,407,205 1,549,816 (14,017)
Accrued workers compensation claims 1,523,382 - -
Customer deposits 445,116 125,559 164,360
Due to related party - (105,000) 105,000
__________ ___________ __________
Net cash provided by
operating activities 4,972,562 2,151,603 264,576
__________ ___________ __________
Cash flow from investing activities:
Sale of furniture and equipment 38,500 - -
Sale of marketable securities 37,181 - -
Purchase of furniture and equipment (364,574) (122,419) (81,998)
Purchase of marketable securities and
certificates of deposit (125,769) (147,763) (37,615)
___________ ___________ __________
Net cash used by investing
activities (414,662) (270,182) (119,613)
___________ ___________ __________
<PAGE>
Cash flow from financing activities:
Purchase of common stock subsequently
retired - - (97,818)
Proceeds from issuance of common stock 1,000 100 7,900
Proceeds from promissory note - - 55,362
Payments on promissory note - - (55,362)
Stock options exercised 7,583 - -
Distributions to stockholders (747,923) (556,617) (133,534)
___________ ___________ __________
Net cash used by financing
activities (739,340) (556,517) (223,452)
Net increase (decrease) in cash and cash ___________ ___________ __________
equivalents 3,818,560 1,324,904 (78,489)
Cash and cash equivalents, beginning of year 1,698,885 373,981 452,470
___________ ___________ __________
Cash and cash equivalents, end of year $5,517,445 $1,698,885 $ 373,981
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
National Business Solutions, Inc. and Affiliates
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
_____________________________________________________________________
POLICIES
________
National Business Solutions, Inc. and Affiliates (the Company) are
professional employer organizations ("PEO") engaged primarily in providing
human resource management, benefits and personnel administration services.
In addition, the Company provides employee assistance programs, drug-free
workplace programs, risk management and loss containment services.
The Company provides PEO services to small and medium sized companies in a
variety of industries, including manufacturing, retail, and hospitality. PEO
service contracts with client companies are generally for one year terms with
automatic renewal options and subject to termination on a 60 days' notice by
either party during the first year and annually thereafter.
A summary of the significant accounting policies followed in the preparation
of the accompanying combined financial statements is presented below:
Principles of Combination
_________________________
The accompanying combined financial statements include the accounts of
National Business Solutions, Inc. (NBS) and its affiliates, NBS of America,
Inc., NBS of Central Florida, Inc., NBS of North Florida, Inc., NBS of South
Florida, Inc., and Express Benefits Corporation (See Note 7). All material
intercompany balances and transactions have been eliminated.
Revenue Recognition
___________________
Revenues and related costs of wages, salaries, and employment taxes from
professional employer services related to worksite employees are recognized in
the period in which the employee performs the service. Because the Company is
at risk for all of its direct costs, independently of whether payment is
received from its clients, all amounts billed to clients for these costs are
recognized as revenue by the Company.
Accounts receivable consists primarily of billed receivables of approximately
$1,847,000 and $998,000 and unbilled receivables of approximately $3,752,000
and $2,286,000 at December 31, 1995 and 1994 respectively. Unbilled
receivables represent fees for leased employees which relate to the period
from the last pay period ending date through the financial statement date,
which have not yet been billed and the client matching contribution to the
employee benefit plans (See Note 5). Generally, contractual arrangements
require the Company to be paid one day prior to the pay date of the leased
employees.
<PAGE>
National Business Solutions, Inc. and Affiliates
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES-(continued)
_____________________________________________________________________
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
Cash and Cash Equivalents
_________________________
The Company has defined cash and cash equivalents as those highly liquid
investments with an original maturity of three months or less.
Accounting Estimates
____________________
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
The more significant estimates relate to the Company's reserve for workers
compensation claims. Actual results could differ from those estimates.
Reserve for Workers Compensation Claims
_______________________________________
Prior to 1995, the Company's workers compensation plan was fully insured. In
1995, the Company's workers compensation benefits are provided under a large
deductible insured plan. Since the Company has limited claims loss
experience the Company has elected to record reserves for the deductible
portion of workers compensation claims costs based on the maximum contractual
loss exposure under their workers compensation program. Management believes
that this is a conservative approach and the reserve is adequate to meet its
obligations for the open claims. As historical loss experience becomes
available, the Company will modify its reserve requirements.
Workers compensation claims reserves are established at the time an employee
files a claim. Furthermore, the Company, in determining its reserves,
includes reserves for estimated claims incurred but not reported.
At December 31, 1995, the Company has classified as current the estimated
amounts of reserves established for claims expected to be paid within one
year.
<PAGE>
National Business Solutions, Inc. and Affiliates
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES- (continued)
_____________________________________________________________________
Certificates of Deposit
_______________________
Certificates of deposit with an aggregate balance of $154,829 at December 31,
1994 had been pledged in conjunction with the workers compensation insurance
policy used by the Company. The Company obtained a letter of credit in the
amount of $308,000 in conjunction with the workers compensation policy for
1995. Certificates of deposit with an aggregate balance of $243,448 at
December 31, 1995 have been pledged as collateral for the letter of credit
(See Note 6).
Furniture and Equipment
_______________________
Furniture and equipment are stated at cost. Depreciation is being provided
using the straight-line method over the estimated economic useful lives (5 - 8
years) for financial statement purposes. Accelerated methods are used for
income tax purposes.
Income Taxes
____________
NBS and four affiliates have elected not to be taxable as corporations
pursuant to Subchapter S of the Internal Revenue Code. Income taxes on net
earnings are payable personally by the individual stockholders of the
respective companies. Accordingly, no provision has been recorded for Federal
or State income taxes.
One other affiliate is a taxable corporation under the Internal Revenue Code.
No provision has been recorded for Federal and State income taxes as the
results of operations of this Affiliate is immaterial to the combined
financial statements. In 1993, this affiliate adopted Statement of Financial
Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes", issued
February 1992. Under the liability method specified in SFAS No. 109, deferred
tax assets and liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities as measured by the
enacted tax rates which will be in effect when these differences reverse.
Deferred tax expense (benefit) is the result of changes in deferred tax assets
and liabilities. The change from the Accounting Principles Board (APB) No. 11
to SFAS No. 109 had an immaterial effect on the financial statements.
<PAGE>
Stock Based Compensation
________________________
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation (SFAS 123). SFAS 123, the disclosure provisions of which
must be implemented for fiscal years beginning subsequent to December 15,
1995, establishes a fair value based method of accounting for stock based
compensation plans, the effect of which can either be disclosed or recorded.
The Company will adopt the provisions of SFAS 123 in 1996. Upon adoption, the
Company intends to retain the intrinsic value method of accounting for stock
based compensation, which it currently uses.
<PAGE>
National Business Solutions, Inc. and Affiliates
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES- (continued)
_____________________________________________________________________
Fair Value of Financial Instruments
___________________________________
The Company's financial instruments consist primarily of instruments without
extended maturities whose fair value equals their carrying value.
Supplemental Disclosure of Cash Flow Information
________________________________________________
During 1993 cash paid for interest aggregated $6,162 (unaudited). No cash was
paid for interest during 1995 and 1994.
Reclassifications
_________________
Certain reclassifications have been made to the 1994 and 1993 balances to
conform to the 1995 presentation.
NOTE 2 - MARKETABLE SECURITIES
______________________________
Marketable Securities
_____________________
The Company adopted, effective December 31, 1993, Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", issued in May 1993. The Statement requires
companies to classify investments in marketable equity and in all debt
securities as trading securities, available-for-sale securities, or
held-to-maturity securities.
<TABLE>
<CAPITON>
Marketable securities consist of the following:
1995 1994
____ ____
<C> <C>
<S>
Available for sale securities:
Investments in common stocks 150,933 35,561
________ _______
$150,933 $35,561
======== =======
</TABLE>
Unrealized (loss)/gain of $22,873 and $(29,629) at December 31, 1995 and 1994
respectively, relate to available-for-sale securities and have been recorded
in the stockholders' equity section of the accompanying combined balance sheet.
<PAGE>
National Business Solutions, Inc. and Affiliates
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
NOTE 3 - FURNITURE AND EQUIPMENT
________________________________
<TABLE>
<CAPTION>
Furniture and equipment consist of the following:
1995 1994
____ ____
<S> <C> <C>
Computer hardware and software $353,099 $173,827
Furniture, fixtures and leasehold improvements 285,595 151,708
________ ________
638,694 325,535
Less: accumulated depreciation (174,463) (98,442)
________ ________
$464,231 $227,093
======== ========
</TABLE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES
______________________________________
Operating Leases
________________
The Company leases their office facilities and certain equipment under
operating leases, which expire at various times from 1996 through 2001.
<TABLE>
<CAPTION>
Future minimum lease payments under these operating leases are as follows:
Less Net
Gross Sublease Lease
_____ ________ _____
<S> <C> <C> <C>
1996 $ 434,739 $ (91,666) $ 343,073
1997 455,393 (96,766) 358,627
1998 459,100 (96,766) 362,334
1999 369,954 (8,064) 361,890
2000 309,388 - 309,388
Thereafter 13,361 - 13,361
__________ _________ __________
$2,041,935 $(293,262) $1,748,673
</TABLE>
The leases provide for payment of taxes and other expenses by the Company.
Rent expense was $197,000, $127,000 and $89,000 (unaudited) for the three
years ended December 31, 1995, 1994 and 1993 respectively.
<PAGE>
National Business Solutions, Inc. and Affiliates
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)
__________________________________________________
Workers Compensation Reserves
_____________________________
During 1995, the Company entered into a workers compensation insurance policy
whereby the maximum individual claims exposure is $350,000 and the aggregate
claims exposure is limited to a percentage of workers compensation payroll.
The Company estimates this will result in a maximum liability of $1,523,382
when they are ultimately resolved. The Company believes this reserve is
sufficient to meet its obligations for the open claims. The Company
estimates that approximately $658,455 of the reserves will be paid out in 1996
and the remaining $864,927 is recorded as a long-term liability at December
31, 1995.
NOTE 5 - EMPLOYEE BENEFIT PLANS
_______________________________
The Company sponsors and administrates two 401(k) plans and one money purchase
plan on behalf of its employees. Such plans cover substantially all full-time
employees over age 21 with at least one year of service. Employees are
entitled to make contributions to the 401(k) plans on a before-tax basis under
the salary reduction provisions of the plans. The Company, (in effect, the
Company's clients) at their discretion, may contribute a matching contribution
on behalf of each participant for whom an elective contribution was made
during the plan year. Contributions by the Company totaled approximately
$867,000, $690,000 and $240,000 (unaudited) in the years ended December 31,
1995, 1994 and 1993.
NOTE 6 - SUBSEQUENT EVENT
_________________________
The Company issued a letter of credit in January 1996 in the amount of
$650,000 in conjunction with the workers compensation insurance policy for
1996. A certificate of deposit totaling $650,000 has been pledged as
collateral for this letter of credit (See Note 1).
<PAGE>
National Business Solutions, Inc. and Affiliates
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
NOTE 7 - STOCKHOLDERS' EQUITY
_____________________________
<TABLE>
<CAPTION>
Common Stock Shares NBS of NBS of Express NBS of NBS of
Central America Benefits North South
NBS Florida Inc. Corporation Florida Florida
$1 par value $1 par value $1 par value $1 par value $1 par value $1 par value
200,000 shares 200,000 shares 20,000 shares 1,000 shares 1,000 shares 1,000 shares
authorized authorized authorized authorized authorized authorized
______________ ______________ _______________ ______________ ______________ ______________
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 63,900 63,000 - - - -
(unaudited)
Common stock issued 7,900 - - 100 - -
(unaudited)
Common stock purchased
by the Company and
retired (unaudited) (11,900) - - - - -
Acquisition of entity
in 1993 (unaudited) - - 20,000 - - -
______ ______ ______ ______ ______ ______
Balance, December 31, 1993 59,900 63,000 20,000 - - -
Common stock issued - - - - 100 -
______ ______ ______ ______ ______ ______
Balance, December 31, 1994 59,900 63,000 20,000 100 100 -
Common stock issued 2,767 - - - - 100
______ ______ ______ ______ ______ ______
Balance, December 31, 1995 62,667 63,000 20,000 100 100 100
====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
National Business Solutions, Inc. and Affiliates
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
NOTE 7 - STOCKHOLDERS' EQUITY - (Continued)
___________________________________________
Incentive Stock Option Plan
___________________________
In 1992, NBS adopted an Incentive Stock Option plan pursuant to Section 422
of the Internal Revenue Code. Under the plan, the maximum aggregate number
of shares which may be awarded is 15,000. The option price per share shall
never be less than the fair market value of NBS' common stock at the grant
date. In the case of an individual who owns 10% or more of NBS' common
stock, the option price shall be a minimum of 110% of the fair market value
on the date of the grant. Options granted vest equally over a three-year
period. The current options outstanding expire in February 1997.
