<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Payco American Corporation
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Payco American Corporation
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
$
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
[PAYCO AMERICAN CORPORATION LOGO]
PAYCO AMERICAN CORPORATION
180 North Executive Drive
Brookfield, Wisconsin 53005
October 4, 1996
Dear Shareholder:
You are invited to attend a Special Meeting of Shareholders of Payco
American Corporation (the "Company") to be held at the Company's executive
offices located at 180 North Executive Drive, Brookfield, Wisconsin 53005 on
October 28, 1996 at 11:00 a.m. local time.
At the Special Meeting you will be asked to consider and vote upon a
proposal to approve an Agreement and Plan of Merger (the "Merger Agreement")
providing for the merger (the "Merger") of the Company with a wholly owned
subsidiary of OSI Holdings Corp. ("OSI"), following which the Company will
become a wholly owned subsidiary of OSI. Upon the consummation of the Merger,
each share of common stock of the Company, $.10 par value per share, (the
"Common Stock") outstanding immediately prior to the Merger will be converted
into the right to receive $14.00 in cash, without interest, less any applicable
withholding taxes.
William Blair & Company, L.L.C., the investment banking firm retained
by the Board of Directors of the Company in connection with the Merger, has
rendered its opinion dated August 13, 1996 that, as of such date, the $14.00 in
cash per share of Common Stock to be received by the holders of shares of
Common Stock pursuant to the Merger Agreement is fair to such holders from a
financial point of view. A copy of the opinion is attached to the enclosed
Proxy Statement as Annex C and should be read in its entirety.
YOUR BOARD OF DIRECTORS AND A SPECIAL COMMITTEE OF THE BOARD OF
DIRECTORS HAVE APPROVED THE MERGER AND THE TRANSACTIONS RELATED THERETO AND
HAVE DETERMINED THAT THEY ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY
AND ITS SHAREHOLDERS. AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS AND
THE SPECIAL COMMITTEE RECOMMEND THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
MERGER AGREEMENT AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT.
1
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The Common Stock is quoted on NASDAQ, and, consequently, pursuant to
Wisconsin law, holders of Common Stock do not have statutory appraisal or
dissenters' rights with respect to the Merger.
In the materials accompanying this letter, you will find a Notice of
Special Meeting of Shareholders, a Proxy Statement relating to the actions to
be taken by shareholders of the Company at the Special Meeting and a proxy
card. The Proxy Statement more fully describes the proposed Merger and includes
information about the Company and OSI. Please read the Proxy Statement and
Notice and consider the information included therein carefully.
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN, DATE AND
RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE SPECIAL MEETING
YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU HAVE PREVIOUSLY RETURNED
YOUR PROXY. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE
SPECIAL MEETING.
Sincerely,
/S/ DENNIS G. PUNCHES
Dennis G. Punches, Chairman
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PAYCO AMERICAN CORPORATION
180 North Executive Drive
Brookfield, Wisconsin 53005
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
OCTOBER 28, 1996
Notice is hereby given that a Special Meeting of Shareholders of Payco
American Corporation, a Wisconsin corporation, (the "Company") will be held on
October 28, 1996, at 11:00 a.m., local time, at the Company's executive offices
located at 180 North Executive Drive, Brookfield, Wisconsin 53005, for the
following purposes:
1. To consider and vote upon a proposal to approve the Agreement
and Plan of Merger, dated as of August 13, 1996 (the "Merger
Agreement"), by and among the Company, OSI Holdings Corp., a
Delaware corporation ("OSI"), and Boxer Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of OSI ("Boxer"),
a copy of which is attached as Appendix A to the accompanying Proxy
Statement, pursuant to which, among other things: (a) Boxer will be
merged with and into the Company (the "Merger"), at which time the
Company will become a wholly owned subsidiary of OSI, and (b) each
share of the Company's common stock, par value $.10 per share
("Common Stock"), outstanding immediately prior to the Merger will
be converted into the right to receive $14.00 in cash, without
interest, less any applicable withholding taxes; and
2. To transact such other business as may properly come before
the Special Meeting or any postponements or adjournments thereof.
Only shareholders of record at the close of business on September 20,
1996, the record date with respect to this solicitation (the ("Record Date"),
are entitled to notice of and to vote at the Special Meeting, or at any
postponements or adjournments thereof. The affirmative vote of the holders of a
majority of the outstanding shares of Common Stock outstanding on the Record
Date, in person or by proxy, is required to approve the Merger Agreement.
The Common Stock is quoted on NASDAQ, and, consequently, pursuant to
Wisconsin law, holders of Common Stock do not have statutory appraisal or
dissenters' rights with respect to the Merger.
A complete list of shareholders entitled to vote at the Special Meeting
will be available for inspection at the Company's principal executive offices,
located at 180 North Executive Drive, Brookfield, Wisconsin during ordinary
business hours through the date of the Special Meeting and such list will be
available for inspection at the meeting or any adjournment thereof.
<PAGE> 5
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. WHETHER
OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE,
DATE, AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND VOTE IN
PERSON.
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME.
BY ORDER OF THE BOARD OF DIRECTORS
Susan Mathison, Secretary
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PAYCO AMERICAN CORPORATION
180 NORTH EXECUTIVE DRIVE
BROOKFIELD, WISCONSIN 53005
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 28, 1996
This Proxy Statement is being furnished to the holders of shares of common
stock, $.10 par value, (the "Common Stock") of Payco American Corporation, a
Wisconsin corporation (the "Company" or "Payco"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Special Meeting of Shareholders of the Company (the "Special Meeting") to be
held on October 28, 1996 at 11:00 a.m., local time, at the Company's executive
offices located at 180 North Executive Drive, Brookfield, Wisconsin 53005 and
at any postponements or adjournments thereof.
At the Special Meeting, the Company's shareholders will be asked to
consider and vote upon a proposal to approve an Agreement and Plan of Merger,
dated as of August 13, 1996 (the "Merger Agreement"), by and among the Company,
OSI Holdings Corp., a Delaware corporation, ("OSI") and Boxer Acquisition Corp.,
a Delaware corporation, ("Boxer"), which is a wholly owned subsidiary of OSI,
and the transactions contemplated thereby. A copy of the Merger Agreement is
attached to this Proxy Statement as Annex A. The Merger Agreement provides for
the merger of Boxer with and into the Company (the "Merger"). At the effective
time of the Merger (the "Effective Time"), (i) the Company will become a wholly
owned subsidiary of OSI, and (ii) each outstanding share of Common Stock
immediately prior to the Merger (other than any shares of Common Stock which are
held by any subsidiary of the Company or in the treasury of the Company, or
which are held, directly or indirectly, by OSI or any direct or indirect
subsidiary of OSI, including Boxer) will be converted into the right to receive
$14.00 per share in cash, without interest, less any applicable withholding
taxes. See "THE MERGER AGREEMENT - Conversion and Cancellation of Common Stock."
In addition, each holder of an employee stock option to acquire shares of Common
Stock will, immediately after the Effective Time, become entitled to receive a
cash payment with respect to each share subject to such option equal to $14.00
less the per share exercise price of such option and less any applicable
withholding taxes. See "TREATMENT OF STOCK OPTIONS."
This solicitation of proxies is made by and on behalf of the Board of
Directors. In addition to mailing copies of this Proxy Statement and the
accompanying Notice of Special Meeting of Shareholders and proxy to all
shareholders of record on September 20, 1996 (the "Record Date"), the Company
will request brokers, custodians, nominees and other fiduciaries to forward
copies of this material to persons for whom they hold Common Stock in order
that such shares may be voted. Solicitation may also be made by the Company's
officers and regular employees personally or by telephone. In addition, while
the Company has no present
<PAGE> 7
intention to retain anyone to assist in soliciting proxies, the Company may do
so if it deems such action necessary. The cost of the solicitation of proxies
will be borne by the Company.
The information contained in this Proxy Statement is qualified in its
entirety by the Annexes hereto and the documents referred to and incorporated
by reference herein, each of which is important and should be carefully
reviewed in its entirety.
This Proxy Statement, the accompanying Notice of Special Meeting of
Shareholders and the accompanying proxy are first being mailed to shareholders
of the Company on or about October 4, 1996.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE.
The date of this Proxy Statement is October 4, 1996
<PAGE> 8
TABLE OF CONTENTS
PAGE #
------
AVAILABLE INFORMATION 3
SUMMARY
The Parties 4
Special Meeting Of Shareholders 4
Special Factors 5
The Merger Agreement 9
Treatment Of Stock Options 14
Stock Ownership Of Management And Certain 14
Other Beneficial Owners
Market Price Of Common Stock 15
Selected Consolidated Financial Data 15
INTRODUCTION 16
PARTIES TO THE MERGER 16
THE SPECIAL MEETING 17
SPECIAL FACTORS 19
THE MERGER AGREEMENT 33
TREATMENT OF STOCK OPTIONS 42
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS 42
MARKET PRICE OF COMMON STOCK 44
SELECTED CONSOLIDATED FINANCIAL DATA 45
INDEPENDENT PUBLIC ACCOUNTANTS 47
INCORPORATION OF INFORMATION BY REFERENCE 47
OTHER MATTERS 48
i
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ANNEX A - AGREEMENT AND PLAN OF MERGER
ANNEX B - FORM OF AGREEMENTS TO VOTE FOR MERGER
ANNEX C - FAIRNESS OPINION OF WILLIAM BLAIR & CO.
ANNEX D - CONSULTING AGREEMENT WITH DENNIS G. PUNCHES
ANNEX E - COVENANT NOT TO COMPETE AGREEMENT WITH DENNIS G. PUNCHES
ANNEX F - FORM OF EMPLOYMENT AGREEMENTS WITH MANAGEMENT EMPLOYEES
ANNEX G - FORM OF COVENANT NOT TO COMPETE AGREEMENTS WITH MANAGEMENT EMPLOYEES
ANNEX H - LETTER OF GOLDMAN SACHS & CO. REGARDING OSI'S FINANCING
ANNEX I - LETTER OF CHASE SECURITIES, INC. REGARDING OSI'S FINANCING
ANNEX J - COMMITMENT LETTER OF PEARL STREET, L.P. AND
THE CHASE MANHATTAN BANK REGARDING OSI'S FINANCING
ii
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AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20949, and at the SEC's regional offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, 13th Floor, New York, New York
10019. Copies of such material may be obtained by mail from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Common Stock is quoted on the
NASDAQ National Market and certain of the Company's reports, proxy materials
and other information can be inspected at the offices of NASDAQ, 1739 K Street,
N.W., Washington, D.C. 20006.
3
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SUMMARY
This Proxy Statement relates to the proposed merger (the "Merger") of
Boxer Acquisition Corp., a Delaware corporation, ("Boxer") which is a wholly
owned subsidiary of OSI Holdings Corp., a Delaware corporation ("OSI"), with
and into Payco American Corporation, a Wisconsin corporation (the "Company" or
"Payco"). The following is intended as a summary of the information contained
in this Proxy Statement, is not intended to be a complete statement of all
material features of the proposal to be voted on and is qualified in its
entirety by the more detailed information appearing elsewhere in this Proxy
Statement or incorporated herein by reference. Capitalized terms used but not
defined in this summary have the meaning given to them elsewhere in this Proxy
Statement.
THE PARTIES
The Company is a leading provider of a full range of accounts receivable
management services, including customer service outsourcing. The Company
provides nationwide account coverage through its network of 37 offices across
the United States and Puerto Rico and employs more than 3,300 people. The
Company is also a majority owner of joint ventures in Mexico City, Mexico and
Tokyo, Japan that provide receivable management services.