A summary of options is as follows:
<TABLE>
<CAPTION>
Exercise
# of Shares Price Per Share
___________ _______________
<S> <C> <C>
Options outstanding at, January 1, 1993 10,000 $1.00
(unaudited)
Granted (unaudited) 1,000 8.22
Exercised (unaudited) (7,900) (1.00)
______
Options outstanding at, December 31, 1993 3,100 1.00-8.22
Granted - -
Exercised - -
______ _________
Options outstanding at, December 31, 1994 3,100 1.00-8.22
Exercised (2,767) 1.00-8.22
_____
Options outstanding at, December 31, 1995 333 8.22
====== =========
</TABLE>
<PAGE>
(b) Pro Forma Financial Information
Since the transaction does not involve the acquisition of a significant
amount of assets, no Pro Forma financial information are provided with the
filing.
(c) Exhibits
2. Agreement and Plan of Merger with Exhibit C-1 attached.
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.
Dated: July 9, 1996
PAYCHEX, INC.
By: /s/ G. Thomas Clark
________________________
G. Thomas Clark, Senior Vice President
of Finance
AGREEMENT AND PLAN OF MERGER
By and Among
PAYCHEX, INC.
PAYCHEX MERGER CORP.
NATIONAL BUSINESS SOLUTIONS, INC.
STUART G. LASHER
STEVEN M. ESRICK
GLENN H. SINGER
and
ROBERT P. BAERWALDE, JR.
dated
June 25, 1996
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions 2
2. Basic Transaction 6
(a) The Merger 6
(b) The Closing 6
(c) Actions at the Closing 7
(d) Effect of Merger 8
(e) Share Consideration, Conversion
or Cancellation of Shares in the Merger 8
(f) Procedure for Payment 9
(g) Closing of NBS Transfer Records 9
(h) Registration 9
3. Representations and Warranties Concerning the Transaction 9
(a) Representations and Warranties of the Shareholders 9
(b) Representations and Warranties of Paychex and Paychex
Merger Corp 11
4. Representations and Warranties Concerning NBS
and the Affiliated Companies 13
(a) Organization, Qualification, and Corporate Power 13
(b) Capitalization 13
(c) Noncontravention 14
(d) Brokers' Fees 14
(e) Title to Assets 14
(f) Subsidiaries and Affiliated Companies 14
(g) Financial Statements 15
(h) Events Subsequent to Most Recent Fiscal Year End 15
(i) Undisclosed Liabilities 17
(j) Legal Compliance 17
(k) Tax Matters 18
(l) Real Property 19
(m) Intellectual Property 21
(n) Tangible Assets 23
(o) Reserved 23
(p) Contracts 23
(q) Notes and Accounts Receivable 24
(r) Powers of Attorney 24
(s) Insurance 24
(t) Litigation 25
(u) Employee Claims 25
(v) Client Claims 25
(w) Employees 25
(x) Employee Benefits 25
(y) Guaranties 28
(z) Environment, Health, and Safety 28
(aa) Certain Business Relationships with NBS
and the Affiliated Companies 29
(ab) Disclosure 29
(ac) Intent 29
(ad) Continuity of Business Enterprise 29
5. Pre-Closing Covenants 29
(a) General 30
(b) Notices and Consents 30
(c) Operation of business/S Corporation Distributions 30
(d) Preservation of Business 30
(e) Full Access 30
(f) Notice of Developments 31
(g) Exclusivity 31
(h) Share Exchanges 31
(i) Termination of Agreements 31
(j) Payment of Amounts Owed 32
6. Post-Closing Covenants 32
(a) General 32
(b) Litigation Support 32
(c) Transition 32
(d) Taxes 33
(e) Confidentiality 33
(f) Covenants Not to Compete 34
(g) Paychex Shares 34
6.A. Pooling, Covenants and Representation 35
7. Conditions to Obligation to Close 36
(a) Conditions to Obligation of Paychex and Paychex Merger Corp. 36
(b) Conditions to Obligation of NBS and the Shareholders 37
8. Remedies for Breaches of This Agreement 38
(a) Survival of Representations and Warranties/Limitations
of Adverse Consequences 38
(b) Indemnification Provisions for Benefit of Paychex 38
(c) Indemnification Provisions for Benefit of the Shareholders 38
(d) Matters Involving Third Parties 41
(e) Notice 42
(f) Other Indemnification Provisions 42
9. Termination 42
(a) Termination of Agreement 42
(b) Effect of Termination 43
10. Miscellaneous 43
(a) Nature of Certain Obligtions 43
<PAGE>
(b) Press Releases and Public Announcements 43
(c) No Third-Party Beneficiaries 43
(d) Entire Agreement 43
(e) Succession and Assignment 43
(f) Counterparts 44
(g) Headings 44
(h) Notices 44
(i) Governing Law 45
(j) Amendments and Waivers 45
(k) Severability 45
(l) Expenses 45
(m) Construction 45
(n) Gender 46
(o) Incorporation of Exhibits, Annexes, and Schedules 46
(p) Specific Performance 46
(q) Submission to Jurisdiction 46
<PAGE>
TABLE OF EXHIBITS, ANNEXES AND SCHEDULES
Exhibit A - Delaware Certificate of Merger
Exhibit B - Florida Articles of Merger
Exhibit C-1 - Registration Agreement
Exhibit C-2 - Non-Distribution Letter
Exhibit D - Financial Statements
Exhibit E - Form of Opinion of Counsel to NBS, the
Affiliated Companies and the Shareholders
Exhibit F - Form of Opinion of Counsel to Paychex
Exhibit G - Form of Release
Annex I - Exceptions to the Shareholders' Represetations
and Warranties Concerning the Transaction
Annex II - Exceptions to Paychex' and Paychex Merger
Corp.'s Representations and Warranties
Concerning the Transaction Disclosure
Disclosure
Schedule - Exceptions to Representations and Warranties
Concerning NBS and the Affiliated Companies
Schedule RA - Initial Ownership of NBS Common Stock
Schedule RB - Ownership of Affiliated Companies' Common Stock
Schedule RD - Ownership of NBS Common Stock Immediately Prior
to the Merger
AGREEMENT AND PLAN OF MERGER
MADE as of June 25, 1996, by and among PAYCHEX, INC., a Delaware corporation
("Paychex"), PAYCHEX MERGER CORP., a Delaware corporation and a wholly owned
subsidiary of Paychex ("Paychex Merger Corp."), NATIONAL BUSINESS SOLUTIONS,
INC., a Florida corporation ("NBS"), STUART G. LASHER, STEVEN M. ESRICK,
GLENN H. SINGER, and ROBERT P. BAERWALDE, JR. The individual signatories are
sometimes referred to individually as a "Shareholder" and, collectively, as
the "Shareholders." Paychex, Paychex Merger Corp., NBS, and the Shareholders
are sometimes referred to individually as a "Party" and, collectively, as the
"Parties.
R E C I T A L S:
A. The Shareholders in the aggregate own all of the issued and
outstanding shares of capital stock of NBS, which consists of 63,000 shares
of $1.00 par value common stock. Each Shareholder owns the number of shares
of NBS Common Stock set forth in Schedule RA attached to this
Agreement.
B. The Shareholders in the aggregate own all of the issued and
outstanding shares of capital stock of (i) NBS of America, Inc., (ii) NBS of
North Florida, Inc., (iii) NBS of Central Florida, Inc., (iv) NBS of South
Florida, Inc. and (v) NBS Express Benefits Corporation (individually an
"Affiliated Company" and collectively the "Affiliated Companies"). Each
Shareholder owns the number of shares of capital stock of each of the
Affiliated Companies set forth in Schedule RB attached to this Agreement.
C. This Agreement contemplates a transaction in which Paychex will
acquire all of the issued and outstanding NBS Shares through a reverse
triangular merger of Paychex Merger Corp. with and into NBS, which merger
shall constitute a reorganization pursuant to the provisions of Section
368(a)(1)(A) of the Code. The Shareholders will receive capital stock in
Paychex in exchange for their capital stock in NBS.
D. This Agreement also contemplates five transactions in which
immediately prior to the transaction described in Recital C, NBS will acquire
all of the issued and outstanding shares of each Affiliated Company through a
stock exchange with the shareholders of each Affiliated Company which shall
constitute a reorganization pursuant to the provisions of Section
368(a)(1)(B) of the Code (the "Share Exchange Transactions"). Each
Shareholder, as a result of the Share Exchange Transactions, will own the
number of shares of NBS Common Stock set forth in Schedule RD attached to
this Agreement.
<PAGE>
E. The Parties expect that the reorganization will further certain of
their business objectives including, without limitation, expanding the
business of NBS and the Affiliated Companies and providing Paychex with
business and experience in the professional employer organization ("PEO")
business and other employment-related services businesses.
F. Each of the Shareholders has been actively engaged in the management
of NBS and the Affiliated Companies, has developed or acquired numerous trade
secrets and valuable confidential business information that is not generally
known in the PEO business, has developed substantial relationships with
existing or prospective clients as well as providers of products and services
used or proposed to be used in the business of NBS and the Affiliated
Companies and has developed for NBS and the Affiliated Companies substantial
client goodwill, all of which belong to NBS and the Affiliated Companies and
all of which Paychex as a result of the Merger expects to acquire and own to
the exclusion of all others. To assure Paychex of that, each of the
Shareholders is willing to continue in the employ of NBS and the Affiliated
Companies and agree not to compete therewith in the event of the termination
of employment.
P R O V I S I O N S:
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. Definitions.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Company" and "Affiliated Companies" have the meaning set
forth in Recital B above.
<PAGE>
"Affiliated Group" means any affiliated group within the meaning of
Code Sec. 1504 (or any similar group defined under a similar provision of
state, local or foreign law).
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Closing" has the meaning set forth in 2(b) below.
"Closing Date" has the meaning set forth in 2(b) below.
"Closing Price" means, on any day, the last reported sale price of one
share of Paychex Common Stock on NASDAQ.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
businesses and affairs of NBS and the Affiliated Companies that is not already
generally available to the public.
"Controlled Group of Corporations" has the meaning set forth in Code Sec.
1563.
"Corporate Employee" means all employees of NBS and/or the Affiliated
Companies other than those employees for whom NBS's clients are co-employers.
"Deferred Intercompany Transaction" has the meaning set forth in Treas.
Reg. 1.1502-13.
"Delaware Certificate of Merger" has the meaning set forth in 2(c) below.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
"Difference" has the meaning set forth in 8(b)(ii)(A) below.
"Disclosure Schedule" has the meaning set forth in 4 below.
"Effective Time" has the meaning set forth in 2(d) below.
"Employee" means both the work-site employees for whom NBS and/or the
Affiliated Companies are co-employer with the worksite employers and the
Corporate Employees for whom NBS is the sole employer, unless otherwise
specified.
<PAGE>
"Employee Benefit Plan" means any (a) non-qualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan,
(b) qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan
or arrangement which is an Employee Pension Benefit Plan (including any
Multi-employer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"Environmental, Health and Safety Laws, means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings,
and charges thereunder) of federal, state, local and foreign governments (and
all agencies thereof) concerning pollution or protection of the environment,
public health and safety, or employee health and safety, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic
materials or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or
wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Ratio" has the meaning set forth in 2(e) below.
"Extremely Hazardous Substance" has the meaning set forth in Sec. 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Family Members" means any member of the immediate family of a
Shareholder.
"Family Member Affiliates" means any trust or estate in which Family
Members or Shareholders have a substantial beneficial interest or any
corporation or organization of which Family Members or Shareholders are an
executive officer, partner or director or have beneficial ownership of 10% or
more of any class of equity.
<PAGE>
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"Financial Statements" has the meaning set forth in 4(g) below.
"Florida Articles of Merger" has the meaning set forth in 2(c) below.
"Florida Business Corporation Act" means Title XXXVI, Chapter 607 of the
Florida Statutes, as amended.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvement
Act of 1976, as amended.
"Indemnified Party" has the meaning set forth in 8(e) below.
"Indemnifying Party" has the meaning set forth in 8(e) below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuation-in-part, revisions,
extensions, and reexaminations thereof, (b) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with all
translations, adaptations, derivations, and combinations thereof and including
all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith, (c) all copyrightable works, all copyrights,
and all applications, registrations, and renewals in connection therewith, (d)
all mask works and all applications, registrations, and renewals in connection
therewith, (e) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data,
designs, drawings, specifications, customer and supplier lists, pricing and
cost information, and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all other
proprietary rights, and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
<PAGE>
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Merger" has the meaning set forth in 2(a) below.
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in 4(g)
below.
"Most Recent Fiscal Year End" has the meaning set forth in 4(g) below.
"Most Recent Fiscal Month End" has the meaning set forth in 4(g) below.
"Multi-employer Plan" has the meaning set forth in ERISA Sec. 3(37).
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"NBS" has the meaning set forth in the preface above.
"NBS Common Stock" means any share of the common stock, $1.00 par value
per share, of NBS.
"NBS Share" means any share of NBS Common Stock.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"Party" and "Parties" have the meaning set forth in the preface above.
"Paychex" has the meaning set forth in the preface above.
"Paychex Closing Price" means the average closing price of a Paychex
Share as quoted on NASDAQ for the 15 NASDAQ trading days which end on (i) June
17, 1996 if this Agreement is signed on or before June 26, 1996 or (ii) the
fifth NASDAQ trading day prior to the date of this Agreement if this Agreement
is signed after June 26, 1996.
<PAGE>
"Paychex Common Stock" and "Paychex Share" mean any share of the common
stock, $.01 par value per share, of Paychex.
"Paychex Merger Corp." has the meaning set forth in the preface above.