OSI, based in Atlanta, was formed in September 1995 by McCown De Leeuw &
Co., a private investment company, to build the largest single-source provider
of a full range of accounts receivable management services to credit issuers.
OSI's strategy is to acquire leaders in various accounts receivable management
businesses, including contingent fee collection services, debt portfolio
purchasing, billing, teleservicing and complete functional outsourcing. OSI
currently has three separate operating companies, Account Portfolios, Inc.,
A.M. Miller & Associates, Inc. and Continental Credit Services, Inc.
Boxer is a wholly owned subsidiary of OSI. Boxer was formed by OSI for the
purpose of effecting the Merger and has not conducted any prior business.
The principal executive offices of OSI and Boxer are located at 300
Galleria Parkway, Suite 690, Atlanta, Georgia 30339 and the telephone number at
that address is (770) 988-2900.
SPECIAL MEETING OF SHAREHOLDERS
Date, Time And Place
The Special Meeting will be held on October 28, 1996, at 11:00 a.m., local
time, at the Company's executive offices located at 180 North Executive Drive,
Brookfield, Wisconsin 53005.
4
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Record Date
Only holders of record of shares of Common Stock at the close of business
on September 20, 1996 (the "Record Date") are entitled to notice of and to vote
at the Special Meeting and at any postponements or adjournments thereof.
Purpose of the Meeting
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve the Merger Agreement. The Merger Agreement provides that, at the
Effective Time, the Company will become a wholly owned subsidiary of OSI and
each outstanding share of Common Stock (other than shares owned by the Company,
OSI and OSI's subsidiaries) will be converted into the right to receive $14.00
in cash, without interest, less any applicable withholding taxes.
Outstanding Shares
At the close of business on the Record Date, there were 10,155,085 shares
of Common Stock outstanding, and each such share is entitled to one vote.
Vote Required
Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock outstanding on
the Record Date. Certain shareholders of the Company, holding in the aggregate
2,030,985 shares of the Common Stock, or approximately 20.0% of the outstanding
shares on the Record Date, have entered into Voting Agreements with OSI, in the
form of Annex B attached hereto, pursuant to which they have agreed to vote
such shares in favor of the Merger. See "SPECIAL FACTORS - Interests of Certain
Persons in the Merger."
No Appraisal Rights
The Common Stock is quoted on NASDAQ, and, consequently, pursuant to
Wisconsin law, holders of Common Stock do not have statutory appraisal or
dissenter's rights with respect to the Merger.
SPECIAL FACTORS
Background of the Merger; Reasons
For The Merger
The negotiations with OSI resulting in the signing of the Merger Agreement
started with a meeting on October 21, 1995, ultimately leading to intense
negotiations during the period between June 11, 1996 and the signing of the
Merger Agreement on August 13, 1996.
5
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The Company's Board of Directors and the Special Committee of the Board of
Directors believes that the terms of the Merger are fair to the shareholders of
the Company. In reaching this conclusion, the Board has considered a number of
factors relating to the business and prospects of the Company, the industry it
serves and its customers, the advice of its advisors, the fairness opinion of
William Blair & Co., L.L.C. and the terms of the Merger Agreement.
For a more detailed discussion of these matters, see "SPECIAL FACTORS -
Background of the Merger," "Reasons for the Merger" and "Opinion of Financial
Advisor to the Company."
Recommendation of the Company's Board Of
Directors and Special Committee of the
Board of Directors
THE BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
RECOMMEND THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN FAVOR OF THE APPROVAL OF
THE MERGER AGREEMENT.
Opinion of Financial
Advisor to the Company
William Blair & Company, L.L.C. ("William Blair") has delivered its
written opinion to the Board of Directors of the Company that, as of August 13,
1996, the $14.00 in cash per share of Common Stock to be received by the
holders of shares of Common Stock pursuant to the Merger Agreement is fair to
such holders from a financial point of view. The full text of the written
opinion of William Blair, which sets forth assumptions made, matters considered
and limitations on the review undertaken in connection with the opinion, is
attached hereto as Annex C and is incorporated herein by reference. HOLDERS OF
SHARES OF COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY. SEE "SPECIAL FACTORS - Opinion of Financial Advisor to the Company."
Interests of Certain Persons in
the Merger
In considering the recommendation of the Board of Directors of the Company
with respect to the Merger, shareholders should be aware that certain executive
officers and directors of the Company have interests in connection with the
Merger.
As a condition to the execution of the Merger Agreement, OSI required that
certain of the executive officers of the Company who also serve as directors of
the Company, namely Messrs. James R. Bohmann, Patrick E. Carroll, William W.
Kagel, Alvin W. Keeley, David S. Patterson, Dennis G. Punches and Neal R.
Sparby, and three other employees enter into agreements to vote the shares
owned by them for the approval of the Merger Agreement. As
6
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of the Record Date, such individuals owned an aggregate of 2,030,985 shares of
the Common Stock, or approximately 20.0% of the issued and outstanding shares
on the Record Date.
As a condition to entering into the Merger Agreement, OSI required the
Company to enter into certain covenant not-to-compete agreements and employment
or consulting agreements with certain of the executive officers and directors
of the Company, which agreements will be effective only if the Merger is
consummated, as follows: (i) a consulting agreement with Dennis G. Punches,
Chairman of the Board of the Company, in which he agrees to make himself
available to consult with the Company for a period of three years after the
Effective Time and providing for a payment to him of $150,000 at the conclusion
of the three year period plus reimbursement of expenses, (ii) a covenant
not-to-compete agreement with Dennis G. Punches which prohibits him from
engaging in the accounts receivable management business in North America
(including Canada, Mexico and Puerto Rico) and any other jurisdiction where the
Company is doing business or qualified to do business for a period of three
years after the Effective Time in consideration of a lump sum payment to him at
the Effective Time of $3,000,000, and (iii) employment agreements with six
other directors and executive officers, namely Messrs. Neal R. Sparby, William
W. Kagel, Alvin W. Keeley, Patrick E. Carroll, David S. Patterson and James R.
Bohmann, pursuant to which each of them will be employed by the Company in
their present capacities for a period of one year after the Effective Time at
salaries that range from $189,000 to $246,413, annually, and which require
payment of any bonus due and continued payment of base salary for the remaining
portion of such one year period (offset by remuneration from other employment)
if the employee is terminated without cause during the initial one year term,
and (iv) covenant not-to-compete agreements with the six directors and
executive officers of the Company referred to in clause (iii), above,
prohibiting them from engaging in the accounts receivable management business
in any jurisdiction where the Company is doing business or qualified to do
business for a period of one year after the Effective Time in consideration of
lump sum payments to them at the Effective Time ranging in amount from $25,000
to $100,000. In addition, OSI required the Company to enter into employment
agreements on similar terms with two other executive officers who are not
directors and to enter into covenant not-to-compete agreements with such
officers and also with Joseph T. Treleven, Director of Mergers/Acquisitions of
the Company, pursuant to which he will be paid $200,000 and will be restricted
from competing with the Company for a three year period.
The six directors and executive officers who have entered into employment
and covenant not-to-compete agreements described above hold options to purchase
an aggregate of 257,592 shares of the Common Stock at a weighted average
exercise price of $8.98, which options, at the Effective Time, will be
surrendered by each of them for cash payments equal to $14.00 per share less
the exercise price of the related option and less any applicable withholding
taxes.
Two directors and executive officers, Patrick E. Carroll and James R.
Bohmann, were previously granted an aggregate of 6,960 and 4,960 Units,
respectively, under the Company's Common Share Equivalent Plan which have a
capped value of $7.50 per Unit and which, under the terms of the Plan and
elections previously made by them under the Plan, would have
7
<PAGE> 15
been paid to them upon termination of their employment with the Company. Under
the terms of the Merger Agreement, the value of such Units and all other Units
under the Common Share Equivalent Plan will be paid in cash at the Effective
Time.
In the Merger Agreement, OSI agrees for certain periods of time to keep in
effect the provisions in the Articles of Incorporation and the by-laws of the
Company with respect to indemnification and exculpation from liability of
officers and directors of the Company, and to maintain in effect certain
directors' and officers' insurance covering those persons who are currently
covered by the Company's current policy.
See "SPECIAL FACTORS - Interests of Certain Persons in the Merger."
Federal Income Tax Consequences
In general, each shareholder will recognize gain or loss per share equal
to the difference between the cash received for the shareholder's shares and
the shareholder's tax basis per share in the Common Stock. Such gain or loss
generally will be treated as capital gain or loss if a shareholder's shares of
Common Stock were held as capital assets at the time of the Merger. THE
FOREGOING TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS BASED
UPON PRESENT LAW. EACH SHAREHOLDER SHOULD CAREFULLY REVIEW THE MORE DETAILED
DESCRIPTION CONTAINED IN "THE MERGER - Federal Income Tax Consequences" AND
CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES
OF THE MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
SUCH TAX LAWS. See "SPECIAL FACTORS - Federal Income Tax Consequences."
Regulatory Filings And Approvals
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), certain acquisition transactions, including the Merger,
may not be consummated until specified waiting period requirements have been
satisfied. On August 30, 1996, the Notification and Report Forms required
pursuant to the HSR Act were filed by OSI and the Company, respectively, with
the Antitrust Division of the Department of Justice and the FTC for review in
connection with the Merger. On September 11, 1996 the applicable waiting period
requirements were satisfied.
The receipt of all approvals, consents, authorizations, exemptions and
waivers from governmental agencies required in order to enable the parties to
consummate the transactions contemplated by the Merger Agreement is a condition
to the obligations of the parties. Certain notification and relicensing may be
required under the collection agency laws of various states in order for the
Company to be able to continue its business without interruption following the
Effective Time.
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See "SPECIAL FACTORS - Regulatory Filings and Approvals
Financing of the Merger
The estimated total amount of funds required to consummate the Merger and
pay the related fees and expenses, including the expenses associated with OSI's
financing transactions discussed below, is expected to be approximately
$168,735,000. In order to complete the Merger and to refinance certain
indebtedness of OSI, OSI requires, and the Merger is conditioned upon OSI's
obtaining, financing in the amount of $250,000,000, including $200,000,000 in
the form of a senior credit facility, of which $150,000,000 would be borrowed
at the time of the consummation of the Merger, and the private placement or
public offering of approximately $100,000,000 of senior subordinated notes.
This financing would replace approximately $71,650,000 of OSI's indebtedness
which is currently outstanding.
OSI has received letters dated August 12, 1996 from Goldman, Sachs & Co.
("Goldman Sachs") and Chase Securities Inc.("Chase Securities") that they are
highly confident of their ability to sell or place the senior subordinated
notes subject to certain terms and conditions set forth in such letters which
are attached hereto as Annexes H and I, respectively. Such letters are not
commitments by Goldman Sachs or Chase Securities to purchase or place the
senior subordinated notes. OSI has also received a letter dated August 7, 1996
from Goldman Sachs Credit Partners L.P. (formerly known as Pearl Street L.P.)
("GSCP"), an affiliate of Goldman Sachs, The Chase Manhattan Bank ("Chase
Manhattan") and Chase Securities in which (i) each of GSCP and Chase Manhattan
commits to make available one-half the $200,000,000 senior credit facility
required by OSI; (ii) GSCP and Chase Manhattan agree to act as
co-administrative agents with respect to the senior credit facility and (iii)
Goldman Sachs and Chase Securities agree to act as arranging agents in
connection with the senior credit facility. A copy of such letter is attached
hereto as Annex J. The commitments and agreements contained in such letter are
subject to a number of terms and conditions, which are set forth in such
letters. HOLDERS OF SHARES OF COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH
LETTERS IN THEIR ENTIRETY.