"Paychex Merger Corp. Share" means any share of the no par value common
stock of Paychex Merger Corp.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Product" has the meaning set forth in 8(b)(ii)(A) below.
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and
Code Sec. 4975.
"Pro-Rata" means pro-rata based on the Shareholders' respective holdings
of NBS Shares at Closing as set forth in 4(b) of the Disclosure Schedule.
"Reportable Event" has the meaning set forth in ERISA Sec. 4003.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
"Share Exchange Transactions" has the meaning set forth in Recital D
above.
"Shareholder" and "Shareholders" have the meaning set forth in the
preface above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has
the power to vote or direct the voting of sufficient securities to elect a
majority of the directors.
<PAGE>
"Surviving Corporation" has the meaning set forth in 2(a) below.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in 8(e) below.
"Worksite Employees" means those employees of NBS and/or the Affiliated
Companies for whom NBS's clients are co-employers.
"Worksite Employer" means any client of NBS and/or the Affiliated
Companies who is co-employer of Worksite Employees.
2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, Paychex Merger Corp. will merge with and into NBS (the "Merger") at
the Effective Time. NBS shall be the corporation surviving the Merger (the
"Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Schifino &
Fleischer, P.A., One Tampa City Center, Suite 2700, 201 North Franklin Street,
Tampa, Florida 33602 commencing at 9:00 a.m. local time on the third business
day following the satisfaction or waiver of all conditions to the obligations
of the Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as the Parties may mutually determine (the
"Closing Date").
<PAGE>
(c) Actions at the Closing. At the Closing, (i) NBS will deliver
to Paychex and Paychex Merger Corp. the various certificates, instruments, and
documents referred to in 7(a) below, (ii) Paychex and Paychex Merger Corp.
will deliver to NBS the various certificates, instruments, and documents
referred to in 7(b) below, (iii) Paychex Merger Corp. and NBS will file with
the Secretary of State of the State of Delaware a Certificate of Merger in the
form attached hereto as Exhibit A (the "Delaware Certificate of Merger"),
together with such documents as may be necessary to obtain tax clearance, (iv)
Paychex Merger Corp. and NBS will file with the Secretary of State of the
State of Florida Articles of Merger in the form attached hereto as Exhibit B
(the "Florida Articles of Merger"), (v) the Shareholders will deliver to
Paychex the certificates representing all of the NBS Shares held by them, and
(vi) Paychex and Paychex Merger Corp. shall deliver to the Shareholders in the
manner provided below in this 2 the certificates evidencing Paychex Shares
issued in the Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective on the date and
at the time (the "Effective Time") that the Delaware Certificate of Merger
shall have been filed by the Delaware Secretary of State, and the Florida
Articles of Merger shall have been filed by the Florida Secretary of State (or
such later date and time as may be specified in either the Delaware
Certificate of Merger or the Florida Articles of Merger). The Merger shall
have the effect set forth in the Delaware General Corporation Law and the
Florida Business Corporation Act. The Surviving Corporation may, at any time
after the Effective Time, take any action (including executing and delivering
any document) in the name and on behalf of either Paychex Merger Corp. or NBS
in order to carry out and effectuate the transactions contemplated by this
Agreement.
(ii) Articles of Incorporation. The Articles of Incorporation
of the Surviving Corporation shall be amended at and as of the Effective Time
as set forth in Exhibit B, the Florida Articles of Merger.
(iii) Bylaws. The Bylaws of the Surviving Corporation
shall be restated at and as of the Effective Time to read as
did the Bylaws of Paychex Merger Corp. immediately prior to
the Effective Time.
(iv) Directors and Officers. The director of Paychex Merger
Corp. in office at and as of the Effective Time shall, from and after the
Effective Time, be the director of the Surviving Corporation and Stuart G.
Lasher and Steven M. Esrick shall be the officers of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified. Notwithstanding the foregoing, neither Stuart G. Lasher nor Steven
M. Esrick shall be deemed officers of Paychex. As officers of the Surviving
Corporation, Stuart G. Lasher and Steven M. Esrick shall be entitled to
indemnification by that corporation to the full extent allowed by Florida law.
<PAGE>
(e) Share Consideration; Conversion or Cancellation of Shares in the
Merger.
(i) Subject to the provisions of this Section 2(e), at the
Effective Time, by virtue of the Merger and without any action on the part of
the holders thereof, the NBS Shares shall be converted as follows:
(A) Each NBS Share issued and outstanding immediately prior
to the Effective Time shall be converted into the right to receive and become
exchangeable for that number of shares of Paychex Common Stock equal to the
product resulting from (x) the quotient of $140,000,000 divided by the Paychex
Closing Price, times (y) the quotient of 1 divided by the number of NBS Shares
issued and outstanding immediately prior to the Effective Time (the "Exchange
Ratio").
If, prior to the Effective Time, Paychex should split or
combine the Paychex Common Stock, or pay a stock dividend or other stock
distribution in Paychex Common Stock, or otherwise change the Paychex Common
Stock into any other securities, or make any other dividend or distribution on
the Paychex Common Stock (other than normal quarterly cash dividends as the
same may be adjusted from time to time in the ordinary course), or establish a
record date prior to the Effective Time with respect to any of the foregoing,
then the Exchange Ratio will be appropriately adjusted to reflect such split,
combination, dividend or other distribution or change.
(B) The outstanding Paychex Merger Corp. Shares shall not be
changed or converted as a result of the Merger and shall, at the Effective
Time, be the only issued and outstanding capital stock of the Surviving
Corporation.
(f) Procedure for Payment.
(i) Promptly after the Effective Time, (A) Paychex will cause
Paychex Merger Corp. to furnish to each Shareholder a stock certificate
representing that number of Paychex Shares equal to the product of (I) the
Exchange Ratio times (II) the number of outstanding NBS Shares held by such
NBS Shareholder, and (B) each Shareholder shall deliver to Paychex the
certificates which represented his NBS Shares.
(ii) No fractional Paychex Shares shall be issued in the Merger.
In lieu of any such fractional securities, each Shareholder who would
otherwise have been entitled to a fraction of a Paychex Share upon surrender
of the certificates for exchange pursuant to this Section 2 will be paid an
amount in cash (without interest) equal to the product of the said fraction
and the Paychex Closing Price.
(iii) Paychex will not pay any dividend or make any distribution
on Paychex Shares (with a record date at or after the Effective Time) to any
record holder of outstanding NBS Shares until the holder surrenders for
exchange his or its certificates which represented NBS Shares.
(g) Closing of NBS Transfer Records. After the close of business on
the Closing Date, transfers of NBS Shares outstanding shall not be made on the
stock transfer books of the Surviving Corporation.
(h) Registration. At Closing, Paychex and the Shareholders shall
execute a Registration Agreement in the form of Exhibit C-1 attached to this
Agreement.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Shareholders. Each of the
Shareholders represents and warrants to Paychex and Paychex Merger Corp. that
the statements contained in this 3(a) are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this 3(a)) with respect to himself, except as set
forth in Annex I attached hereto.
(i) Authorization of Transaction. The Shareholder has full
power and authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Shareholder, enforceable in accordance with its
terms and conditions. The Shareholder need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
<PAGE>
(ii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which the Shareholder is
subject, or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Shareholder is a party or by which he is bound or to which any of his
assets is subject.
(iii) Brokers' Fees. The Shareholder has no Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which either
Paychex or Paychex Merger Corp. could become liable or obligated.
(iv) Investment. The Shareholder (A) is acquiring Paychex
Shares solely for his own account for investment purposes, and not with a view
to the distribution or resale thereof, (B) is a sophisticated investor with
knowledge and experience in business and financial matters, (C) has received
certain information concerning Paychex and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the
risks inherent in holding Paychex Shares, and (D) agrees to indemnify Paychex
and Paychex Merger Corp. against any Adverse Consequences which shall arise as
a result of a sale or distribution of such shares by him in violation of the
Securities Act, and agrees to deliver on the Closing Date separate letters to
that effect (substantially in the form of Exhibit C-2 attached hereto).
(v) NBS Shares and Shares of Affiliated Companies. The
Shareholder holds of record and owns beneficially the number of NBS Shares set
forth next to his name in Schedule RA attached to this Agreement and the
number of Shares of the Affiliated Companies set forth in Schedule RB attached
to this Agreement; and, prior to Closing, will hold of record and own
beneficially the number of NBS Shares set forth next to his name in Schedule
RD attached to this Agreement and in 4(b) of the Disclosure Schedule, in each
case free and clear of any mortgages, pledges, liens, encumbrances, charges,
restrictions on transfer (other than any restrictions under the Securities Act
and state securities laws), Taxes, Security Interests, options, warrants,
<PAGE>
purchase rights, contracts, commitments, equities, claims, and demands. The
Shareholders together own all of the issued and outstanding NBS Shares, and
Shares of the Affiliated Companies, the total number of which is set forth in
the respective Schedules and in 4(b) of the Disclosure Schedule. The
Shareholder is not a party to any option, warrant, purchase right, or other
contract or commitment (other than this Agreement and the agreements relating
to the Share Exchange Transactions) that could require the Shareholder to
sell, transfer, or otherwise dispose of any capital stock of NBS or any
Affiliated Company. The Shareholder is not a party to any voting trust,
proxy, or other agreement or understanding with respect to the voting of any
capital stock of NBS or any Affiliated Company.
(vi) Share Ownership. The Shareholder beneficially owns no
Paychex Shares other than those it receives pursuant to the Merger.
(b) Representations and Warranties of Paychex and Paychex Merger Corp.
Paychex and Paychex Merger Corp. represent and warrant to the Shareholders
that the statements contained in this 3(b) are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this 3(b)), except as set forth in Annex II
attached hereto.
(i) Organization of Paychex and Paychex Merger Corp. Paychex
and Paychex Merger Corp. are corporations duly organized, validly existing,
and in good standing under the laws of the jurisdiction of their
incorporation.
(ii) Authorization of Transaction. Paychex and Paychex Merger
Corp. each have full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of both Paychex and Paychex Merger Corp., enforceable in
accordance with its terms and conditions. Except for (i) filing under the
Hart-Scott-Rodino Act, and (ii) approval of Paychex as owner of NBS by the
Florida Board of Professional Leasing Companies and the Texas Board of Staff
Leasing Services, neither Paychex nor Paychex Merger Corp. need to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
<PAGE>
(iii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which Paychex or Paychex
Merger Corp. or both are subject or any provision of either's charter or
bylaws or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
Paychex or Paychex Merger Corp. or both is a party or by which either or both
is bound or to which any of either's assets is subject.
(iv) Brokers' Fees. Neither Paychex nor Paychex Merger Corp.
has any Liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this
Agreement for which any NBS Shareholder could become liable or obligated.
(v) Investment. Paychex is not acquiring the NBS Shares with a
view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.
(vi) Paychex Shares. The Paychex Shares to be issued to the
Shareholders pursuant to the Merger, when issued in accordance with the terms
of this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable.
(vii) Reports to SEC. Paychex has heretofore delivered to the
Shareholders true and complete copies of Paychex' Annual Report on Form 10-K
for the fiscal year ended May 31, 1995, its Current Reports on Form 10-Q for
the fiscal quarters ended August 31, 1995, November 30, 1995 and February 29,
1996 and all other documents required to be filed by Paychex with the
Securities and Exchange Commission ("SEC") during the period from May 31, 1995
through the date hereof (collectively, the "SEC Reports"). The SEC Reports
did not, on their respective dates of filing, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. Paychex has filed on a timely
basis all documents required to be filed by it with the SEC and all such
documents complied as to form with the applicable requirements of law; and
Paychex has, since May 31, 1995, complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as applicable, and the
applicable rules and regulations of the SEC thereunder. Since May 31, 1995,
all material agreements, contracts and other documents required to be filed as
exhibits to any of the SEC Documents have been so filed; and the consolidated
financial statements contained in the Paychex SEC documents were prepared in
accordance with U.S. generally accepted accounting principles applied on a
consistent basis during the periods involved and fairly present the
consolidated financial position of Paychex and its consolidated subsidiaries
as at the dates indicated and the consolidated results of operations and
consolidated cash flows of Paychex and its consolidated subsidiaries for the
periods then ended, except as indicated in the notes thereto.
<PAGE>
(viii) No Material Adverse Change. Since the date of its last
Current Report to the SEC (10-Q for period ended February 29, 1996), there has
not been any material adverse change (whether or not in the ordinary course of
business) in the business, financial condition or results of operation of
Paychex or any damage, destruction or loss, whether or not covered by
insurance, materially effecting the assets, property or business of Paychex.
(ix) Disclosure. The representations and warranties contained
in this 3(b) do not contain any untrue statements of fact or omit to state any
fact necessary in order to make the statements and information contained in
this 3(b) not misleading.
4. Representations and Warranties Concerning NBS and the Affiliated
Companies. NBS and each Shareholder represents and warrants to Paychex and
Paychex Merger Corp. that the statements contained in this 4 are correct and
complete as of the date of this Agreement and will be correct and complete as
of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this 4), except as set
forth in the disclosure schedule delivered by NBS and the Shareholders to
Paychex and Paychex Merger Corp. on the date hereof and initialed by the
Parties (the "Disclosure Schedule"). Nothing in the Disclosure Schedule shall
be deemed adequate to disclose an exception to a representation or warranty
made herein, however, unless the Disclosure Schedule identifies the exception
with particularity and describes the relevant facts in detail. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or
other item itself). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraph contained in this 4.