See "SPECIAL FACTORS - Financing of the Merger."
THE MERGER AGREEMENT
The Merger
Pursuant to the terms of the Merger Agreement, at the Effective Time (i)
Boxer will be merged with and into the Company and will cease to exist as a
separate entity; (ii) the Company, as the surviving corporation in the Merger
(the "Surviving Corporation"), will become a wholly owned subsidiary of OSI;
and (iii) each outstanding share of Common Stock (other than shares owned by
the Company, OSI and OSI's subsidiaries) will be converted into
9
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the right to receive $14.00 in cash, without interest, (the "Merger
Consideration") less any applicable withholding taxes.
Effective Time
The Effective Time will be the time and date when Articles of Merger are
filed by the Company with the Secretary of State of the State of Wisconsin and
a Certificate of Merger is filed by Boxer with the Secretary of State of the
State of Delaware and the Merger thereby becomes effective. Subject to the
terms and conditions of the Merger Agreement, it is presently contemplated that
the Effective Time will occur as soon as practicable after each of the
conditions to the Merger have been satisfied or waived but not later than 60
days after the Special Meeting. See "THE MERGER AGREEMENT -Effective Time of
the Merger," "- Conditions to the Merger" and "- Regulatory Filings and
Approvals."
Conversion and Cancellation
of Common Stock
Upon the consummation of the Merger, each then outstanding share of Common
Stock, other than shares owned by the Company, OSI or OSI's subsidiaries, will
be converted into, and represent the right to receive, the Merger Consideration
less any applicable withholding taxes and all such shares of Common Stock will
no longer be outstanding and will be canceled and retired and will cease to
exist. See "THE MERGER AGREEMENT - Conversion and Cancellation of Common
Stock."
Exchange Procedure
Promptly after the Effective Time, the paying agent appointed by OSI (the
"Paying Agent") will mail to each holder of record of a certificate or
certificates (the "Certificates") that immediately prior to the Effective Time
represented outstanding shares of Common Stock, a letter of transmittal with
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. After the Effective Time, there will be no
further registration of transfers on the stock transfer books of the Company,
as the Surviving Corporation, of shares of Common Stock. See "THE MERGER
AGREEMENT - Exchange Procedure."
CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF COMMON STOCK UNTIL
SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL.
Conditions to the Merger
The respective obligations of the Company and OSI to consummate the Merger
are subject to certain conditions, including, among others, (i) the receipt by
OSI of financing to consummate the transactions contemplated by the Merger
Agreement, (ii) the approval of the Merger Agreement by the affirmative vote of
the holders of a majority of the outstanding
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shares of Common Stock entitled to vote at the Special Meeting, (iii) the
receipt of all necessary regulatory approvals of the Merger, and (iv) the
agreement of all of the holders of options to purchase Common Stock of the
Company to surrender the same in cancellation and settlement thereof for a cash
consideration equal to $14.00 per share, less the exercise price of such
related options and less any applicable withholding taxes. See "THE MERGER
AGREEMENT - Conditions to the Merger."
Additional Agreements Between the
Company and OSI; Other Offers
In the Merger Agreement, the Company has agreed, among other things, that
(i) the Company and each of its subsidiaries will conduct business only in the
ordinary and usual course; (ii) neither the Company nor any of its subsidiaries
will, directly or indirectly, nor will the Company or any of its subsidiaries
permit their respective officers, directors, employees, agents and
representatives to, encourage, solicit or initiate the submission of any
proposed merger or other business combination, sale or other disposition of any
material amount of assets, sale of shares of capital stock, tender offer or
exchange offer or similar transactions involving the Company or any of its
subsidiaries (an "Acquisition Proposal"), enter into any agreement with respect
to any Acquisition Proposal or participate in any way in discussions or
negotiations with, or, furnish any information to, any other party in
connection with, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal, provided, however, that the Company may
participate in discussions or negotiations with or furnish information to any
third party which proposes a transaction which the Board of Directors of the
Company reasonably believes will result in a tender offer, a merger or a sale
of all or substantially all of the assets of the Company on terms which the
Board of Directors of the Company determines in its good faith judgment to be
more favorable to the Company's shareholders than the transactions contemplated
by the Merger Agreement (a "Superior Proposal") if the Board of Directors
reasonably determines, in its good faith judgment (and has been advised by
independent legal counsel), that failing to take such action would constitute a
breach of its fiduciary obligations under applicable law; (iii) the Company
shall advise OSI of any request for information or of any Acquisition Proposal,
the material terms and conditions of such request or proposal and the identity
of the person making any such proposal or inquiry and will keep OSI fully
informed in all material respects of the status and of any such request,
proposal or inquiry and the details of any information requested of or provided
by the Company and of all discussions or negotiations with respect to any such
request, proposal or inquiry; and (iv) neither the Board of Directors of the
Company nor the Special Committee shall withdraw or modify, or propose to
withdraw or modify, in a manner adverse to OSI the approval and recommendation
of the Merger and the Merger Agreement or approve or recommend, or propose to
approve or recommend, any Acquisition Proposal unless the Merger Agreement
shall have been terminated in accordance with its terms. . See "THE MERGER
AGREEMENT - Additional Agreements Between the Company and OSI" and "- Other
Offers."
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Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time by mutual consent of the Company and OSI or by either the Company or OSI
if, among other things, (i) any governmental or regulatory agency shall have
issued an order, decree or ruling permanently enjoining, restraining or
otherwise prohibiting the consummation of the Merger and such order, decree or
ruling is final and nonappealable, (ii) the Merger has not become effective by
February 12, 1997, (iii) the Board of Directors of the Company and, if
required, the Special Committee, determines in its good faith judgment that an
Acquisition Proposal will result in a Superior Proposal and the Board
determines in its good faith judgment (and has been advised by independent
legal counsel) that a failure to terminate this Agreement and enter into an
agreement to effect the Superior Proposal would constitute a breach of its
fiduciary obligations under applicable law; provided, however that the Company
has given reasonably prompt written notice to OSI of the receipt of such
Acquisition Proposal and following such notification by the Company to OSI of
receipt of such Acquisition Proposal, the Company has kept OSI reasonably
informed of the terms and conditions of such Acquisition Proposal and the
identity of the party making such proposal, and prior to or simultaneously with
such termination the Company has paid OSI the termination fee specified in the
Merger Agreement and prior to or simultaneously with such termination the
Company enters into a definitive acquisition, merger or similar agreement to
effect the Superior Proposal.
In addition, the Merger Agreement may be terminated by OSI if, among other
things, (i) there shall have been a breach of any representation or warranty on
the part of the Company contained in the Merger Agreement which would
reasonably be expected to have a material adverse effect on the business,
properties, assets, liabilities, operations, financial condition, results of
operations or prospects of the Company and its subsidiaries taken as a whole (a
"Material Adverse Effect"), (ii) there shall have been a material breach of any
covenant or agreement on the part of the Company contained in the Merger
Agreement and the Company has failed to cure such breach within ten days after
written notice from OSI, or (iii) the Board of Directors of the Company or the
Special Committee has withdrawn or modified in a manner adverse to OSI its
approval or recommendation of the Merger Agreement or the Merger and has not
reinstated such approval or recommendation within three business days or the
Company has entered into a definitive acquisition, merger or similar agreement
to effect a Superior Proposal.
In addition, the Company may terminate the Merger Agreement if (i) the
Merger has not been consummated within 60 days after approval of the Merger
Agreement and the Merger by the Company's shareholders, unless the Merger has
not been consummated because of an intentional or willful material breach of
any representation or warranty on the part of the Company set forth in the
Merger Agreement or because of a material breach of any obligation, covenant or
agreement on the part of the Company set forth in the Merger Agreement which
the Company has failed to cure within ten days after written notice thereof by
OSI to the Company, (ii) any of the representations and warranties of OSI or
Boxer contained in the Merger Agreement were untrue or incorrect in any
material respect when made or have since become, and at the time of termination
remain, incorrect in any material respect, or (iii) OSI
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<PAGE> 20
or Boxer breaches or fails to comply in any material respect with its
obligations under the Merger Agreement.
Termination Fee
Under the following circumstances, the Company has agreed to pay to OSI,
in cash, a termination fee of $4,800,000 (the "Termination Fee") plus
reimbursement for the out-of-pocket fees and expenses reasonably incurred by
OSI in connection with the Merger and the transactions contemplated thereby
(not to exceed $1,500,000 in the aggregate): (i) if the Merger Agreement is
terminated (A) by the Company because of the failure of the Merger to be
consummated by February 12, 1997, under circumstances where the Company's
shareholders have not approved the Merger Agreement and Merger but the other
significant conditions to the Company's obligation to close have been
satisfied, including the obtaining by OSI of its financing to complete the
Merger, and prior to such termination, the Company shall have notified its
shareholders that a third party has made a Superior Proposal or a third party
has publicly announced a proposal which represents a Superior Proposal, or (B)
by OSI (1) as a result of an intentional or willful breach by the Company of
its representations and warranties set forth in the Merger Agreement, (2) as a
result of a breach of any covenant or agreement on the part of the Company set
forth in the Merger Agreement which it has failed to cure within ten days after
written notice or (3) if the Board of Directors of the Company or the Special
Committee has withdrawn or modified in a manner adverse to OSI its approval or
recommendation of the Merger Agreement or the Merger and has not reinstated
such approval or recommendation within three business days or the Company has
entered into a definitive acquisition, merger or similar agreement to effect a
Superior Proposal, and within twelve months after such termination, the Company
enters into an agreement with respect to any merger or any other business
combination, sale or other disposition of any material amount of assets, sale
of shares of capital stock, tender offer or exchange offer or similar
transaction involving the Company or any of its subsidiaries (a "Third Party
Acquisition"), or a Third Party Acquisition occurs, involving any party (or any
affiliate or associate thereof) (x) with whom the Company (or its agents)
during the term of the Merger Agreement had any discussions with respect to a
Third Party Acquisition, (y) to whom the Company (or its agents) during the
term of this Agreement furnished information with respect to or with a view
toward a Third Party Acquisition, or (z) who during the term of this Agreement
had submitted a proposal or expressed any interest publicly or to the Company
in a Third Party Acquisition, which Third Party Acquisition contemplates a
direct or indirect consideration for shares of Common Stock in excess of the
Merger Consideration, in the case of each of clauses (x), (y) and (z) prior to
such termination or (ii) if this Agreement is terminated by the Company because
of its acceptance of a Superior Proposal in the manner permitted by the Merger
Agreement.
If OSI terminates the Merger Agreement (i) as a result of an intentional
or willful breach of any representation or warranty which would reasonably be
expected to have a Material Adverse Effect, (ii) because a material breach of
any covenant or agreement on the part of the Company contained in this
Agreement which the Company has failed to cure within ten days after written
notice thereof from OSI, or (iii) because the Board of Directors of the
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<PAGE> 21
Company or the Special Committee has withdrawn or modified in a manner adverse
to OSI its approval or recommendation of this Agreement or the Merger and has
not reinstated such approval or recommendation within three business days
thereof or the Company has entered into a definitive acquisition, merger or
similar agreement to effect a Superior Proposal, then the Company is required
to pay OSI, in cash, $1,000,000, plus, reimbursement of OSI's out-of-pocket
fees and expenses reasonably incurred by it in connection with the Merger and
the transactions contemplated thereby (not to exceed $1,500,000 in the
aggregate). Such payment will be applied against the Termination Fee which the
Company may be required to pay in certain circumstances as described above.
See "THE MERGER AGREEMENT - Expenses and Termination Fees."
Indemnification
OSI has agreed that for a period of six years from the Effective Time, the
Articles of Incorporation and the by-laws of the Surviving Corporation will
contain the provisions with respect to indemnification and exculpation from
liability set forth in the Company's Articles of Incorporation and by-laws on
the date of the Merger Agreement, and will not amend, repeal or modify the same
in any manner that would adversely affect the rights thereunder of individuals
who on or prior to the Effective Time were directors, officers, employees or
agents of the Company, unless such modification is required by law. In
addition, OSI has agreed for a period of three years after the Effective Time
to maintain in effect directors' and officers' insurance covering those persons
who are currently covered by the Company's directors' and officers' liability
insurance policy on terms comparable to such existing coverage provided that if
the premium would exceed 150% of the 1996 premium, the amount of coverage may
be reduced to the amount which can be obtained for 150% of the 1996 premium.
See "THE MERGER AGREEMENT - Indemnification."
TREATMENT OF STOCK OPTIONS
At the Effective Time, all options to purchase Common Stock under the
Company's 1988 Stock Option Plan and 1992 Stock Option Plan will be deemed to
be fully vested and option holders shall be entitled, upon exercise of the
Options on or after the Effective Time, only to receive the Merger
Consideration, without interest, subject to any applicable withholding taxes,
(the "Cash Payment"). All option holders have agreed to surrender their options
and receive in cancellation and settlement thereof a cash consideration equal
to the Cash Payment, less the exercise price of the related options.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN
OTHER BENEFICAL OWNERS
As of the Record Date, the directors and executive officers of the
Company, as a group, owned 2,008,935 shares of the Common Stock, or
approximately 19.8% of the shares outstanding on such date. The only persons
known by the Company to beneficially own five percent (5%) or more of the
Common Stock as of the Record Date were Dennis G. Punches,
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the Chairman of the Board of the Company, State of Wisconsin Investment Board
and Heartland Advisors, Inc. See "STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL
SHAREHOLDERS."
MARKET PRICE OF COMMON STOCK
The Common Stock is quoted on the NASDAQ National Market under the symbol
"PAYC." On July 22, 1996, the last full trading day prior to the public
announcement that the Company was engaged in discussions with potential
acquirers, the high and low prices per share reported on the NASDAQ National
Market for the Common Stock were $9.25 and $8.75, respectively. On August 13,
1996, the last full trading day prior to the public announcement of the signing
of the Merger Agreement, the high and low bid prices per share reported on the
NASDAQ National Market for the Common Stock were $12.00 and $11.50,
respectively. For further information, see "MARKET PRICE OF COMMON STOCK."
SELECTED CONSOLIDATED FINANCIAL DATA
Certain selected historical financial data of the Company is set forth
under "SELECTED CONSOLIDATED FINANCIAL DATA." That data should be read in
conjunction with the consolidated financial statements and related notes
incorporated by reference in this Proxy Statement. See "INCORPORATION OF
INFORMATION BY REFERENCE."
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INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation by
the Company of proxies to be voted at a Special Meeting of Shareholders of the
Company to be held on October 28, 1996 (the "Special Meeting"). This Proxy
Statement is first being mailed to shareholders of the Company on or about
October 4, 1996.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve the Agreement and Plan of Merger, dated as of August 13, 1996 (the
"Merger Agreement"), by and among the Company, OSI and Boxer, pursuant to
which, among other things, (a) Boxer will be merged with and into the Company
(the "Merger") and (b) each share of Common Stock outstanding immediately prior
to the Merger (other than shares owned by the Company, OSI and OSI
subsidiaries) will be converted into the right to receive $14.00 in cash,
without interest, less any applicable withholding taxes. In addition, each
holder of an employee stock option to acquire shares of Common Stock will,
immediately after the Effective Time, become entitled to receive a cash payment
equal to $14.00 less the per share exercise price under the option for each
share of Common Stock covered by such option, less any applicable withholding
taxes. Upon the consummation of the Merger, the separate existence of Boxer
will cease, all of the rights, privileges, powers, franchises, properties,
assets, liabilities and obligations of Boxer will be vested in the Company and
the Company will become a wholly owned subsidiary of OSI. See "THE MERGER
AGREEMENT - The Merger."
THE BOARD OF DIRECTORS OF THE COMPANY AND THE SPECIAL COMMITTEE OF THE BOARD OF
DIRECTORS HAVE DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND
ITS SHAREHOLDERS AND RECOMMEND THAT THE SHAREHOLDERS OF THE COMPANY APPROVE THE
MERGER AGREEMENT.
PARTIES TO THE MERGER
THE COMPANY
The Company is a leading provider of a full range of accounts receivable
management services, including customer service outsourcing. The Company
provides nationwide account coverage through its network of 37 offices across
the United States and Puerto Rico and employs more than 3,300 people. The
Company is also a majority owner of joint ventures in Mexico City, Mexico and
Tokyo, Japan that provide receivable management services.
OSI
OSI, based in Atlanta, was formed in September 1995 by McCown De Leeuw &
Co., a private investment company, to build the largest single-source provider
of a full range of
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accounts receivable management services to credit issuers. OSI's strategy is to
acquire leaders in various accounts receivable management businesses, including
contingent fee collection services, debt portfolio purchasing, billing,
teleservicing and complete functional outsourcing. OSI currently has three
separate operating companies, Account Portfolios, Inc., A.M. Miller &
Associates, Inc. and Continental Credit Services, Inc.
BOXER
Boxer is a wholly owned subsidiary of OSI and was formed by OSI to effect
the Merger and has had no prior business. Upon consummation of the Merger,
Boxer will be merged with and into the Company, and Boxer's separate corporate
existence will thereupon cease.
THE SPECIAL MEETING
DATE, TIME AND PLACE OF SPECIAL MEETING
The Special Meeting is scheduled to be held at 11:00 a.m., local time, on
October 28, 1996, at the Company's executive offices located at 180 North
Executive Drive, Brookfield, Wisconsin 53005.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of shares of Common Stock at the close of business
on September 20, 1996 (the "Record Date") may vote at the Special Meeting or at
any adjournments or postponements thereof. As of the Record Date, there were
10,155,085 shares of Common Stock outstanding, the only class of securities of
the Company entitled to vote at the Special Meeting, held by approximately 570
shareholders of record. Each shareholder is entitled to one vote for each share
registered in the shareholder's name on the Record Date.
VOTING PROXIES
The Company's Board of Directors is soliciting proxies for the Special
Meeting. When a proxy card is returned properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. However, if a shareholder does not return a signed proxy card, his
or her shares will not be voted by the proxies. Shareholders are urged to mark
the boxes on the proxy card to indicate how their shares are to be voted. IF A
SHAREHOLDER RETURNS A SIGNED PROXY CARD AND A CHOICE IS NOT SPECIFIED, THE
SHARES REPRESENTED BY THAT PROXY CARD WILL BE VOTED IN FAVOR OF APPROVAL OF THE
MERGER AGREEMENT AND MAY ALSO BE VOTED IN THE PROXY HOLDER'S DISCRETION ON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF, EXCEPT THAT SHARES REPRESENTED BY PROXIES WHICH HAVE
BEEN VOTED "AGAINST" THE APPROVAL OF THE MERGER AGREEMENT WILL NOT BE USED TO
VOTE "FOR" POSTPONEMENT OR
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ADJOURNMENT OF THE SPECIAL MEETING FOR THE PURPOSE OF ALLOWING ADDITIONAL TIME
FOR SOLICITING ADDITIONAL VOTES FOR THE APPROVAL OF THE MERGER AGREEMENT. See
"THE SPECIAL MEETING - Vote Required."
Shareholders of the Company who execute proxies retain the right to revoke
them at any time before they are voted. Any proxy given by a shareholder may be
revoked (i) by duly executing and delivering a later proxy prior to the
exercise of such proxy, (ii) by giving notice of revocation in writing to the
Secretary of the Company prior to the meeting, at 180 North Executive Drive,
Brookfield, Wisconsin 53005, or (iii) by attending the Special Meeting and
voting in person.
VOTE REQUIRED
A quorum for the transaction of business at the meeting consists of
holders of the majority of the outstanding shares of the Common Stock, present
in person or by proxy. In the event that less than a majority of the
outstanding shares are present at the Special Meeting, either in person or by
proxy, a majority of the shares so represented may vote to adjourn the Special
Meeting from time to time without further notice, other than announcement at
the Special Meeting, until a quorum shall be present or represented.
The affirmative vote of holders of at least a majority of the outstanding
shares of Common Stock of the Company as of the Record Date is required to
approve and adopt the Merger Agreement and the transactions contemplated
thereby. Under the Wisconsin Business Corporation Law, in determining whether
the proposal regarding the adoption of the Merger Agreement has received the
requisite number of affirmative votes, abstentions and broker non-votes will be
counted and will have the same effect as a vote against such proposal.
As a condition to the execution of the Merger Agreement, OSI required that
certain of the directors and executive officers, namely Messrs. James R.
Bohmann, Patrick E. Carroll, William W. Kagel, Alvin W. Keeley, David S.
Patterson, Dennis G. Punches and Neal R. Sparby, as well as three additional
employees, enter into Voting Agreements, in the form of Annex B hereto, to vote
the shares owned by them for the approval of the Merger Agreement. As of the
Record Date, such individuals owned an aggregate of 2,030,985 shares of the
Common Stock of the Company, or approximately 20.0% of the issued and
outstanding shares on the Record Date.
NO APPRAISAL RIGHTS
The Common Stock is quoted on NASDAQ, and, consequently, pursuant to
Wisconsin law, holders of Common Stock do not have statutory appraisal or
dissenter's rights with respect to the Merger.
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<PAGE> 26
SOLICITATION OF PROXIES; EXPENSES
The cost of solicitation, including the cost of preparing and mailing the
Notice of the Special Meeting of Shareholders and this Proxy Statement, will be
paid by the Company. Solicitation will be made primarily by mailing this Proxy
Statement to all Shareholders entitled to vote at the Special Meeting. Proxies
may be solicited by officers and regular employees personally or by telephone,
but at no compensation in addition to their regular compensation as employees.
The Company may reimburse brokers, banks, and others holding shares in their
names for third parties, for the cost of forwarding Proxy Statements to and
obtaining proxies from third parties. In addition, while the Company has no
present intention to retain anyone to assist in soliciting proxies, the Company
may do so if it deems such action necessary.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
On several occasions over the past five years, Dennis G. Punches, Chairman
of the Board of the Company, received inquiries from various sources regarding
the sale of the Company. These inquiries were from brokers attempting to secure
a commission to locate a buyer. None of the inquiries were from people hired by
qualified buyers specifically to contact the Company and consequently, he
determined that none of these contacts represented inquiries from serious
buyers.
In 1995, Mr. Punches began to receive unsolicited inquiries directly from
companies involved in the accounts receivable management industry. Certain of
these organizations appeared to have the potential of being qualified buyers
that might present a serious offer that the Board of Directors should evaluate.
Mr. Punches assigned Joseph T. Treleven, the Director of Mergers/Acquisitions
for the Company and, from 1966 to 1987, its Executive Vice President and chief
operating officer and a director, to respond to these inquiries.
The first contact that led to the eventual signing of the Merger Agreement
occurred on July 17, 1995 when Mr. Frank J. Hanna, Jr. met with Messrs. Punches
and Treleven in Milwaukee. Mr. Hanna and his two sons, Frank J. III and David
G., were the former owners of Nationwide Credit, Inc. which they had sold
several years earlier. The sons had formed a new collection company, Account
Portfolios, L.P. ("AP") and it was proposed by the Hannas that AP and the
Company should merge. On September 25, 1995, Frank Hanna, Jr. called Mr.
Treleven to say AP had been sold to OSI and that McCown De Leeuw & Co.