<PAGE>
(a) Organization, Qualification, and Corporate Power. Each of NBS and
the Affiliated Companies is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation.
Each of NBS and the Affiliated Companies is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where
such qualification is required. Except where failure to qualify will not have
a material adverse effect on the business or properties of NBS or the
Affiliated Companies, each such jurisdiction is listed in 4(a) of the
Disclosure Schedule. Except where failure to obtain them would not have a
material adverse effect on their business or properties, each of NBS and the
Affiliated Companies has full corporate power and authority and all licenses,
permits, and authorizations necessary to carry on the businesses in which it
is engaged and in which it presently proposes to engage and to own and use the
properties owned and used by it; and each of NBS and the Affiliated Companies
is subject to no order, complaint, proceeding or investigation pending or
threatened which would be reasonably expected to affect the validity of any
such licenses, permits or authorizations or impair the renewal thereof. 4(a)
of the Disclosure Schedule lists the directors and officers of each of NBS and
the Affiliated Companies. The Shareholders have delivered to Paychex and
Paychex Merger Corp. correct and complete copies of the charter and bylaws of
each of NBS and the Affiliated Companies (as amended to date). The minute
books, stock certificate books and stock record books of NBS and the
Affiliated Companies are correct and complete and accurately reflect all
matters which are required to be set forth therein. None of NBS and the
Affiliated Companies is in default under or in violation of any provision of
its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of NBS
consists of 200,000 NBS Shares of which 63,000 are issued and outstanding and
no NBS Shares are held in treasury. All of the issued and outstanding NBS
Shares have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by the respective Shareholders as set
forth in 4(b) of the Disclosure Schedule. After consummation of the five
share exchanges referred to in Recital D above, the number of issued and
outstanding NBS Shares shall be as set forth in Schedule RD attached to this
Agreement, and the NBS Shares shall be held of record by the respective
Shareholders as separately set forth in 4(b) of the Disclosure Schedule.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require any of NBS and the Affiliated Companies to
issue, sell, or otherwise cause to become outstanding any of its capital
stock, other than those set forth in 4(b) of the Disclosure Schedule. There
are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to NBS. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of NBS.
<PAGE>
(c) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which any of NBS and the
Affiliated Companies is subject or any provision of the charter or bylaws of
any of NBS and the Affiliated Companies; or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument, or other
arrangement to which any of NBS and the Affiliated Companies is a party or by
which it is bound or to which any of its assets is subject (or result in the
imposition of any Security Interest upon any of its assets). None of NBS and
the Affiliated Companies need to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
(d) Brokers' Fees. None of NBS and the Affiliated Companies has any
Liability or obligation to pay any fees or commissions to any broker, finder,
or agent with respect to the transactions contemplated by this Agreement.
(e) Title to Assets. NBS and the Affiliated Companies have good and
marketable title to, or a valid leasehold interest in, the properties and
assets used by it, located on its premises, or shown on the Most Recent
Balance Sheet or acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance Sheet.
(f) Subsidiaries and Affiliated Companies. Neither NBS nor any of
the Affiliated Companies has any subsidiaries. 4(f) of the Disclosure
Schedule sets forth for each Affiliated Company (i) its name and jurisdiction
of incorporation, (ii) the number of shares of authorized capital stock of
each class of its capital stock, (iii) the number of issued and outstanding
shares of each class of its capital stock, the names of the holders thereof,
and the number of shares held by each such holder, and (iv) the number of
shares of its capital stock held in treasury. All of the issued and
outstanding shares of capital stock of each of the Affiliated Companies have
been duly authorized and are validly issued, fully paid, and nonassessable.
The Shareholders hold of record and own beneficially all of the outstanding
shares of each of the Affiliated Companies, free and clear of any restrictions
on transfer (other than restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. There are no
<PAGE>
outstanding or authorized options, warrants, purchase rights, conversion
rights, exchange rights, or other contracts or commitments that could require
any of NBS and the Affiliated Companies or the Shareholders to sell, transfer,
or otherwise dispose of any capital stock of any of the Affiliated Companies
or that could require any of the Affiliated Companies to issue, sell, or
otherwise cause to become outstanding any of its own capital stock. There are
no outstanding stock appreciation, phantom stock, profit participation, or
similar rights with respect to any of the Affiliated Companies. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of any capital stock of any of NBS and the Shareholders. None of
NBS and the Shareholders controls directly or indirectly or has any direct or
indirect equity participation in any corporation, partnership, trust, or other
business association which is not an Affiliated Company.
(g) Financial Statements. Attached hereto as Exhibit D are the
following financial statements (collectively the "Financial Statements"): (i)
audited combined balance sheets and statements of earnings, combined
statements of changes in stockholders' equity, and combined statements of cash
flow as of and for the fiscal years ended December 31, 1994 and December 31,
1995, (the "Most Recent Fiscal Year End") for NBS and the Affiliated
Companies; and (ii) unaudited combined balance sheet and combined statement of
earnings, combined statement of cash flow (the "Most Recent Financial
Statements") as of and for the four months ended April 30, 1996 (the "Most
Recent Fiscal Month End") for NBS and the Affiliated Companies. The Financial
Statements (including the notes thereto) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby,
present fairly in all material respects the financial condition of NBS and the
Affiliated Companies as of such dates and the results of operations of NBS and
the Affiliated Companies for such periods, and present fairly in all material
respects and are consistent with the books and records of NBS and the
Affiliated Companies.
(h) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any adverse change in the business,
financial condition, operations, results of operations, or future prospects of
any of NBS and the Affiliated Companies. Without limiting the generality of
the foregoing, since that date and excluding the standard NBS contract with
each client worksite employer:
(i) none of NBS and the Affiliated Companies has sold, leased,
transferred, or assigned any of its assets, tangible or intangible, other than
for a fair consideration in the Ordinary Course of Business;
<PAGE>
(ii) none of NBS and the Affiliated Companies has entered into any
agreement, contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) either involving more than $50,000 or outside
the Ordinary Course of Business;
(iii) no party (including any of NBS and the Affiliated Companies) has
accelerated, terminated, modified, or canceled any agreement, contract, lease,
or license (or series of related agreements, contracts, leases, and licenses)
involving more than $50,000 to which any of NBS and the Affiliated Companies
is a party or by which any of them is bound;
(iv) none of NBS and the Affiliated Companies has imposed any Security
Interest upon any of its assets, tangible, or intangible;
(v) none of NBS and the Affiliated Companies has made any capital
expenditure (or series of related capital expenditures) either involving more
than $200,000 or outside the Ordinary Course of Business;
(vi) none of NBS and the Affiliated Companies has made any capital
investment in, any loan to, or any acquisition of the securities or assets of,
any other Person (or series of related capital investments, loans, and
acquisitions) either involving more than $50,000 or outside the Ordinary
Course of Business;
(vii) none of NBS and the Affiliated Companies has issued any note, bond,
or other debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation either
involving more than $25,000 singly or $50,000 in the aggregate;
(viii) none of NBS and the Affiliated Companies has delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary Course
of Business;
(ix) none of NBS and the Affiliated Companies has canceled, compromised,
waived, or released any right or claim (or series of related rights and
claims) either involving more than $25,000 or outside the Ordinary Course of
Business;
(x) none of NBS and the Affiliated Companies has granted any license or
sublicense of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter or bylaws
of any of NBS and the Affiliated Companies;
<PAGE>
(xii) none of NBS and the Affiliated Companies has issued, sold, or
otherwise disposed of any of its capital stock, or granted any options,
warrants, or other rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock;
(xiii) none of NBS and the Affiliated Companies has declared, set aside, or
paid any dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise acquired-any
of its capital stock;
damage, destruction, or loss (whether or not covered by insurance) to its
property;
(xv) none of NBS and the Affiliated Companies has made any loan to, or
entered into any other transaction with, any of its directors, officers, and
Corporate Employees outside the Ordinary Course of Business;
(xvi) none of NBS and the Affiliated Companies has entered into any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) none of NBS and the Affiliated Companies has granted any increase in
the base compensation of any of its directors, officers, and Corporate
Employees outside the Ordinary Course of Business;
(xviii) none of NBS and the Affiliated Companies has adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its directors,
officers, and Employees (or taken any such action with respect to any other
Employee Benefit Plan);
(xix) none of NBS and the Affiliated Companies has made any other change in
employment terms for any of its directors, officers, and Corporate Employees
outside the Ordinary Course of Business;
(xx) none of NBS and the Affiliated Companies has made or pledged to make
any charitable or other capital contribution outside the Ordinary Course of
Business;
<PAGE>
(xxi) there has not been any other occurrence, event, incident, action,
failure to act, or transaction outside the Ordinary Course of Business
involving any of NBS and the Affiliated Companies; and
(xxii) none of NBS and the Affiliated Companies has committed to any of the
foregoing.
(i) Undisclosed Liabilities. None of NBS and the Affiliated Companies
has any Liability (and there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against it giving rise to any Liability), except for (i) Liabilities set forth
on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) and (ii) Liabilities which have arisen after the Most Recent Fiscal
Month End in the Ordinary Course of Business (none of which results from,
arises out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law).
(j) Legal Compliance. Each of NBS, the Affiliated Companies, and their
respective predecessors and Affiliates has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof), except where failure to comply
will not have a material adverse effect on the business or properties of NBS
or any of the Affiliated Companies; and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failure so to comply. In
particular, NBS and the Affiliated Companies and Stuart G. Lasher and Steven
M. Esrick are licensed or registered as professional employer organizations
and as control persons thereof, respectively, in each jurisdiction in which
their activities require such licensing or registration, except where failure
to comply will not have a material adverse effect on the business or
properties of NBS or any of the Affiliated Companies.
(k) Tax Matters.
(i) Each of NBS and the Affiliated Companies has filed all Tax
Returns that it was required to file. As shareholders of NBS and the
Affiliated Companies, each of which is an S-corporation under federal law and
applicable state law, each of the Shareholders has filed all Tax Returns
relating in any way to NBS and the Affiliated Companies that he was required
to file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by any of shareholders of NBS and the Affiliated Companies and the
Shareholders in their capacity as shareholders of NBS and the Affiliated
Companies (whether or not shown on any Tax Return) have been paid. None of
NBS and the Affiliated Companies nor any of the Shareholders in their capacity
as such currently is the beneficiary of any extension of time within which to
<PAGE>
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where any of NBS and the Affiliated Companies and the
Shareholders, in their capacity as shareholders of NBS and the Affiliated
Companies, does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There are no Security Interests on any of the assets of
any of NBS and the Affiliated Companies and the Shareholders, in their
capacity as shareholders of NBS and the Affiliated Companies, that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) Each of NBS and the Affiliated Companies has withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any Corporate Employee, Worksite Employee (to the extent and
in conformity with information provided by the Worksite Employer), independent
contractor, creditor, shareholder, or other third party.
(iii) No Shareholder or director or officer (or Corporate Employee
responsible for Tax matters) of any of NBS and the Affiliated Companies
expects any authority to assess any additional Taxes for any period for which
Tax Returns have been filed. There is no dispute or claim concerning any Tax
Liability of any of NBS and the Affiliated Companies either (A) claimed or
raised by any authority in writing or (B) as to which any of the Shareholders
and the directors and officers (and Corporate Employees responsible for Tax
matters) of any of NBS and the Affiliated Companies has Knowledge based upon
personal contact with any agent of such authority. 4(k) of the Disclosure
Schedule lists all federal, state, local, and foreign income Tax Returns filed
with respect to any of NBS and the Affiliated Companies for taxable periods
ended on or after December 31, 1991, or the date on which an Affiliated
Company was acquired by any Shareholder (the "Acquisition Date"), where
applicable, indicates those Tax Returns that have been audited, and indicates
those Tax Returns that currently are the subject of audit. The Shareholders
have delivered to Paychex and Paychex Merger Corp. correct and complete copies
of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by any of NBS And the Affiliated
Companies since December 31, 1991, or where applicable, the Acquisition Date.
(iv) None of NBS and any of the Affiliated Companies has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
<PAGE>
(v) None of NBS and any of the Affiliated Companies has filed a
consent under Code Sec. 341(f) concerning collapsible corporations. None of
NBS and any of the Affiliated Companies has made any payments, is obligated to
make any payments, and is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Code Sec. 280G. None of NBS and any of the Affiliated
Companies has been a United States real property holding corporation within
the meaning of Code Sec. 897(c)(2) during the applicable period specified in
Code Sec. 897(c)(1)(A)(ii). Each of NBS and the Affiliated Companies has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within
the meaning of Code Sec. 6662. None of NBS and the Affiliated Companies is a
party to any Tax allocation or sharing agreement. None of NBS and the
Affiliated Companies (A) has been a member of an Affiliated Group filing a
consolidated federal income Tax Return, and (B) has any Liability for the
Taxes of any Person (other than NBS and the Affiliated Companies) under Treas.
Reg. 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise.
(vi) 4(k) of the Disclosure Schedule sets forth the following
information with respect to each of NBS and the Affiliated Companies (or, in
the case of clause (B) below, with respect to each of the Affiliated
Companies) as of the most recent practicable date (as well as on an estimated
pro forma basis as of the Closing giving effect to the consummation of the
transactions contemplated hereby): (A) the tax basis of NBS or the Affiliated
Companies in its assets; and (B) the basis of the shareholder(s) of the
Affiliated Company in its stock (or the amount of any Excess Loss Account).
(l) Real Property.
(i) None of NBS or the Affiliated Companies owns any
real property.
(ii) 4(l)(ii) of the Disclosure Schedule lists and describes briefly
all real property leased or subleased to any of NBS and the Affiliated
Companies. The Shareholders have delivered to Paychex and Paychex Merger
Corp. correct and complete copies of the leases and subleases listed in
4(l)(ii) of the Disclosure Schedule (as amended to date). With respect to
each lease and sublease listed in 4(l)(ii) of the Disclosure Schedule (unless
otherwise specified):
<PAGE>
(A) the lease or sublease is legal, valid, binding, enforceable, and in
full force and effect;
(B) the lease or sublease will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby;
(C) no party to the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default or permit termination, modification, or acceleration
thereunder;
(D) no party to the lease or sublease has repudiated any provision
thereof;
(E) there are no disputes, oral agreements, or forbearance programs in
effect as to the lease or sublease;
(F) with respect to each sublease, the representations and warranties set
forth in subsections (A) through (E) above are true and correct with respect
to the underlying lease;
(G) none of NBS and the Affiliated Companies has assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(H) to the best Knowledge of Shareholders, all facilities leased or
subleased thereunder have received all approvals of governmental authorities
(including licenses and permits) required in connection with the operation
thereof and have been operated and maintained in accordance with applicable
laws, rules, and regulations;
(I) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities;
and
(J) NBS is subleasing from American Ophthalmic, Inc. ("AOI") certain
office space in Winter Park, Florida, pursuant to a letter agreement dated
December 23, 1993. Despite the fact that the underlying lease between AOI and
Emerson International, Inc. ("Emerson") dated March 10, 1993 provides that
such lease will expire on June 30, 1996 and provides further that AOI has the
right of first refusal on the renegotiation of a new lease with Emerson, NBS
has been advised that AOI has agreed not to exercise that right and Emerson
has verbally agreed to lease the premises directly to NBS on a month-to-month
basis.
<PAGE>
(m) Intellectual Property.
pursuant to license, sublicense, agreement, or permission all Intellectual
Property necessary or desirable for the operation of the businesses of NBS and
the Affiliated Companies as presently conducted and as presently proposed to
be conducted. Each item of Intellectual Property owned or used by any of NBS
and the Affiliated Companies immediately prior to the Closing hereunder will
be owned or available for use by NBS or the Affiliated Company on identical
terms and conditions immediately subsequent to the Closing hereunder. Each of
NBS and the Affiliated Companies has taken all necessary and desirable action
to maintain and protect each item of Intellectual Property that it owns or
uses.
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and none of the Shareholders
and the directors and officers (and Employees with responsibility for
Intellectual Property matters) of NBS and the Affiliated Companies has ever
received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any
claim that any of NBS and the Affiliated Companies must license or refrain
from using any Intellectual Property rights of any third party). To the
Knowledge of any of the Shareholders and the directors and officers (and
employees with responsibility for Intellectual Property matters) of any of NBS
and the Affiliated Companies, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Intellectual
Property rights of any of NBS and the Affiliated Companies.
(iii) 4(m)(iii) of the Disclosure Schedule identifies each copyright which
has been filed by NBS and the Affiliated Companies with respect to any of its
Intellectual Property, and identifies each license, agreement, or other
permission which any of NBS and the Affiliated Companies has granted to any
third party with respect to any of its Intellectual Property (together with
any exceptions). The Shareholders have delivered to Paychex and Paychex
Merger Corp. correct and complete copies of all such copyrights,
registrations, applications, licenses, agreements, and permissions (as amended
to date) and have made available to Paychex and Paychex Merger Corp. correct
and complete copies of all other written documentation evidencing ownership
and prosecution (if applicable) of each such item. 4(m)(iii) of the
Disclosure Schedule also identifies each trade name or unregistered trademark
used by any of NBS and the Affiliated Companies in connection with any of its
businesses. With respect to each item of Intellectual Property required to be
identified in 4(m)(iii) of the Disclosure Schedule:
<PAGE>
(A) NBS and the Affiliated Companies possess all
right, title, and interest in and to the item, free and
clear of any Security Interest, license, or other
restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which challenges the
legality, validity, enforceability, use, or ownership of the item; and
(D) none of NBS and the Affiliated Companies has ever agreed to
indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) 4(m)(iv) of the Disclosure Schedule identifies each item of
Intellectual Property that any third party owns and that any of NBS and the
Affiliated Companies uses pursuant to license, sublicense, agreement, or
permission. The Shareholders have delivered to Paychex and Paychex Merger
Corp. correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each item
of Intellectual Property required to be identified in 4(m)(iv) of the
Disclosure Schedule:
(A) the license, sublicense, agreement, or permission covering the
item is legal, valid, binding, enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or permission will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the Closing;
<PAGE>
(C) no party to the license, sublicense, agreement, or permission is
in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination, modification,
or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or permission has
repudiated any provision thereof;
(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and correct
with respect to the underlying license;
(F) the underlying item of Intellectual Property is not subject to
any outstanding injunction, judgment, order, decree, ruling, or charge;
(G) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which challenges the
legality, validity, or enforceability of the underlying item of Intellectual
Property; and
(H) none of NBS and the Affiliated Companies has granted any
sublicense or similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of any of the Shareholders and the directors and
officers (and Employees with responsibility for Intellectual Property matters)
of any of NBS and the Affiliated Companies, none of the Intellectual
Properties used by any of NBS and the Affiliated Companies will interfere
with, infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of the continued
operation of its business as presently conducted (and as presently proposed to
be conducted).
(n) Tangible Assets. NBS and the Affiliated Companies own or lease all
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of their businesses as presently conducted and as presently proposed
to be conducted. To the best Knowledge of the Shareholders, each such
tangible asset is free from material defects, has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), and is suitable for the purposes for
which it presently is used.
(o) Reserved.
<PAGE>
(p) Contracts. 4(p) of the Disclosure Schedule lists the following
contracts and other agreements, other than the standard NBS contract with each
client worksite employer (a copy of which shall be furnished pursuant to
4(p)(xiii) below), to which any of NBS and the Affiliated Companies is a
party:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments;
(ii) any agreement (or group of related agreements) for the purchase or
sale of commodities, supplies, products, or other personal property, or for
the furnishing or receipt of services, the performance of which will extend
over a period of more than one (1) year, result in a loss to any of NBS and
the Affiliated Companies , or involve consideration in excess of $25,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed money,
or any capitalized lease obligation;
(v) any agreement concerning confidentiality or non-competition;
(vi) any agreement with any of the Shareholders and their Affiliates
(other than NBS and the Affiliated Companies);
(vii) any profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, severance, or other plan or arrangement for the benefit
of its current or former directors, officers, and Employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a full-time,
part-time, consulting, or other basis, other than a Worksite Employee;
of its directors, officers, and Corporate Employees;
(xi) any agreement under which the consequences of a default or
termination could have an adverse effect on the business, financial condition,
operations, results of operations, or future prospects of any of NBS and the
Affiliated Companies;
<PAGE>
(xii) any agreement concerning the indemnity of or indemnification by any
of NBS or the Affiliated Companies, or the indemnity of or indemnification by
the directors and officers of any of NBS or the Affiliated Companies or the
Shareholders;
(xiii) any standard client service agreements used with client companies.
written or oral, the performance of which involves consideration in excess of
$50,000.
The Shareholders have delivered to Paychex a correct and complete copy of each
written agreement listed in 4(p) of the Disclosure Schedule (as amended to
date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in 4(p) of the Disclosure Schedule. With respect
to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to
be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; (D) no party
is seeking the renegotiation thereof or substitute performance thereunder; and
(E) no party has repudiated any provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts receivable of
NBS and the Affiliated Companies are reflected properly on their books and
records, are valid receivables subject to no setoffs or counterclaims, are
current and collectible, and will be collected in accordance with their terms
at their recorded amounts, subject only to the reserve for bad debts set forth
on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of NBS and the Affiliated
Companies.
(r) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of any of NBS and the Affiliated Companies.
(s) Insurance. 4(s) of the Disclosure Schedule sets forth the following
information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage
and bond and surety arrangements) to which any of NBS and the Affiliated
Companies has been a party, a named insured, or otherwise the beneficiary of
coverage, other than insurance policies carried by client worksite employers
in which NBS is named as an additional insured, at any time within the past
two years:
<PAGE>
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was on
a claims made, occurrence, or other basis) and amount (including a description
of how deductibles and ceilings are calculated and operate) of coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy, to the best Knowledge of the
Shareholders: (A) the policy is legal, valid, binding, enforceable, and in
full force and effect; (B) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby; (C)
neither any of NBS and the Affiliated Companies nor any other party to the
policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with
notice or the lapse of time, would constitute such a breach or default, or
permit termination, modification, or acceleration, under the policy; and (D)
no party to the policy has repudiated any provision thereof. Each of NBS and
the Affiliated Companies has been covered during the past three years, or
since Acquisition Date by any Shareholders, where applicable, by insurance in
scope and amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period. (s) of the Disclosure Schedule
describes any self-insurance arrangements affecting any of NBS and the
Affiliated Companies. With respect to workers' compensation insurance
coverage for Employees prior to January 1, 1995, NBS and the Affiliated
Companies were fully insured and not self-insured.
(t) Litigation. 4(t) of the Disclosure Schedule sets forth each instance
in which any of NBS and the Affiliated Companies (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is
a party or, to the best Knowledge of the Shareholders, is threatened to be
made a party to any action, suit, proceeding, hearing, or investigation of,
in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. None
of the actions, suits, proceedings, hearings, and investigations set forth in
4(t) of the
<PAGE>
Disclosure Schedule could result in any adverse change in the business,
financial condition, operations, results of operations, or future prospects of
any of NBS and the Affiliated Companies. Except as indicated above, none of
the Shareholders and the directors and officers (and Corporate Employees with
responsibility for litigation matters) of any of NBS and the Affiliated
Companies has any reason to believe that any action, suit, proceeding,
hearing, or investigation may be brought or threatened against any of NBS and
the Affiliated Companies.
(u) Employee Claims. None of NBS and the Affiliated Companies is the
object of any Employee claims alleging violation of federal or state laws
prohibiting discrimination or sexual harassment or any other charges
reportable to the Equal Employment Opportunities Commission or comparable
state human rights agency, except as set forth in Item 4(u) of the Disclosure
Schedule, none of which claims is believed by Shareholders to involve more
than $25,000 of possible liability to NBS and the Affiliated Companies.
(v) Client Claims. Section 4(v) of the Disclosure Schedule sets forth
with respect to any contract between NBS and the Affiliated Companies and
their client Worksite Employers each breach of contract or failure of
performance claim in excess of $25,000 made against any of NBS and the
Affiliated Companies during the three years immediately preceding the date of
this Agreement and through the Closing Date.
(w) Employees. To the Knowledge of any of the Shareholders and the
directors and officers (and employees with responsibility for employment
matters) of any of NBS and the Affiliated Companies, no corporate executive,
key Corporate Employee, or group of Corporate Employees has any plans to
terminate employment with any of NBS and the Affiliated Companies. None of
NBS and the Affiliated Companies is a party to or bound by any collective
bargaining agreement, nor has any of them experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes.
None of NBS and the Affiliated Companies has committed any unfair labor
practice. None of the Shareholders and the directors and officers (and
Corporate Employees with responsibility for employment matters) of any of NBS
and the Affiliated Companies has any Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to Employees of any of NBS and the Affiliated Companies. To the best
Knowledge of the Shareholders, each of NBS and the Affiliated Companies is and
has been in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
including without limitation, any such laws respecting employment
discrimination and occupational safety and health requirements. Each
Corporate Employee of NBS has executed the standard NBS employee confidential
information, non-solicitation and non-competition agreement.
<PAGE>
(x) Employee Benefits.
(i) 4(x) of the Disclosure Schedule lists each Employee Benefit Plan
for which any of NBS and the Affiliated Companies is a plan sponsor.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all respects
with the applicable requirements of ERISA, the Code, and other applicable
laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, and Summary Plan Descriptions) have
been filed or distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA
and of Code Sec. 4980B have been met with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.
(C) All premiums or other payments for all periods ending on or
before the Closing Date have been paid or accrued with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(D) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
such Employee Benefit Plan which is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing Date which are
not yet due have been paid or accrued to each such Employee Pension Benefit
Plan or accrued in accordance with the past custom and practice of NBS and the
Affiliated Companies. All premiums or other payments for all periods ending
on or before the Closing Date have been paid or accrued with respect to each
such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(E) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets requirements of a "qualified plan" under Code 401(a) and
has received, within the last three years, a favorable determination letter
from the Internal Revenue Service.
<PAGE>
(F) The Shareholders have delivered to Paychex and Paychex Merger
Corp. correct and complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual Report, and all related
trust agreements, insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
(G) No past or present employee of any of NBS and the Affiliated
Companies has elected to consent to a self-directed 401k plan other than
immediately after the relevant conversion option was available to him or her.