("McCown"), the sponsor and major shareholder of OSI, wanted to speak to the
Company about a possible sale.
On October 21, 1995 Messrs. Punches and Treleven met in Atlanta with David
King, a partner with McCown, David Kreiss, President of OSI, Frank Hanna, Jr.,
Frank Hanna III, and David Hanna. At this meeting, Mr. King outlined the
leveraged buy-out concept and suggested a fact finding visit to Milwaukee.
Messrs. Punches and Treleven suggested McCown
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review the public financial information that was available concerning Payco and
present an estimated purchase price before any fact finding visit took place.
A confidentiality agreement was entered into on November 9, 1995 and, on
November 15, 1995, Mr. Kreiss contacted Mr. Treleven and said that OSI's
estimated purchase price would be in the range of $10.00 to $14.00 per share
and that an investment in OSI stock would be required on the part of the
Company's management. Mr. Treleven told Mr. Kreiss that he did not believe that
the price was adequate and that it was unlikely that the Board of Directors
would approve a transaction unless the price were more favorable to the
Company's shareholders. Mr. Treleven telephoned Mr. King on December 5, 1995 to
determine McCown's pricing rationale and Mr. King told him that the pricing was
based upon cash flow. Mr. Treleven stated the pricing did not recognize the
infrastructure that the Company had in place, an asset and capability that OSI
would have to acquire at some point. Mr. Treleven suggested that McCown and OSI
visit the Company when and if they were ready to acknowledge the value of the
Company's infrastructure, in addition to its cash flow.
On April 5, 1996, Mr. Kreiss called Mr. Treleven and suggested he, David
Hanna and Tyler Zachem of McCown visit Milwaukee to learn more about the
Company's data system, computer center, billing systems, and infrastructure.
This visit was held on April 22, 1996.
These contacts, as well as certain other contacts which the Company had
received and which are described below, were reported to the Board of Directors
at its annual meeting held on May 7, 1996. At this meeting, the Board of
Directors authorized continued discussions with the potential acquirors through
Mr. Treleven.
On June 11, 1996, Mr. Kreiss, representatives of McCown and
representatives of Goldman Sachs, advisor to OSI, visited Milwaukee and met
with Messrs. Punches and Treleven and with Neal R. Sparby, the Company's
President. At the conclusion of this meeting, the McCown representatives
expressed renewed interest in the Company and stated they would reconsider
their pricing. On June 25, 1996, McCown indicated that OSI would be willing to
pay as much as $14.50 per share for the Common Stock and requested a period of
time for conducting an extensive due diligence investigation of the Company
during which the Company would not be permitted to negotiate with other
potential acquirors, other than those which had previously contacted the
Company. Such a letter agreement was entered into on June 27, 1996 granting OSI
an exclusivity period of 30 days. This exclusivity period, subject to the
Company's ability to respond to other parties with which the Company had been
previously contacted, was extended several times during the course of
negotiations with McCown and OSI, resulting in the exclusivity period covering
the period from the initial letter on June 27, 1996 through the signing of the
Merger Agreement on August 13, 1996.
On June 26, 1996 the Board of Directors, by unanimous consent resolution,
formed a special committee of the Board (the "Special Committee") comprised of
Dennis Shea and Richard Miles, both of whom are directors with no other
affiliations with the Company. The resolution forming the Special Committee
required that any proposal to acquire the Company be approved by the Special
Committee as well as by a majority of the Board of Directors.
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From the period commencing on June 27, 1996 through August 12, 1996 when
the Board of Directors of the Company and the Special Committee met to consider
the Merger Agreement extensive negotiations continued between McCown and OSI on
the one hand and Messrs. Punches and Treleven on the Company's behalf. During
this period of time, the members of the Board of Directors, including the
members of the Special Committee, were kept advised of the progress of
negotiations and on July 29, 1996, with the approval of the Company's Board of
Directors, including the members of the Special Committee, William Blair was
retained to act as the Company's financial advisor, including rendering its
opinion as to the fairness of any proposed transaction. Also, in the course of
the negotiations over this period, McCown eliminated the requirement that the
management of the Company invest in OSI. OSI also indicated during this period
of time that it would require covenant not-to-compete agreements from nine
executive officers of the Company, including seven who were directors, as well
as from Mr. Treleven and a consulting agreement from Mr. Punches and employment
agreements from the other eight executive officers who would be required to
sign covenant not-to-compete agreements. Also, during this period of time, OSI
presented a draft of the Merger Agreement which was the subject of negotiations
regarding a number of issues, including the circumstances under which the
Company could terminate the Merger Agreement in order to accept a more
favorable proposal, the related breakup fee and the consequences of any breach
of the Merger Agreement by the Company.
On August 8, 1996, McCown and OSI indicated to Mr. Treleven that OSI was
prepared to pay $13.50 per share based on the Company's July, 1996 operating
results which were below budget and certain other factors discovered during the
due diligence review. After extensive negotiations during the next several
days, McCown and OSI agreed to increase their offer of $13.50 per share to
$14.00 per share and OSI and the Company resolved the remaining differences
over the terms and conditions of the Merger Agreement and the breakup fee if a
higher offer were presented to and accepted by the Company after the signing of
the Merger Agreement.
The Special Committee held meetings on June 26 and 28, July 3, 19 and 25
and August 9, 1996 for purposes of reviewing and monitoring developments in the
negotiations with OSI, the selection by the Board of William Blair as the
Company's financial advisor and the approval of the Merger Agreement. On August
12, 1996, the Board of Directors of the Company and the Special Committee met
to consider the Merger and a possible transaction with another potential
acquiror. The Board meeting commenced at 9:00 a.m. and was concluded at 6:00
p.m. During a recess of the Board meeting held in the afternoon, the Special
Committee also met for approximately one hour. During the course of the Board
meeting, (i) Mr. Treleven reported on the negotiations with OSI and other
parties, (ii) William Blair presented a detailed report on the valuation work
which it had performed and reported that it believed the Merger Consideration
was fair, from a financial point of view, to the Company's shareholders, (iii)
the Company's legal counsel reviewed the terms and conditions of the proposed
Merger Agreement in detail, and (iv) Mr. Punches reviewed the terms and
conditions of the covenant not-to-compete and consulting agreements that OSI
required the Company to enter into with himself, the covenant not-to-compete
and employment agreements that OSI
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required the Company to enter into with the eight other executive officers (six
of whom also serve as directors of the Company) and the covenant not-to-compete
agreement required to be entered into with Mr. Treleven. After extensive
discussions, the members of the Board of Directors in attendance at the
meeting, including both of the members of the Special Committee, unanimously
approved the Merger Agreement and the Merger. Late in the evening of August 13,
1996, the Company was able to fulfill the condition that all of the eight
executive officers of the Company, other than Mr. Punches, execute the proposed
employment agreements and covenant not-to-compete agreements with the Company
and that Mr. Treleven execute the proposed covenant not-to-compete agreement,
at which time the Merger Agreement was executed. The public announcement of the
signing of the Merger Agreement was made at about 9:00 a.m. on August 14, 1996.
During the period of time that the Company was engaged in negotiations
with OSI and McCown, the Company also held discussions with two other parties
that appeared to be serious potential acquirors of the Company. The discussions
with one of these parties ended without an offer being made to the Company. The
other party communicated an interest in acquiring 80% of the Common Stock in a
transaction which would have resulted in cash and the retention of an interest
in the stock of the restructured Company. The Board of Directors and William
Blair both concluded that the value of such offer was less than the $14.00 per
share offered by OSI. The Company requested such party to make an offer to
acquire all of the Company's shares of Common Stock for cash at a more
favorable price to the Company's shareholders, but no such proposal was made by
such party.
REASONS FOR THE MERGER
The Board of Directors and the Special Committee have determined that the
Merger Agreement and the Merger are advisable and fair to and in the best
interests of the Company and its shareholders and have approved the Merger
Agreement and the Merger by the unanimous vote of those directors present at
the meeting at which the matter was acted upon. Accordingly, the Board of
Directors and the Special Committee recommend that the shareholders of the
Company vote for approval of the Merger Agreement.
In reaching their determination that the Merger Agreement and the Merger
are in the best interests of the Company and its shareholders, the Board of
Directors and Special Committee considered a number of factors, including the
following:
(i) the relationship of the Merger Consideration to the historical
stock price for the Common Stock and the fact that the price represents a
substantial premium over the trading range of the Common Stock of the
Company over the prior four-year period (see "-Opinion of Financial
Advisor to the Company--Analysis of the Purchase Price");
(ii) information relating to the financial condition and results of
operations of the Company and management's estimates of the prospects of
the Company, which, in the view of the Board and the Special Committee,
supported a determination that the Merger Consideration was fair to the
Company's shareholders;
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(iii) the fact that the Company's business has become increasingly
competitive;
(iv) the lack of any proposals from any other third party at a price
or terms superior to the Merger Consideration to be received in the
Merger;
(v) the belief of the Board of Directors and the Special Committee
that the covenant not-to-compete and consulting and employment agreements
with certain executive officers and directors were appropriate in the
light of the nature of the Merger and were consistent with the
advisability and fairness of the Merger Agreement and the Merger to the
Company and its shareholders;
(vi) the opinion of William Blair that, as of such time, the $14.00
in cash per share of Common Stock to be received by the holders of shares
of Common Stock pursuant to the Merger Agreement is fair to such holders
from a financial point of view;
(vii) the view of the Board of Directors and the Special Committee
that the terms of the Merger Agreement, as reviewed by the Board and
Special Committee with outside legal counsel and William Blair, are
advisable and fair to the Company and its shareholders in the light of
the nature of the transaction with OSI and provide the Company with the
flexibility, under certain circumstances, to accept a Superior Proposal
for a competing transaction and terminate the Merger Agreement.
The foregoing discussion of the information and factors discussed by the
Board of Directors and the Special Committee is not meant to be exhaustive, but
includes material factors considered by the Board and the Special Committee.
The Board and the Special Committee did not quantify or attach any particular
weight to the various factors that they considered in reaching their
determination that the Merger is in the best interests of the Company's
shareholders.
RECOMMENDATION OF THE COMPANY'S BOARD OF
DIRECTORS AND SPECIAL COMMITTEE OF THE
BOARD OF DIRECTORS
THE BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
RECOMMEND THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN FAVOR OF THE APPROVAL OF
THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR TO
THE COMPANY
On August 12, 1996, William Blair delivered its oral opinion to the Board
of Directors of the Company and to the Special Committee, confirmed by its
written opinion on August 13,
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1996, that, as of the date of such opinion, the $14.00 in cash per share of
Common Stock to be received by the holders of shares of Common Stock pursuant
to the Merger Agreement is fair to such holders.
In connection with its opinion, William Blair reviewed, among other
things, (i) the Merger Agreement; (ii) the Annual Reports to Shareholders and
Annual Reports on Form 10-K of the Company for the five years ended December
31, 1995; (iii) certain interim reports to shareholders and Quarterly Reports
on Form 10-Q of the Company; (iv) certain other communications from the Company
to its shareholders; and (v) certain internal financial analyses and forecasts
for the Company prepared by its management. William Blair also held discussions
with members of the senior management of the Company regarding its past and
current business operations, financial condition and future prospects. In
addition, William Blair reviewed the reported price and trading activity for
the Common Stock, compared certain financial and stock market information for
the Company with similar information for certain other companies, the
securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the accounts receivable management
industry specifically and in other industries generally and performed such
other studies and analyses as it considered appropriate.