(ii) With respect to each Employee Benefit Plan that any of NBS, the
Affiliated Companies, and the Controlled Group of Corporations which includes
NBS and the Affiliated Companies maintains or ever has maintained or to which
any of them contributes, ever has contributed, or ever has been required to
contribute:
(A) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multi-employer Plan) has been completely or
partially terminated or been the subject of a Reportable Event as to which
notices would be required to be filed with the PBGC. No proceeding by the
PBGC to terminate any such Employee Pension Benefit Plan (other than any
Multi-employer Plan) has been instituted or threatened.
(B) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee Benefit Plan.
No action, suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit
Plan (other than routine claims for benefits) is pending or threatened. None
of the Shareholders and the directors and officers (and employees with
responsibility for employee benefits matters) of any of NBS and the Affiliated
Companies has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
(C) None of NBS and the Affiliated Companies has incurred, and
none of the Shareholders and the directors and officers (and employees with
responsibility for employee benefits matters) of any of NBS and the Affiliated
Companies has any reason to expect that any of NBS and the Affiliated
Companies will incur, any Liability to the PBGC (other than PBGC premium
payments) or otherwise under Title IV of ERISA (including any withdrawal
Liability) or under the Code with respect to any such Employee Benefit Plan
which is an Employee Pension Benefit Plan.
<PAGE>
(iii) None of NBS, the Affiliated Companies, and the other members of
the Controlled Group of Corporations that includes NBS and the Affiliated
Companies has any Liability (including withdrawal Liability) under any
Multi-employer Plan.
(iv) None of NBS and the Affiliated Companies maintains or ever has
maintained or contributes, ever has contributed, or ever has been required to
contribute to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare type benefits for current or future retired or
terminated Employees, their spouses, or their dependents (other than in
accordance with Code Sec. 4980B).
(y) Guaranties. None of NBS and the Affiliated Companies is a guarantor
or otherwise liable for any Liability or obligation (including indebtedness)
of any other Person.
(z) Environment, Health, and Safety. To the Knowledge of each of NBS and
the Shareholders:
(i) Each of NBS, the Affiliated Companies, and their respective
predecessors and Affiliates has complied with all Environmental, Health, and
Safety Laws, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply. Without limiting the generality of
the preceding sentence, each of NBS, the Affiliated Companies, and their
respective predecessors and Affiliates has obtained and been in compliance
with all of the terms and conditions of all permits, licenses, and other
authorizations which are required under, and has complied with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all
Environmental, Health, and Safety Laws.
(ii) None of NBS and the Affiliated Companies has any Liability (and
none of NBS, the Affiliated Companies, and their respective predecessors and
Affiliates has handled or disposed of any substance, arranged for the disposal
of any substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner that
could form the Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of NBS
and the Affiliated Companies giving rise to any Liability) for damage to any
site, location, or body of water (surface or subsurface), for any illness of
or personal injury to any employee or other individual, or for any reason
under any Environmental, Health, and Safety Law.
<PAGE>
(iii) All properties and equipment used in the business of NBS, the
Affiliated Companies, and their respective predecessors and Affiliates have
been free of asbestos, PCB's, methylene chloride, trichloroethylene,
1,2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
(aa) Certain Business Relationships with NBS and the Affiliated Companies.
None of the Shareholders, their Affiliates and their Family Members and the
Family Member Affiliates has been involved in any business arrangement or
relationship with any of NBS and the Affiliated Companies within the past 12
months, and none of the Shareholders and their Affiliates and their Family
Members and the Family Member Affiliates owns any asset, tangible or
intangible, which is used in the business of any of NBS and the Affiliated
Companies.
(ab) Disclosure. The representations and warranties contained in this 4 do
not contain any untrue statement of a fact or omit to state any fact necessary
in order to make the statements and information contained in this 4 not
misleading.
(ac) Intent. The NBS Shareholder has no present plan, intention, or
arrangement to dispose of any Paychex Shares received in the reorganization
contemplated by this Agreement in a manner that would cause the reorganization
to violate the continuity of shareholder interest requirement set forth in
Treas. Reg. 1.368-1(d).
(ad) Continuity of Business Enterprise. NBS operates at least one
significant historic business line, or owns at least a significant portion of
its historic business assets, in each case within the meaning of Treas. Reg.
1.368-1(d).
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its best efforts to
take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in 7 below).
<PAGE>
(b) Notices and Consents. The Shareholders will cause NBS and the
Affiliated Companies to give any notices to third parties, and will cause each
of NBS and the Affiliated Companies to use its best efforts to obtain any
third-party consents, that either of Paychex and Paychex Merger Corp. may
request in connection with the matters referred to in 4(c) above. Each of the
Parties will (and the Shareholders will cause each of NBS and the Affiliated
Companies to) give any notices to, make any filings with, and use its best
efforts to obtain any authorizations, consents, and approvals of governments
and governmental agencies in connection with the matters referred to in
3(a)(ii), 3(b)(ii), and 4(c) above. Without limiting the generality of the
foregoing, each of the Parties will file (and the Shareholders will cause each
of NBS and the Affiliated Companies to file) any notification and report forms
and related material that he or it may be required to file with the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice under the Hart-Scott-Rodino Act, and will make (and the Shareholders
will cause each of NBS and the Affiliated Companies to make) any further
filing pursuant thereto that may be necessary, proper, or advisable in
connection therewith.
(c) Operation of Business/S Corporation Distributions. The Shareholders
will not cause or permit any of NBS and the Affiliated Companies to engage in
any practice, take any action, or enter into any transaction outside the
Ordinary Course of Business. Without limiting the generality of the
foregoing, the Shareholders will not cause or permit any of NBS and the
Affiliated Companies to (i) declare, set aside, or pay any dividend or make
any distribution with respect to or issue any of its capital stock or redeem,
purchase, or otherwise acquire any of its capital stock (except for
S-corporation distributions as disclosed in 4(h)(xiii) of the Disclosure
Schedule which shall not, in the aggregate, exceed 40% of the taxable net
income of NBS and the Affiliated Companies for the short year commencing
January 1, 1996 and ending on the Effective Time as shown on the federal Tax
Return as filed subsequent to Paychex' review and comment as provided in 6(d)
and except for stock issuances to implement the share exchanges required by
5(h)), (ii) increase the compensation paid to any Shareholder in whatever
capacity he may serve, or (iii) otherwise engage in any practice, take any
action, or enter into any transaction of the sort described in (h) above.
<PAGE>
(d) Preservation of Business. The Shareholders will cause each of NBS
and the Affiliated Companies to keep its business and properties substantially
intact, including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers, customers,
and Employees.
(e) Full Access. Each of the Shareholders will permit, and the
Shareholders will cause each of NBS and the Affiliated Companies to permit,
representatives of Paychex and Paychex Merger Corp. to have full access to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to each of NBS and the Affiliated
Companies.
(f) Notice of Developments. NBS and the Shareholders will give prompt
written notice to Paychex and Paychex Merger Corp. of any material adverse
development causing a breach of any of the representations and warranties in 4
above. Each Party will give prompt written notice to the others of any
material adverse development causing a breach of any of his or its own
representations and warranties in 3 above. However, unless and until Paychex
indicates that it made a public announcement of such development, the
Shareholders shall keep such information strictly confidential and disclose it
to no one other than their advisors who shall be similarly restricted. No
disclosure by any Party pursuant to this 5(f), however, shall be deemed to
amend or supplement Annex I, Annex II, or the Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
(g) Exclusivity. None of NBS and the Shareholders will (and the
Shareholders will not cause or permit any of NBS and the Affiliated Companies
to) (i) solicit, initiate, or encourage the submission of any proposal or
offer from any Person relating to the acquisition of any capital stock or
other voting securities, or any substantial portion of the assets of, any of
NBS and the Affiliated Companies (including any acquisition structured as a
merger, consolidation, or share exchange) or (ii) participate in any
discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing. None of the
Shareholders will vote their NBS Shares in favor of any such acquisition
structured as a merger, consolidation, or share exchange. The Shareholders
will notify Paychex and Paychex Merger Corp. immediately if any Person makes
any proposal, offer, inquiry, or contact with respect to any of the foregoing.
The foregoing notwithstanding, in the event of termination of this Agreement
pursuant to the terms of Section 9(a), this Section 5(g) shall be null and
void and shall have no force or effect.
<PAGE>
(h) Share Exchanges. The Shareholders will cause NBS to acquire all of
the issued and outstanding shares of stock of each Affiliated Company through
a share exchange with the shareholders of each Affiliated Company which shall
constitute a reorganization pursuant to the provisions of Section 368(a)(1)(B)
of the Code. Each Shareholder, as a result of the five Share Exchange
Transactions, will own the number of shares of NBS Common Stock set forth in
Schedule RD attached to this Agreement. Thereafter, NBS will not (and the
Shareholders will not cause or permit NBS to) issue any additional shares of
stock of NBS or of any of the Affiliated Companies.
(i) Termination of Agreements. NBS and the Shareholders will (and the
Shareholders will cause each of the Affiliated Companies to), without cost to
any of NBS and the Affiliated Companies, (i) terminate all agreements between
or among any or all of NBS, the Affiliated Companies, the Shareholders, Family
Members and Family Member Affiliates, except the Shareholders' oral agreements
of employment, the terms of which shall be subject to approval by Paychex, and
the standard NBS employee confidential information, non-solicitation and
non-competition agreement which each Shareholder shall re-sign at closing; and
(ii) assign each automobile lease to which NBS or an Affiliated Company is a
party, to the NBS Shareholder or other person who primarily uses the relevant
automobile. Each Shareholder shall release NBS and the Affiliated Companies,
and each other Shareholder, from all agreements relating to NBS and the
Affiliated Companies by executing at Closing the form of Release attached to
this Agreement as Exhibit G.
(j) Payment Amounts Owed. Each Shareholder shall pay, and shall cause
each of his Affiliates, Family Members and Family Member Associates, to pay,
prior to Closing, all sums owed by them to any of NBS and the Affiliated
Companies.
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
(a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under 8 below). The
Shareholders acknowledge and agree that from and after the Closing Paychex
will be entitled to possession of all documents, books, records (including Tax
records), agreements, and financial data of any sort relating to any of NBS
and the Affiliated Companies.
<PAGE>
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or
prior to the Closing Date involving any of NBS and the Affiliated Companies,
each of the other Parties will cooperate with him or it and his or its counsel
in the contest or defense, make available their personnel, and provide such
testimony and access to their books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of
the contesting or defending Party (unless the contesting or defending Party is
entitled to indemnification therefor under 8 below).
(c) Transition. None of the Shareholders will take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of any of NBS and the
Affiliated Companies from maintaining the same business relationships with NBS
and the Affiliated Companies after the Closing as it maintained with NBS and
the Affiliated Companies prior to the Closing.
(d) Taxes. Prior to Closing, the Shareholders will cause to be prepared,
submitted to Paychex for review and filed with applicable authorities all Tax
Returns, for calendar year ended December 31, 1995, with respect to the
activities of NBS and the Affiliated Companies. Promptly after Closing, the
Shareholders will cause to be prepared, submitted to Paychex for review and
filed with applicable authorities all Tax Returns for the short year
commencing January 1, 1996 and ending on the Closing Date, with respect to the
activities of NBS and the Affiliated Companies during that period. At any
time that applicable authorities require it, the Shareholders will cause to be
prepared, submitted to Paychex for review and filed with applicable
authorities, all Tax Returns for fiscal periods ending prior to January 1,
1995 with respect to activities of NBS and the Affiliated Companies during
those periods. All such Tax Returns shall be complete and correct in all
respects. The Tax Returns may reflect items of income deduction credit or
other items that would affect the Federal or State tax liability of Paychex,
NBS or the Affiliated Companies for periods subsequent to the merger.
Accordingly, the Shareholders shall afford Paychex a reasonable opportunity to
review and comment on those returns before any or all of them are filed. The
Shareholders shall not file those returns if such returns adopt or embody
treatment of an item of income, deduction, credit or other that would affect
the tax liability of Paychex, NBS or the Affiliated Companies for period
subsequent to the Merger and to which Paychex has reasonably objected and has
proposed a reasonable alternative, unless the Shareholders provide Paychex
with the written opinion of Grant Thornton LLP, to the effect that treatment
adopted or embodied in the returns represents an acceptable treatment of such
item and the treatment proposed by Paychex does not represent an acceptable
treatment of such item.
<PAGE>
The Shareholders shall pay all Taxes due for the periods covered by the Tax
Returns. Any Tax Liability attributable to NBS, the Affiliated Companies or
the Shareholders for any tax period prior to the Closing Date and incurred by
Paychex (or NBS or the Affiliated Companies after Closing), shall be deemed to
be Adverse Consequences suffered by Paychex.
(e) Confidentiality. Each of the Shareholders will treat and hold as
such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and his
continued employment by any of NBS and the Affiliated Companies. In the event
that any of the Shareholders is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information, that Shareholder will notify Paychex promptly of the
request or requirement so that Paychex may seek an appropriate protective
order or waive compliance with the provisions of this 6(d). If, in the
absence of a protective order or the receipt of a waiver hereunder, any of the
Shareholders is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt,
that Shareholder may disclose the Confidential Information to the tribunal;
provided, however, that the disclosing Shareholder shall use his best efforts
to obtain, at the request of Paychex, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as Paychex shall designate. The
foregoing provisions shall not apply to any Confidential Information which is
generally available to the public immediately prior to the time of disclosure.