William Blair relied without independent verification upon the accuracy
and completeness of all of the financial and other information reviewed by it
for purposes of its opinion. In addition, William Blair has not made an
independent evaluation or appraisal of the assets and liabilities of the
Company or any of its subsidiaries and William Blair has not been furnished
with any such evaluation or appraisal.
The following is a summary of certain of the financial analyses used by
William Blair in connection with providing its oral opinion to the Board of
Directors of the Company on August 12, 1996, and confirmed in its written
opinion on August 13, 1996. The full text of the opinion of William Blair,
dated August 13, 1996, is attached hereto as Annex C. Shareholders of the
company are urged to, and should, read such opinion in its entirety. The
summary of the opinion of William Blair set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of such opinion.
William Blair's opinion is directed only to the fairness from a financial point
of view of the consideration to be received by holders of shares of the Common
Stock pursuant to the Merger and does not constitute a recommendation to any
Company shareholder as to how to vote at the Special Meeting.
In arriving at its fairness opinion, William Blair (a) reviewed the terms
and conditions of the Merger Agreement and the financial terms of the Merger as
set forth in the Merger Agreement; (b) analyzed certain publicly available
financial statements of the Company; (c) analyzed certain financial and other
information relating to the prospects of the Company provided to William Blair
by the Company's management, including financial projections; (d) discussed the
past and current operations and financial condition and the prospects of the
Company with senior executives of the Company; (e) reviewed the historical
prices and trading activity for the Common Stock; (f) reviewed the financial
terms, to the extent publicly
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available, of selected actual business combinations William Blair believed to
be relevant; and (g) performed such other analyses as William Blair deemed
appropriate.
In connection with its review, William Blair assumed and relied upon the
accuracy and completeness of all such information and did not attempt to verify
independently any of such information. In addition, William Blair did not make
or obtain an independent valuation, appraisal or physical inspection of any of
the assets, properties or liabilities of the Company. With respect to financial
projections, William Blair assumed that the projections had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the Company's management as to the future financial performance of
the Company, and that such projections provided a reasonable basis upon which
William Blair could form an opinion. William Blair assumed no responsibility
for, and expressed no view as to, such forecasts or the assumptions on which
they were based. William Blair's opinion is necessarily based solely upon
information available to William Blair and business, market, economic and other
conditions as they existed on, and could be evaluated as of, August 13, 1996.
William Blair also assumed that the Merger could be consummated on the terms
described in the Merger Agreement without any waiver of any material terms or
conditions by the Company.
The following presentation summarizes certain financial analyses performed
by William Blair in arriving at its opinion dated August 13, 1996, which
analyses William Blair discussed with the Board of Directors of the Company.
Analysis of Historical Projections. William Blair relied on the
projections of management in arriving at its valuation of the Common Stock. As
part of its analysis, William Blair examined actual income statement results
for 1993, 1994 and 1995, respectively against the original management
projections compiled at the beginning of each of those years. William Blair
noted that the actual operating income fell short of management estimates by
10% to 21% per year while net income fell short of management estimates by 8%
to 29% per year.
Implied Future Share Price Analysis. Using the projections by the
Company's management of future earnings and a discount rate equal to the
Company's estimated cost of equity of 14%, William Blair estimated that the
present value of the Company's stock based on the projected price in the year
1998 would be $11.48 per share at a price/earnings multiple of 15, $13.01 at a
price/earnings multiple of 17 and $14.54 at a price/earnings multiple of 19.
Applying the same methodology to projected earnings in 2000 yielded a present
value stock price of $12.36 per share at a price/earnings multiple of 15,
$14.01 at a price/earnings multiple of 17 and $15.66 at a price/earnings
multiple of 19. The 15 to 19 range of price/earnings multiples used in the
analysis approximates the actual range of multiples of trailing 12 months
earnings per share at which the Common Stock has traded over the last two
years.
Comparable Company Analyses. William Blair compared selected historical
and projected operating information, stock market data and financial ratios for
the Company to selected historical and projected operating information, stock
market data and financial ratios of certain other publicly traded credit
services companies including Union Corporation,
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Equifax, Inc., Dun & Bradstreet Corporation, First Data Corporation, SPS
Transaction Services, Inc., CRW Financial, Inc., National Data Corporation and
Deluxe Corporation. For these companies used as comparables, an analysis of
current stock prices to most recent twelve months earnings per share yielded a
range of 8.9 to 44.1 times earnings with a median of 33.8 times earnings,
compared to 30.5 times earnings for the Company in the Merger. An analysis of
current stock price to projected calendar 1996 earnings per share yielded a
range for the comparable companies of 11.2 to 35.2 times earnings with a median
of 20.6 times earnings compared to 25.1 times earnings for Company in the
Merger. An analysis of current stock prices to projected calendar 1997 earnings
per share yielded a range for the comparable companies of 9.7 to 27.5 times
earnings with a median of 17.3 times earnings compared to 17.1 times earnings
for the Company in this transaction. William Blair indicated that the price to
last twelve months, estimated calendar 1996 and estimated calendar 1997
earnings multiples calculated for the Company based on the financial terms of
the Merger were within the ranges of multiples of the comparable companies and
above the medians for price to projected 1996 earnings.
Stock Price Analysis. William Blair examined the history of the trading
prices and volume for the Common Stock over a two year period. This analysis
revealed that between August 2, 1994 and August 2, 1996, over 92% of the Common
Stock trading volume had been at or below $10.00 per share and 100% had been
traded at or below $12.50 per share. Further analysis revealed that none of the
volume that had traded above $10.00 had occurred until after the public
announcement of negotiations by the Company with potential acquirors on July
23, 1996.
Comparable Acquisitions Analysis. William Blair reviewed 66 mergers and
acquisitions involving credit services and management services companies during
the period from January 1, 1990 to July 26, 1996. In examining these
transactions, William Blair analyzed certain income statement and balance sheet
parameters of the acquired companies relative to the consideration paid.
Multiples analyzed included total transaction value (defined as transaction
equity value adjusted by adding long-term debt and subtracting cash and
short-term investments) as a multiple of latest twelve months revenues, last
twelve months earnings before interest, taxes, depreciation and amortization
("EBITDA") and last twelve months earnings before interest and taxes ("EBIT").
In certain cases, complete financial data were not publicly available for these
transactions and only partial information was used in such instances. An
analysis of these ratios yielded a median range of value for the Common Stock
of between $10.79 and $13.72, as compared to the Merger Consideration of $14.00
per share.
Acquisitions Premium Analysis. William Blair's analysis also indicated
that the average percentage premium of offer prices to trading prices one month
prior to the announcement date for publicly announced transactions was 41.1% in
1992, 38.8% in 1993, 41.9% in 1994, 45.4% in 1995 and 32.0% in the first
quarter of 1996. The Merger Consideration of $14.00 per share represented a
premium based on the Company's closing stock price as of July 22, 1996 (the
date immediately prior to the Company's public disclosure of negotiations with
OSI) of 51.4%
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Discounted Cash Flow Analysis. William Blair performed a discounted cash
flow analysis of the Company. The analysis was performed on two sets of
projections, a base case projection and a conservative projection, both
provided by the Company's management. Using assumed weighted average costs of
capital between 12.5% and 13.5%, the base case analysis yielded values ranging
from $13.99 to $16.34 per share of the Common Stock while the conservative case
yielded values ranging from $9.74 to $11.30 per share, compared to the Merger
Consideration of $14.00 per share.
Leveraged Buyout Analysis. William Blair also analyzed implied returns to
investors based upon an assumed leveraged buyout. This analysis indicated that
in order to pay the $14.00 per share being paid in the Merger, approximately
$6,000,000 of annual operating income benefit over and above management
projections would be required to be obtained by the buyer in the form of cost
savings or revenue increases to achieve an assumed minimum required return on
invested common equity of approximately 25%.
While the foregoing summary describes all analyses and examinations that
William Blair deems material to its opinion, it is not a comprehensive
description of all analyses and examinations actually performed by William
Blair in connection with its fairness opinion. The preparation of a fairness
opinion involves various subjective business determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances, and therefore such an opinion is
not readily susceptible to partial analysis or summary description.
Accordingly, notwithstanding the separate factors summarized above, William
Blair believes that its analyses must be considered as a whole and that
selecting portions of its analyses and considering individual factors without
considering all analyses and factors could create an incomplete and misleading
view of the evaluation process underlying its opinion. With respect to
comparable companies analyses and comparable transaction analyses, a particular
analysis performed by William Blair is not necessarily indicative of actual
values, which may be significantly higher or lower than suggested by such
analyses, The analyses are not appraisals and do not necessarily reflect the
prices for which businesses actually could be sold or actual values or future
results that might be achieved. In addition, William Blair used in its analyses
various projections as to the future performance of the Company. Such
projections are based on numerous variables and assumptions that are inherently
unpredictable and must be considered not certain of occurrence as projected.
Accordingly, actual results could vary significantly from those set forth in
such projections. William Blair's analyses were prepared solely as part of
William Blair's review of the fairness of the consideration to be received by
the Company's shareholders, from a financial point of view, in connection with
the delivery of William Blair's opinion. In addition, William Blair's opinion
and presentation to the Company's Board was only one of the many factors taken
into consideration by the Company's Board in making its determination to
approve the Merger Agreement and the Merger.
Pursuant to the terms of the engagement by the Company as its financial
advisor in connection with the Merger, William Blair has been paid a total of
$250,000 in fees to date. Upon consummation of the Merger, William Blair will
receive a fee based on 7/10ths of one percent of the aggregate of the
consideration to be received by the Company's shareholders
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<PAGE> 35
and the excess of $14.00 per share over the exercise price of options to
acquire shares of the Common Stock outstanding at the date of the Merger (less
fees paid to date). This fee is expected to be approximately $1.0 million.
William Blair will be reimbursed for out-of-pocket expenses in connection with
the engagement. The Company has also agreed to indemnify and hold harmless
William Blair and certain related parties from and against certain liabilities,
including liabilities under the federal securities laws, in connection with its
engagement.
William Blair has in the past provided financial advisory and investment
banking services to the Company for which it received customary fees. William
Blair is a market maker for the Common Stock. William Blair, as part of its
investment banking business, is engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, underwritings,
private offerings of securities and valuations for corporate reorganizations
and other purposes. The Company's Board of Directors, with the concurrence of
the members of the Special Committee, selected William Blair to act as
financial advisor on the basis of William Blair's prior relationship with the
Company and because William Blair is a nationally recognized investment banking
firm that has substantial experience in transactions similar to the Merger.
INTERESTS OF CERTAIN PERSONS IN
THE MERGER
In considering the recommendation of the Board of Directors of the Company
with respect to the Merger, shareholders should be aware that certain executive
officers and directors of the Company have interests in connection with the
Merger.
Agreement to Vote for Merger Agreement and Merger
As a condition to the execution of the Merger Agreement, OSI required that
certain of the executive officers of the Company who also serve as directors,
namely Messrs. James R. Bohmann, Patrick E. Carroll, William W. Kagel, Alvin W.
Keeley, David S. Patterson, Dennis G. Punches and Neal R. Sparby, and three
other employees enter into Voting Agreements with OSI, in the form of Annex B
attached hereto, pursuant to which they have agreed to vote such shares in
favor of the Merger. As of the Record Date, such individuals owned an aggregate
of 2,030,985 shares of the Common Stock, or approximately 20.0% of the issued
and outstanding shares on the Record Date.
Consulting, Employment and Covenant Not-to-Compete Agreements
As a further condition to signing the Merger Agreement, OSI required the
Company to enter into the following agreements with certain of its executive
officers who also serve as directors of the Company: (i) a consulting agreement
with Dennis G. Punches, the Chairman of the Board of Directors, in the form
attached hereto as Annex D; (ii) a covenant not-to-compete agreement with Mr.
Punches in the form attached hereto as Annex E; (iii) employment agreements in
the form attached hereto as Annex F with six other directors who serve as
executive officers of the Company; and (iv) covenant not-to-compete agreements
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<PAGE> 36
in the form attached hereto as Annex G with the same six individuals who have
entered into employment agreements with the Company.
In the consulting agreement with Mr. Punches, he agrees to perform
advisory and consulting services for the Company as mutually agreed upon for a
three year period commencing at the Effective Time. Pursuant to the terms of
such agreement, the Company will reimburse Mr. Punches for all reasonable
expenses incurred by him in connection with the performance of such services
and will pay him a fee on the third anniversary of the Effective Time of
$150,000.
In the covenant not-to-compete agreement with Mr. Punches, he agrees for a
consideration of $3,000,000, payable to him at the Effective Time, that (i) for
a term of three years from the Effective Time he will not in North America
(including Canada, Mexico and Puerto Rico) and any other jurisdiction where the
Company is doing business or qualified to do business, directly or indirectly,
own, manage, operate, control, be employed by or participate in the ownership,
management, operation or control of, or be connected in any manner with a
business that is competitive with that currently conducted by the Company and
any of its subsidiaries, and (ii) with the exception of two specific employees,
he will not employ, solicit for employment or otherwise contract for the
services of any employee of the Company or its affiliates.
The employment agreements with the six directors, other than Mr. Punches,
who serve as executive officers provide that each such individual will be
employed by the Company in his or her present capacity for a one year period
commencing at the Effective Time. The names of such directors and executive
officers, their position with the Company and the salary payable to each of
them during such one year period are as follows: Neal R. Sparby, President and
Chief Executive Officer ($246,413); William W. Kagel, Senior Vice President-
Production ($217,913); Alvin W. Keeley, Senior Vice President-Marketing
($217,913); Patrick E. Carroll, Senior Vice President of Sales ($217,913);
James R. Bohmann, Senior Vice President - Corporate Development and Treasurer
($189,000); and David S. Patterson, Executive Vice President and Chief
Operating Officer ($207,900). Under the terms of these agreements, each of
these executive officers will receive during their terms of employment (i) for
the period of 1996 (and if applicable for the period of 1997) prior to the
Effective Time all or a ratable portion of their bonus in accordance with the
Company's past practices, (ii) medical and dental benefits and vacation and
sick leave in accordance with the Company's existing policies for key
employees, and (iii) reimbursement for all reasonable expenses incurred in
connection with the performance of their duties. Under the terms of the
employment agreements, the employment of any of such individuals may be
terminated by the Company with or without cause. If the employment of any of
said individuals is terminated without cause, he or she will be entitled to any
unpaid bonus and to his or her base salary for the period starting on the date
of such termination and ending on the first anniversary of the Effective Time,
reduced by any salary and bonus earned by such individual from other
employment. No severance amount is payable if the employee is terminated for
cause which is defined as (i) embezzlement, theft or other misappropriation of
Company property, (ii) gross or willful misconduct resulting in substantial
loss to, or substantial damage to the reputation of, the Company or any
subsidiary,
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(iii) any act involving moral turpitude which if the subject of a criminal
proceeding could reasonably result in a conviction of a felony involving moral
turpitude, fraud or misrepresentation, (iv) gross breach of fiduciary duty to
the Company or a subsidiary, or (v) any chemical dependence which materially
affects the performance of the employee's duties and responsibilities to the
Company or any subsidiary.
Pursuant to the covenant not-to-compete agreements with the six directors
and executive officers who have entered into employment agreements with the
Company as described above, each such individual agrees that (i) for a term of
one year from the Effective Time he or she will not in any jurisdiction where
the Company is doing business or qualified to do business, directly or
indirectly, own, manage, operate, control, be employed by or participate in the
ownership, management, operation or control of, or be connected in any manner
with a business that is competitive with that currently conducted by the
Company and any of its subsidiaries, and (ii) he or she will not employ,
solicit for employment or otherwise contract for the services of any employee
of the Company or its affiliates. The amounts payable to each such individual
at the Effective Time pursuant to the specific agreement entered into with him
or her are as follows: Neal R. Sparby ($100,000); William W. Kagel ($100,000);
Alvin W. Keeley ($100,000); Patrick E. Carroll ($100,000); James R. Bohmann
($100,000); and David S. Patterson ($25,000).
OSI also required the Company to enter into employment agreements and
covenant not-to-compete agreements on similar terms as described above with two
other executive officers who are not directors and also to enter into a
covenant not-to-compete agreement with Joseph T. Treleven, Director of
Mergers/Acquisitions of the Company, pursuant to which he will be paid $200,000
and will be restricted from competing for a three year period.
Stock Options
The six directors and executive officers who have entered into employment
and covenant not-to-compete agreements described above hold options to purchase
shares of the Common Stock, which options, at the Effective Time, will be
surrendered by each of them for cash payments to such individuals equal to
$14.00 per share less the exercise price of the related option and less any
applicable withholding taxes. The number of options held by each such
individual and the weighted average exercise price of the options held by him
or her are as follows: Neal R. Sparby - 49,377 shares ($8.85); William W. Kagel
- - 36,000 shares ($9.29); Alvin W. Keeley - 40,377 shares ($8.76); Patrick E.
Carroll - 42,960 shares ($8.71); James R. Bohmann - 43,878 shares ($8.76); and
David S. Patterson - 45,000 shares ($9.29). All of such options are fully
vested.
Common Share Equivalent Plan
The Company has in effect a Common Share Equivalent Plan pursuant to which
awards are made to key employees of the Company. While executive officers of
the Company are not eligible for awards under the Common Share Equivalent Plan,
two individuals who are directors and executive officers of the Company,
Patrick E. Carroll and James R. Bohmann,
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are participants under the Plan based on awards of 6,960 and 4,960 Units,
respectively, made to them prior to becoming executive officers. The value of
each Unit awarded under the Plan is equal to the value of one share of the
Common Stock but on May 20, 1993, Messrs. Carroll and Bohmann agreed to cap the
value of the Units awarded to them under the Plan at $7.50 each in
consideration of which the exercise price of options held by them for the
equivalent number of shares of Common Stock (which are included in the number
of options described above as held by them) were reduced from an exercise price
of $12.625 to a new exercise price of $7.50. Under the terms of the Plan and
elections made by them under the Plan, the value of the Units held by Messrs.
Carroll and Bohmann would have been paid to them upon the termination of their
employment with the Company. Under the terms of the Merger Agreement, the value
of all Units under the Common Share Equivalent Plan, subject to any applicable
cap on value, will be paid in cash at the Effective Time.
Indemnification of Directors and Officers
In the Merger Agreement, OSI agrees (i) that for a period of six years
from the Effective Time, to keep in effect and not amend, in any respect
adverse to the persons presently covered thereby, the provisions in the
Articles of Incorporation and the by-laws of the Company with respect to
indemnification and exculpation from liability of officers and directors of the
Company, and (ii) for a period of three years after the Effective Time to
maintain in effect directors' and officers' insurance covering those persons
who are currently covered by the Company's directors' and officers' liability
insurance policy on terms comparable to such existing coverage provided that if
the premium would exceed 150% of the 1996 premium, the amount of coverage may
be reduced to the amount which can be obtained for 150% of the 1996 premium.
See "THE MERGER AGREEMENT- Indemnification."
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations relevant to the Merger that are generally applicable to holders
of Common Stock. This discussion is based on currently existing provisions of
the Code, existing and proposed Treasury Regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences to the Company's shareholders as described herein.
The receipt by the shareholders of cash in the Merger for shares of Common
Stock will be a taxable transaction for federal income tax purposes. Each
shareholder's gain or loss per share will be equal to the difference between
$14.00 and the shareholder's tax basis per share in the Common Stock. If a
shareholder holds Common Stock as a capital asset, the gain or loss from the
exchange will be a capital gain or loss. This gain or loss will be long term if
the shareholder's holding period is more than one year.
THE FOREGOING TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS
BASED UPON PRESENT LAW. EACH SHAREHOLDER SHOULD
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CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES
OF THE MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECT OF CHANGES IN
SUCH TAX LAWS.
REGULATORY FILINGS AND APPROVALS
Under the HSR Act, and the rules promulgated thereunder by the FTC,
certain acquisition transactions, including the Merger, may not be consummated
until specified waiting period requirements have been satisfied. On August 30,
1996, the Notification and Report Forms required pursuant to the HSR Act were
filed by OSI and the Company with the Antitrust Division of the Department of
Justice and the FTC for review in connection with the Merger. As of September
11, 1996 the waiting period requirements were satisfied.
The receipt of all approvals, consents, authorizations, exemptions and
waivers from governmental agencies required in order to enable the parties to
consummate the transactions contemplated by the Merger Agreement is a condition
to the obligations of the parties. Certain notification and relicensing may be
required under the collection agency laws of various states in order for the
Company to be able to continue its business without interruption following the
Effective Time.
FINANCING OF THE MERGER
The estimated total amount of funds required to consummate the Merger is
approximately $150,235,000 plus approximately $18,500,000 to pay the related
fees and expenses, including the expenses associated with OSI's financing
transactions, or a total of approximately $168,735,000.
In order to complete the Merger and to refinance certain indebtedness of
OSI, OSI requires, and the Merger is conditioned upon OSI's obtaining,
financing in the amount of $250,000,000, including $200,000,000 in the form of
a senior credit facility, of which $150,000,000 would be borrowed at the time
of the consummation of the Merger, and the private placement or public offering
of approximately $100,000,000 of senior subordinated notes. This financing
would replace approximately $71,650,000 of OSI's indebtedness which is
currently outstanding.
OSI has received letters dated August 12, 1996 from Goldman Sachs and
Chase Securities that they are highly confident of their ability to sell or
place the senior subordinated notes subject to certain terms and conditions set
forth in such letters which are attached hereto as Annexes H and I,
respectively, including (i) the terms and conditions of the senior subordinated
notes and other debt of OSI being in acceptable form, (ii) the execution of
satisfactory documentation, (iii) the absence of material adverse change in the
business, condition, results of operations, assets, liabilities, or prospects
of the Company or OSI, (iv) the receipt of all necessary governmental,
regulatory and third party consents, (v) the
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results of such party's continuing due diligence not disclosing any fact which
would materially alter its view of the proposed transactions, (vi) the absence
of any disruption in the market for high yield debt securities, (vii) an
adequate amount of time to market the senior subordinated notes with the
assistance of management of the Company and OSI, (viii) there being at least
$50,000,000 available for borrowing under the senior credit facility, (ix) the
completion of an acceptable offering circular, and (x) the absence of any
change or proposed change in law which would have a material adverse effect on
the economic consequences of the transaction. The letters delivered by Goldman
Sachs and Chase Securities are not commitments to purchase or place the senior
subordinated notes. HOLDERS OF SHARES OF COMMON STOCK ARE URGED TO, AND SHOULD,
READ SUCH LETTERS IN THEIR ENTIRETY.