(f) Covenants Not to Compete or Interfere.
(i) Each Shareholder agrees that during the period commencing on the
date of this Agreement and ending on the date that is five years after the
termination of his employment with Paychex or any of its Subsidiaries the
Shareholder will not engage in any Competitive Activity in the United States
of America. "Competitive Activity" means directly or indirectly (or having
any interest (other than an interest in an investment portfolio which only
includes shares of publicly traded companies) in, or performing any services
for, or lending credit or money to, or furnishing facilities or advice to, any
person or business entity directly or indirectly) (i) engaging in any business
activity that is competitive with any business that any of NBS, the Affiliated
Companies and Paychex conducts (the "Business") or any other business activity
of a type not yet engaged in by any of them, but with respect to which Paychex
has made a material commitment of at least $100,000 at the time of the
Shareholder's termination and the Shareholder is aware of such commitment; or
(ii) soliciting or accepting business competitive with the Business from (A)
any then current client of NBS, the Affiliated Companies or Paychex,
<PAGE>
(B) any prospective customer of NBS, the Affiliated Companies or Paychex,
whose business any of them is in process of soliciting at the time of, or had
solicited in the six months prior to, termination of the Shareholders'
employment, or (C) any former customer of NBS, the Affiliated Companies or
Paychex which had been doing business with NBS, the Affiliated Companies or
Paychex within two years prior to termination of the Shareholder's employment;
or (iii) soliciting, diverting or attracting away from NBS, the Affiliated
Companies or Paychex or any of their Affiliates (A) any employee or (B) in
competition with NBS, the Affiliated Companies or Paychex or any of their
Affiliates, any supplier of NBS, the Affiliated Companies or Paychex or any of
their Affiliates, or inducing or requesting any such person or business entity
to curtail or to terminate his or its commercial or employment relationship
with NBS, the Affiliated Companies or Paychex or any of their Affiliates.
(ii) In the event of a breach or threatened breach of any covenant in
this 6(f), the damage or imminent damage to the value and the goodwill of
Paychex will be irreparable and extremely difficult to estimate, making any
remedy at law or in damages inadequate. Accordingly, Paychex shall be
entitled to injunctive relief against the relevant Party in the event of any
breach or threatened breach of any of such covenants by the Party, in addition
to any other relief (including damages) available to Paychex, NBS and the
Affiliated Companies under this Agreement or under law.
(iii) The Shareholders agree that the scope of the covenants contained
in this 6(f) both as to time and area covered, are necessary to protect the
rights of Paychex. If the final judgment of a court of competent jurisdiction
declares that any term or provision of this 6(f) is invalid or unenforceable,
the Parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or area
of the term or provision, to delete specific words or phrases, or to replace
any invalid or unenforceable term or provision with a term or provision that
is valid and enforceable and that comes closest to expressing the intention of
the invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
<PAGE>
(g) Paychex Shares. Each certificate representing Paychex Common Shares
transferred to Shareholders pursuant to the terms of this Agreement will be
imprinted with a legend substantially in the following form:
"The shares represented by this certificate have not been registered under the
Securities Act of 1933, as amended. Such shares have been acquired for
investment and may not be offered for sale, sold, delivered after sale,
transferred, pledged or hypothecated in the absence of an effective
Registration Statement covering such shares under the Securities Act or an
opinion of counsel satisfactory to the company that such registration is not
required."
During the three (3) years immediately following the Closing Date, or such
shorter period as may be specified hereafter in Rule 144(k) promulgated under
the Securities Act, each holder desiring to transfer a Paychex Share acquired
under the terms of this Agreement first must furnish Paychex with a written
opinion satisfactory to Paychex in form and substance from counsel
satisfactory to Paychex by reason of experience to the effect that the holder
may transfer a Paychex Share as desired without registration under the
Securities Act. Beyond three years or the shorter period, if any, referred to
above, after the Closing, the legend will be removed at no cost to the holder
and no opinion will be required for any transfer.
6.A. Pooling.
(a) Pooling, Covenants and Representations. Each Shareholder hereby
agrees that he will not sell, transfer, or otherwise dispose of any securities
of NBS or the Affiliated Companies other than in the Share Exchange
Transaction and the Merger, or of any of the Paychex Shares received by the
Shareholder in the Merger until after such time as results covering at least
30 days of combined operations of NBS and Paychex have been published by
Paychex, in the form of a quarterly earnings report, an effective registration
statement filed with the SEC, a report to the SEC on Form 10-K, 10-Q or 8-K,
or any other public filing or announcement which includes the combined results
of operation.
(b) Additional Covenants and Representations. In addition, each
Shareholder agrees and represents as follows, each of which representations
and covenants may be relied upon by counsel to Paychex and NBS in connection
with their opinions and other matters:
<PAGE>
(i) The Shareholder will not sell, transfer, exchange, pledge or
otherwise dispose of, or in any other way reduce his risk of ownership or
investment in, or make any offer or agreement relating to any of the foregoing
with respect to, any of the Paychex Shares during the period commencing 30
days prior to the Closing Date and terminating on the Closing Date.
(ii) The Shareholder has, and as of the Closing Date will have, no
present plan or intention (a "Plan") to sell, transfer exchange, pledge (other
than in a preexisting bona fide margin account) or otherwise dispose of (any
of the foregoing, a "Sale") more than thirty percent (30%) of the Paychex
Shares issued to the Shareholder in connection with the Merger, or any
securities that may be paid as a dividend or otherwise distributed thereon or
with respect thereto or issued or delivered in exchange or substitution
therefor. For purposes of the preceding sentence, NBS Shares (or the portion
thereof) with respect to which a Sale, other than pursuant to the Share
Exchange Transaction, will occur prior to the Merger, shall be considered to
be NBS Shares that are exchange for Paychex Shares in the Merger and then
disposed of pursuant to a Plan. The Shareholder is not aware of, or
participating in, any Plan on the part of Shareholders to engage in sales of
Paychex Shares to be issued in the Merger such that the aggregate fair market
value, as of the Closing Date, of the Shares subject to such Plan would exceed
thirty percent (30%) of the aggregate fair market value of all outstanding NBS
Shares immediately prior to the Merger. For purposes of the preceding
sentence, NBS Shares, with respect to which a pre-Merger Sale occurs, other
than pursuant to the Share Exchange Transaction, in a related transaction
shall be considered to be NBS Shares that are exchanged for Paychex Shares in
the Merger and the disposed of pursuant to a Plan. A Sale of Paychex Share
shall be considered to have occurred pursuant to a Plan if, among other
things, such Sale occurs in a Related Transaction. For purposes of this
Section, a "Related Transaction" shall mean a transaction that is in
contemplation of, or related or pursuant to, the Merger or the Merger
Agreement. If any representations of any Shareholder in this Section ceases
to be true at any time prior to the Closing Date, the Shareholder will deliver
to Paychex, prior to the Closing, a written statement to that effect, signed
by the Shareholder. Each Shareholder reserves the right at any time after
the Closing Date to evaluate his investment portfolio, including Paychex
Shares and any other securities issued by Paychex, and to make such investment
decision with respect to such securities as the Shareholder and his investment
advisors, if any, shall deem to be in his interest. Each Shareholder
specifically disavows any undertaking, except as set forth in Section
3(a)(iv) to hold any securities issued by Paychex for any specific period.
<PAGE>
7. Conditions to Obligation to Close.
(a) Conditions to Obligations of Paychex and Paychex Merger Corp. The
obligation of Paychex and Paychex Merger Corp. to consummate the transactions
to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
(i) the representations and warranties set forth in 3(a) and 4 above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) the Shareholders shall have performed and complied with all of
their covenants hereunder in all respects through the Closing;
(iii) NBS and the Affiliated Companies shall have procured all of the
third party consents specified in 5(b) above;
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, (C) affect adversely the right of Paychex
to own the NBS Shares and to control NBS and the Affiliated Companies, or (D)
affect adversely the right of any of NBS and the Affiliated Companies to own
its assets and to operate its businesses (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(v) the Shareholders shall have delivered to Paychex a certificate to
the effect that each of the conditions specified above in 7(a)(i)-(iv) is
satisfied in all material respects;
(vi) All applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated and
the Parties, NBS and the Affiliated Companies shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3(a)(ii), 3(b)(ii), and 4(c) above;
<PAGE>
(vii) Paychex shall have received from counsel to NBS, the Affiliated
Companies and the Shareholders an opinion in form and substance as set forth
in Exhibit E attached hereto. Such opinion shall be addressed to Paychex and
dated as of the Closing Date.
(viii) Paychex shall have received evidence that the share exchanges
among the Shareholders and the Affiliated Companies have been satisfactorily
completed;
(ix) Paychex and Paychex Merger Corp. shall have received evidence
that NBS has obtained the approvals of NBS's directors and shareholders as
required by the Florida Business Corporation Act;
(x) Paychex shall have received approval from the Florida Department
of Business and Professional Regulation of Paychex' ownership of 100% of the
capital stock of NBS and the Affiliated Companies;
(xi) Paychex shall have received an opinion of Ernst & Young LLP, in
form and substance satisfactory to Paychex, that the Merger will qualify for
pooling-of-interests accounting treatment and NBS shall have received an
opinion of Grant Thornton, LLP in form and substance satisfactory to Paychex,
that the Merger will qualify for pooling-of-interests accounting treatment;
and
(xii) All certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be satisfactory
in form and substance to Paychex.
Paychex and Paychex Merger Corp may waive any condition specified in this 7(a)
if they execute a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of NBS and the Shareholders. The
obligations of NBS and the Shareholders to consummate the transactions to be
performed by them in connection with the Closing is subject to satisfaction of
the following conditions:
(i)be true and correct in all material respects at and as of the
Closing Date;
(ii) Paychex and Paychex Merger Corp. shall have performed and
complied with all of its covenants hereunder in all material respects through
the Closing;
<PAGE>
(iii) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(iv) Paychex shall have delivered to the Shareholders a certificate to
the effect that each of the conditions specified above in 7(b)(i)-(iii) is
satisfied in all respects;
(v) the Shareholders shall have received from counsel to Paychex an
opinion in form and substance as set forth in Exhibit F attached hereto,
addressed to the Shareholders, and dated as of the Closing Date;
(vi) Paychex shall have delivered to the Shareholders a certified
resolution of the Board of Directors of Paychex authorizing the Merger;
(vii) all actions to be taken by Paychex and Paychex Merger Corp. in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Shareholders; and
(viii) the Shareholders shall have received from Grant Thornton LLP its
opinion that the Share Exchange Transactions and this Merger are tax-free
exchanges under the Code.
The Shareholders may waive any condition specified in this 7(b) if they
execute a writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
Consequences. All of the representations and warranties of the Parties
contained in this Agreement as modified in the Disclosure Schedule, shall
survive the Closing hereunder (even if the damaged Party knew or had reason to
know of any misrepresentation or breach of warranty at the time of Closing)
and continue in full force and effect thereafter (subject to any applicable
statutes of limitations or the limitation periods otherwise set forth in this
8, whichever is shorter).
<PAGE>
Nevertheless, all Adverse Consequences (whether suffered by the Shareholders
or by Paychex, NBS or the Affiliated Companies) shall in the aggregate not
exceed for purposes of the indemnification provisions ten (10%) percent of the
value of the consideration received by the Shareholders in the Merger and
shall include only those Adverse Consequences which occur prior to the Closing
and are determined during the period which ends on the date of issuance to
Paychex of the first independent audit report on the combined results of
Paychex and NBS (the "Audit Report Date").
(b) Indemnification Provisions for Benefit of Paychex. Each of the
Shareholders agrees that, upon notice from Paychex of the occurrence of
Adverse Consequences which meet the limitations of 8(a) or the occurrence of a
fact or occurrence described in 8(b)(ii) and demand for indemnification
pursuant to this 8(b), the Shareholder will satisfy his Pro Rata obligation by
promptly transferring to Paychex that number of Paychex Shares which, at the
Paychex Closing Price (adjusted for subsequent stock splits and similar
transactions), shall aggregate in value the Shareholder's indemnity
obligation.
(i) Except as otherwise provided in Section 8(b)(ii) below:
(A) In the event any of NBS or the Shareholders breaches (or in
the event any third party alleges facts that, if true, would mean any of the
Shareholders has breached) any of their representations, warranties, and
covenants contained herein during the applicable survival period, then each of
the Shareholders agrees to indemnify Paychex from and against the entirety of
any Adverse Consequences Paychex may suffer through the Audit Report Date
resulting from, arising out of, relating to, in the nature of, or caused by
the breach (or the alleged breach).
(B) The Shareholders severally agree to indemnify Paychex from and
against the entirety of any Adverse Consequences NBS or Paychex or both may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the failure of the transactions contemplated by this Agreement to be
treated as a tax-free reorganization pursuant to the provisions of
368(a)(1)(A) of the Code to the extent they arose out of an act or omission of
the Shareholders not provided for in this Agreement.
(C) The foregoing notwithstanding, the Shareholders shall not have
any obligation to indemnify Paychex from and against such Adverse Consequences
by reason of this Section 8(b)(i) until Paychex has suffered aggregate Adverse
Consequences in excess of a $150,000 (after which point the Shareholders will
be obligated to indemnify Paychex from and against further such Adverse
Consequences).
(ii) (A)is of a recurring nature, (i.e. affects the income statement for
more than one fiscal year) and its existence causes the earnings of NBS,
as set forth in
Financial Statements, to be overstated (excluding any increases in workers
compensation, employee benefit, state unemployment rates or EEOC claims after
the Closing Date), then each of the Shareholders agrees to indemnify Paychex
to the extent of the product (the "Product") of (I) 21 times (II) the
difference between the earnings as set forth on the Financial Statements and
the earnings as corrected in light of that fact or occurrence (the
"Difference"); but the Product shall not exceed the limitations of 8(a)
with respect to Adverse Consequences.
(B) The foregoing notwithstanding, the Shareholders shall not have
any obligation to indemnify Paychex from and against such fact or occurrence
by reason of this Section (8)(b)(ii) until the Products calculated under
Section 8(b)(ii)(A) exceed an aggregate of $2,100,000 (after which point the
Shareholders will be obligated to indemnify Paychex from and against further
such Products, provided, however, that any Difference of less than $100,000
shall not be considered for purposes of Sections (8)(b)(ii)(A) and (B).
(C) Any Difference which is below the $100,000 threshold of this
Section 8(b)(ii) shall in be included in the Adverse Consequences considered
under Section 8(b)(i) above. Any Product which is equal to or above the
$100,000 threshold of this Section 8(b)(ii) shall not be included in the
Adverse Consequences considered under Section (8)(b)(i) above.
(iii) In the event the Adverse Consequences suffered by Paychex, NBS or
any of the Affiliated Companies resulting from a breach of the representations
and warranties of the Shareholders relate to a matter where NBS or the
Affiliated Companies have indemnification from a client covering the full
Adverse Consequences, then NBS and/or the Affiliated Companies agree to
proceed after judgment against the assets of the client before proceeding
against the assets of the Shareholders.
(iv) In the event the Adverse Consequences suffered by Paychex, NBS or
any of the Affiliated Companies resulting from a breach of the representations
and warranties of the Shareholders relate to a matter wherein NBS or the
Affiliated Companies is insured, then NBS and/or the Affiliated Companies
agree to proceed to collect the insurance proceeds before proceeding to
collect against the Shareholders.
<PAGE>
(c) Indemnification Provisions for Benefit of the Shareholders. In the
event Paychex breaches (or in the event any third party alleges facts that, if
true, would mean Paychex has breached) any of its representations, warranties,
and covenants contained herein during the period, then Paychex agrees to
indemnify each of the Shareholders from and against the entirety of any
Adverse Consequences the Shareholder may suffer through and after the date of
the claim for indemnification resulting from, arising out of, relating to, in
the nature of, or caused by the breach (or the alleged breach). Paychex
agrees that, upon notice from the Shareholders of the occurrence of Adverse
Consequences which meet the limitations of the first sentence of 8(b), and
demand for indemnification pursuant to this 8, Paychex will issue to the
Shareholders that number of Paychex Shares which, at the Paychex Closing Price
(adjusted for subsequent stock splits and similar transactions) shall
aggregate in value Paychex' indemnity obligation.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this 8, then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; provided, however, that no delay
on the part of the Indemnified Party in notifying any Indemnifying party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
satisfactory to the Indemnified Party so long as (A) the Indemnifying Party
notifies the Indemnified Party in writing within 15 days after the Indemnified
Party has given notice of the Third Party Claim that the Indemnifying Party
will indemnify the Indemnified Party from and against the entirety of any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim, (B)
the Indemnifying Party provides the Indemnified Party with evidence acceptable
to the Indemnified Party that the Indemnifying Party will have the financial
resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (C) the Third Party Claim involves only
money damages and
<PAGE>
does not seek an injunction or other equitable relief (and if an injunction or
other equitable relief is sought, the Indemnified Party agrees to give notice
to the Indemnifying Party of the Third Party claim and keep the Indemnifying
Party apprised of the conduct of such Claim), (D) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the good faith
judgment of the Indemnified Party, likely to establish a precedential custom
or practice adverse to the continuing business interests of the Indemnified
Party, and (E) the Indemnifying Party conducts the defense of the Third Party
Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with 8(d)(ii) above, (A) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim, (B) the Indemnified Party
will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in 8(d)(ii) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (B) the Indemnifying Parties will
reimburse the Indemnified Patty promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (C) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third Party
Claim to the fullest extent provided in this 8.
(e) Notice. In the event any Party breaches (or in the event any third
party alleges facts that, if true, would mean any of the Shareholders has
breached) any of his or its covenants or any of his or its representations and
warranties in this Agreement or in the event that any third party shall notify
any Indemnified Party with respect to a Third Party Claim which may give rise
to a claim for indemnification against the Indemnifying Party, then the
(alleged) breaching Party or Indemnifying Party, as the case may be, shall
provide written notice to the other Parties of the occurrence and nature of
the relevant event.
<PAGE>
(f) Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of
representation, warranty, or covenant in this Agreement. Each of the
Shareholders hereby agrees that he will not make any claim for indemnification
against any of NBS and the Affiliated Companies by reason of the fact that he
was a director, officer, employee, or agent of any such entity or was serving
at the request of any such entity as a partner, trustee, director, officer,
employee, or agent of another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses,
expenses, or otherwise and whether such claim is pursuant to any statute,
charter document, bylaw, agreement, or otherwise) with respect to any action,
suit, proceeding, complaint, claim, or demand brought by Paychex or Paychex
Merger Corp. against such NBS Shareholder (whether such action, suit,
proceeding, complaint, claim, or demand is pursuant to this Agreement,
applicable law, or otherwise).
9. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) Paychex, NBS, and the Shareholders may terminate this Agreement
by mutual written consent at any time prior to the Closing;
(ii) Paychex may terminate this Agreement by giving written notice to
the Shareholders at any time prior to the Closing (A) in the event any of the
Shareholders has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, Paychex has notified the
Shareholders of the breach, and the breach has continued without cure for a
period of ten days after the notice of breach or (B) if the Closing shall not
have occurred on or before November 1, 1996 by reason of the failure of any
condition precedent under 7(a) hereof (unless the failure results primarily
from either of Paychex or Paychex Merger Corp. itself breaching any
representation, warranty, or covenant contained in this Agreement); and
<PAGE>
(iii) the Shareholders may terminate this Agreement by giving written
notice to Paychex and Paychex Merger Corp. at any time prior to the Closing
(A) in the event either of Paychex or Paychex Merger Corp. has breached any
material representation, warranty, or covenant contained in this Agreement in
any material respect, any of the Shareholders has notified Paychex or Paychex
Merger Corp. (as the case may be) of the breach, and the breach has continued
without cure for a period of ten days after the notice of breach or (B) if the
Closing shall not have occurred on or before November 1, 1996 by reason of the
failure of any condition precedent under 7(b) hereof (unless the failure
results primarily from any of the Shareholders themselves breaching any
representation, warranty, or covenant contained in this Agreement).
(b)Effect of Termination. If any Party terminates this Agreement
pursuant to 9(a) above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party (or any of its
officers or directors) to any other Party (except for any Liability of any
Party then in breach).
10. Miscellaneous.
(a) Nature of Certain Obligations. The representations and warranties of
each of the Shareholders in 3(a) above concerning the transaction are several
obligations. This means that the particular Shareholder making the
representation or warranty will be solely responsible to the extent provided
in 8 above for any Adverse Consequences Paychex or Paychex Merger Corp. may
suffer as a result of any breach thereof.
(b) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter
of this Agreement prior to the Closing without the prior written approval of
both the Shareholders and Paychex; provided, however, that any Party may make
any public disclosure it believes in good faith is required by applicable law
or any listing or trading agreement concerning its publicly-traded securities
(in which case the disclosing Party will use its best efforts to advise the
other Parties prior to making the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes
any prior understandings, agreements, or representations by or among the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
<PAGE>
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement
or any of his or its rights, interests, or obligations hereunder without the
prior written approval of Paychex and the Shareholders; provided, however,
that Paychex and Paychex Merger Corp. may (i) assign any or all of its rights
and interests hereunder to one or more of its Affiliates and (ii) designate
one or more of its Affiliates to perform its obligations hereunder (in any or
all of which cases Paychex or Paychex Merger Corp. (as the case may be)
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by i) confirmed facsimile
transmission followed by first class mail, or (ii) overnight carrier such as
Federal Express, or (iii) registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set
forth below:
If to Paychex or Paychex Merger Corp., to:
Paychex, Inc.
911 Panorama Trail South
Rochester, New York 14625
Facsimile No.: (716) 383-3428
Attn: John T. Carlen, Executive Vice President
with a copy to:
Woods, Oviatt, Gilman, Sturman & Clarke LLP
44 Exchange Boulevard
Rochester, New York 14614
Facsimile No.: (716) 454-3968
Attn: Harry P. Messina, Jr., Esq.
<PAGE>
If to NBS, to:
National Business Solutions, Inc.
10105 9th Street North
St. Petersburg, Florida 33617
Facsimile No. (813) 579-1705
Attn: Stuart G. Lasher, CEO
with a copy to:
Schifino & Fleisher, P.A.
One Tampa City Center, Suite 2700
201 North Franklin Street
Tampa, Florida 33602
Facsimile No.: (813) 223-3070
Attn: William J. Schifino, Esq.
If to the Shareholders, to
the addresses appearing beneath
their respective names at the conclusion
of this Agreement
with a copy to:
Schifino & Fleisher, P.A.
One Tampa City Center, Suite 2700
201 North Franklin Street
Tampa, Florida 33602
Facsimile No.: (813) 223-3070
Attn: William J. Schifino, Esq.
Any Party any notice, request, demand, claim, or other communication hereunder
to the intended recipient at the address set forth above using any other means
(including personal delivery, expedited courier, messenger service, telecopy,
telex, ordinary mail, or electronic mail), but no such notice, request,
demand, claim, or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, request, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving
effect to any choice or conflict of law provisions or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Delaware.
(j) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
Paychex, Paychex Merger Corp., NBS and the Shareholders. No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
<PAGE>
(k) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties, NBS, and the Affiliated Companies
will bear his or its own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby. Notwithstanding the foregoing, Paychex, NBS and the
Shareholders agree that NBS may bear both its and the Shareholders' costs and
expenses (including legal and accounting fees and expenses) directly
associated with the Merger, the aggregate amount of which shall not exceed
$160,000.00.
(m) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of
any of the provisions of this Agreement. Any reference to any federal, state,
local, or foreign statute or law shall be deemed also to refer to all rules
and regulations promulgated thereunder, unless the context requires otherwise.
The word "including" shall mean including without limitation. The Parties
intend that each representation, warranty, and covenant contained 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.
include the feminine, the feminine shall include the masculine, the neuter
shall continue both the masculine and feminine, and the singular shall include
the plural wherever necessary or appropriate.
(o) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
<PAGE>
(p) Specific Performance. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof
having jurisdiction over the Parties and the matter (subject to the provisions
set forth in 10(q) below), in addition to any other remedy to which they may
be entitled, at law or in equity.
(q) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Hillsborough County,
Florida, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding
may be heard and determined in any such court. Each Party also agrees not to
bring any action or proceeding arising out of or relating to this Agreement in
any other court. Each of the Parties waives any defense of inconvenient forum
to the maintenance of any action or proceeding so brought and waives any bond,
surety, or other security that might be required of any other Party with
respect thereto. Each Party appoints his or its attorney named in 10(h) (the
"Process Agent") as his or its agent to receive on his or its behalf service
of copies of the summons and complaint and any other process that might be
served in the action or proceeding. Any Party may make service on any other
Party by sending or delivering a copy of the process (i) to the Party to be
served at the address and in the manner provided for the giving of notices in
10(h) above or (ii) to the Party to be served in care of the Process Agent at
the address and in the manner provided for the giving of notices in 10(h)
above. Nothing in this 10(q), however, shall affect the right of any Party to
serve legal process in any other manner permitted by law or at equity. Each
Party agrees that a final judgment in any action or proceeding so brought
shall be conclusive and may be enforced by suit on the judgment or in any
other manner provided by law or at equity.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement on the date first above written.
PAYCHEX, INC.
By: /s/ John T. Carlen
___________________________________
Name: John T. Carlen
Title: Executive Vice President
PAYCHEX MERGER CORP
By: /s/ John T. Carlen
___________________________________
Name: John T. Carlen
Title Executive Vice President
NATIONAL BUSINESS SOLUTIONS, INC.
By: /s/ Stuart G. Lasher
___________________________________
SHAREHOLDERS
/s/ Stuart G. Lasher
___________________________________
Stuart G. Lasher
126 Chesapeake Avenue
Tampa, Florida 33606
/s/ Steven M. Esrick
___________________________________
Steven M. Esrick
50 Dolphin Drive
Treasure Island, Florida 33706
/s/ Glenn H. Singer
___________________________________
Glenn H. Singer
1000 Island Boulevard
Apt. 2008 W.
North Miami, Florida 33160
/s/ Robert P. Baerwalde, Jr.
___________________________________
Robert P. Baerwalde, Jr.
503 Old Grove
Lutz, Florida, 33549