OSI has also received a letter dated August 7, 1996 from GSCP (formerly
known as Pearl Street L.P.), Chase Manhattan and Chase Securities in which (i)
each of GSCP and Chase Manhattan commits to make available one-half the
$200,000,000 senior credit facility required by OSI; (ii) GSCP and Chase
Manhattan agree to act as co-administrative agents with respect to the senior
credit facility and (iii) Goldman Sachs and Chase Securities agree to act as
arranging agents in connection with the senior credit facility. A copy of such
letter is attached hereto as Annex J. The commitments and agreements contained
in such letter are subject to a number of terms and conditions which are set
forth in such letters, including (i) the absence of material adverse change in
the business, condition, results of operations, assets, liabilities, or
prospects of the Company or OSI, (ii) the absence of any disruption or adverse
change in the financial or capital markets or market for loan syndications,
(iii) the satisfactory negotiation, execution and delivery of the loan
documentation, (iv) the satisfaction of such parties with the results of their
continuing due diligence investigation, (v) the receipt by OSI of at least
$100,000,000 in gross proceeds from the issuance of unsecured subordinated
indebtedness on terms and conditions reasonably satisfactory to GSCP and Chase
Manhattan, (vi) receipt of all necessary governmental, third party and
shareholder approvals, (vii) the corporate structure (and all agreements
relating thereto) of OSI and the Company, and all material contracts and
intangible assets of OSI and the Company, being reasonably satisfactory to GSCP
and Chase Manhattan, and (viii) receipt of a business plan submitted by OSI
with regard to the incorporation of the Company into OSI's business that is
reasonably satisfactory to GSCP and Chase Manhattan. HOLDERS OF SHARES OF
COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH LETTER IN ITS ENTIRETY.
THE MERGER AGREEMENT
The discussion in this Proxy Statement of the Merger and the description
of the principal terms of the Merger Agreement are subject to and qualified in
their entirety by reference to the Merger Agreement, a copy of which is
attached hereto as Annex A, and incorporated herein by reference, and to each
of the other Annexes to this Proxy Statement.
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THE MERGER
Pursuant to the terms of the Merger Agreement, at the Effective Time (i)
Boxer will be merged with and into the Company and will cease to exist as a
separate entity; (ii) the Company, as the surviving corporation in the Merger
(the "Surviving Corporation"), will become a wholly owned subsidiary of OSI;
and (iii) each outstanding share of Common Stock (other than shares owned by
the Company, OSI and OSI's subsidiaries) will be converted into the right to
receive $14.00 in cash, without interest, (the "Merger Consideration") less any
applicable withholding taxes.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of Articles of Merger
contemplated by the Merger Agreement with the Secretary of State of the State
of Wisconsin and a Certificate of Merger contemplated by the Merger Agreement
with the Secretary of State of the State of Delaware (the "Effective Time") in
accordance with the Wisconsin Business Corporation Law ("WBCL") and the
Delaware General Corporation Law ("DGCL"). Such filings will be made as soon as
practicable after all conditions to the Merger have been fulfilled or waived,
which is anticipated to be on or about the date of the Special Meeting. The
Merger Agreement also provides that (i) the Articles of Incorporation of the
Company shall be the Articles of Incorporation of the Surviving Corporation;
(ii) the Bylaws of the Company shall be the Bylaws of the Surviving
Corporation; (iii) the directors of Boxer shall be the initial directors of the
Surviving Corporation; (iv) the officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation; and (v)
the Merger shall, from and after the Effective Time, have all the effects
provided by the WBCL and the DGCL.
CONVERSION AND CANCELLATION OF
COMMON STOCK
Upon the consummation of the Merger, each then outstanding share of Common
Stock, other then shares owned by the Company, OSI or OSI's subsidiaries,
including Boxer, will be converted into the right to receive the Merger
Consideration, less any applicable withholding taxes. At the Effective Time,
all such shares of Common Stock will no longer be outstanding and will be
canceled and retired and will cease to exist, and each certificate representing
any shares of Common Stock will thereafter represent only the right to receive
the Merger Consideration, less any applicable withholding taxes.
EXCHANGE PROCEDURE
Promptly after the Effective Time, the Paying Agent appointed by OSI will
mail to each holder of record of a certificate or certificates that immediately
prior to the Effective Time represented outstanding shares of Common Stock (a
"Certificate" or "Certificates") which are being converted into the right to
receive the Merger Consideration
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pursuant to the Merger Agreement, a letter of transmittal with instructions for
use in effecting the surrender of the Certificates in exchange for the Merger
Consideration. After the Effective Time, there will be no further registration
of transfers on the stock transfer books of the Company, as the Surviving
Corporation, of shares of Common Stock. CERTIFICATES SHOULD NOT BE SURRENDERED
BY THE HOLDERS OF COMMON STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF
TRANSMITTAL.
Upon the surrender of a Certificate to the Paying Agent, together with a
duly executed letter of transmittal, the holder of such Certificate will be
entitled to receive in exchange therefor an amount of cash equal to $14.00,
without interest, multiplied by the number of shares of Common Stock
represented by such Certificate, less any applicable withholding taxes. In the
event of a transfer of ownership of Common Stock which is not registered on the
transfer records of the Company, the appropriate amount of the Merger
Consideration may be delivered to a transferee if the Certificate representing
such Common Stock is presented to the Paying Agent, together with the related
letter of transmittal, and accompanied by all documents required to evidence
and effect such transfer and to evidence that any applicable stock transfer
taxes have been paid.
Until a Certificate representing Common Stock has been surrendered to the
Paying Agent, each such Certificate will be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
Merger Consideration to which the shareholder is entitled under the Merger
Agreement.
CONDITIONS TO THE MERGER
The obligations of both OSI and the Company to effect the Merger are
subject to the condition that OSI has received the financing necessary to
enable it and Boxer to consummate the transactions contemplated by the Merger
Agreement. See "- Financing."
Each party's respective obligation to effect the Merger is also subject to
the following conditions: (i) the Merger Agreement and the Merger have been
approved and adopted by the holders of the outstanding Common Stock of the
Company in accordance with the requirements of the WBCL, (ii) the waiting
period applicable to the consummation of the Merger under the HSR Act shall
have expired or been terminated, (iii) no preliminary or permanent injunction
or other order has been issued by any court or by any governmental or
regulatory agency, body or authority which prohibits the consummation of the
Merger and the other transactions contemplated by the Merger Agreement, (iv) no
statute, rule, regulation, executive order, decree or order of any kind has
been enacted, entered, promulgated or enforced by any court or governmental
authority which prohibits the consummation of the Merger or has the effect of
making the consummation of the Merger illegal, and (v) all consents, approvals
or waivers, if any, required in connection with the consummation of the
transactions contemplated by the Merger Agreement have been received and all of
the consents, approvals, authorizations, exemptions and waivers from
governmental agencies that are required in order to enable the parties to
consummate the transactions contemplated by the Merger Agreement have been
obtained.
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The obligations of the Company to effect the Merger are also subject to
the satisfaction at or prior to the Closing Date of the Merger of each of the
following conditions, unless waived by the Company: (i) the representations and
warranties of OSI and Boxer contained in the Merger Agreement are true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date; (ii) all of the agreements of OSI and Boxer to be performed prior to
the closing pursuant to the Merger Agreement have been duly performed in all
material respects; and (iii) the Company has received a certificate of OSI
executed on its behalf by an executive officer of OSI to the effect that the
foregoing conditions have been satisfied and that OSI has received its
financing to consummate the Merger.
The obligations of OSI and Boxer to effect the Merger are also subject to
the satisfaction or waiver at or prior to the Effective Time of each of the
following conditions: (i) the representations and warranties of the Company
contained in the Merger Agreement are true and correct on and as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date, except where the failure of such
representations and warranties to be true and correct shall not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect;
(ii) all of the agreements of the Company to be performed prior to the Closing
pursuant to the terms of the Merger Agreement have been duly performed in all
material respects; (iii) OSI and Boxer have received a certificate of the
Company executed on its behalf by an executive officer of the Company to the
effect that the foregoing conditions have been satisfied; and (iv) the Company
has obtained all necessary consents to ensure that, upon the Effective Time,
the holders of options to purchase Common Stock of the Company have agreed to
surrender the same in cancellation and settlement thereof for a cash
consideration equal to $14.00 per share, less the exercise price of such
related options and less any applicable withholding taxes and that after the
Effective Time, the Surviving Corporation will have no obligation to issue,
transfer or sell any shares of common stock of the Surviving Corporation
pursuant to any employee benefit plan of the Company.
ADDITIONAL AGREEMENTS BETWEEN THE
COMPANY AND OSI
Under the terms of the Merger Agreement, for the period from the date of
the Merger Agreement and continuing until the closing of the Merger, the
Company has agreed to, and to cause each of its subsidiaries to, conduct its
operations only according to its ordinary and usual course of business; use its
reasonable efforts to (i) preserve intact its business organizations, (ii) keep
available the services of its officers and employees and (iii) maintain
satisfactory relationships with licensors, suppliers, distributors, customers,
landlords, employees, agents and others having business relationships with it.
Prior to the closing of the Merger, except as may be first approved in writing
by OSI or as is otherwise permitted or required by the Merger Agreement, the
Company has agreed in the Merger Agreement to, and to cause each of its
subsidiaries to: (a) maintain its Articles of Incorporation, by-laws and other
organizational documents, as applicable, in its form on the date of the Merger
Agreement, (b) other than in
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the ordinary course of business consistent with past practice, refrain from
paying or increasing any bonuses, salaries, or other compensation to any
director, officer, employee or stockholder or entering into any employment,
severance, or similar agreement with any director, officer, or employee, (c)
refrain from the adopting or, other than in the ordinary course of business
consistent with past practice, increasing of any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement, or other
employee benefit plan for or with any of its employees except as required by
law, (d) refrain from entering into any material contract or commitment except
material contracts and commitments in the ordinary course of business, (e)
refrain from increasing its indebtedness for borrowed money except current
borrowings in the ordinary course, (f) refrain from canceling or waiving any
claim or right of substantial value which individually or in the aggregate is
material, (g) refrain from declaring or paying any dividends in respect of its
capital stock or redeeming, purchasing or otherwise acquiring any of its
capital stock, (h) refrain from making any material change in accounting
methods or practices, except as required by law or generally accepted
accounting principles, (i) refrain from issuing or selling any shares of
capital stock or any other securities except pursuant to outstanding options,
or issuing any securities convertible into, or options, warrants or rights to
purchase or subscribe to, or entering into any arrangement or contract with
respect to the issue and sale of, any shares of its capital stock or any other
securities, or making any other changes in its capital structure, (j) refrain
from selling, leasing or otherwise disposing of any material asset or property
other than sales in the ordinary course of business consistent with past
practice, (k) refrain from making any capital expenditure or commitment
therefor, except in the ordinary course of business, (l) refrain from writing
off as uncollectible any notes or accounts receivable, except write-offs in the
ordinary course of business consistent with past practice, (m) refrain from
purchasing or otherwise acquiring portfolios of loans, notes, accounts
receivable, mortgages or other indebtedness, for a purchase price in excess of
$500,000 for any such portfolio, and (n) refrain from agreeing in writing to do
any of the foregoing.
The Company has also agreed to give prompt notice to OSI of: (i) the
occurrence, or non-occurrence, of any event known to the Company, the
occurrence, or non-occurrence, of which would reasonably be expected to cause
any representation or warranty of the Company contained in the Merger Agreement
to be untrue or inaccurate in any material respect, (ii) any failure of the
Company to comply with or satisfy any covenants, condition or agreement to be
complied with or satisfied by it under the Merger Agreement, (iii) any notice
of, or other communication relating to, a material default or event that, with
notice or lapse of time or both, would become a material default, received by
the Company or any of its subsidiaries subsequent to the date of the Merger
Agreement and prior to the Effective Time, under any material contract to which
the Company or any of its subsidiaries is a party or is subject, and (iv) the
occurrence of any event known to the Company which has resulted in or could
reasonably be expected to result in a Material Adverse Effect.
OTHER OFFERS
The Company has further agreed that neither the Company nor any of its
subsidiaries will, directly or indirectly, take (and the Company will not
authorize or permit its or its
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subsidiaries' officers, directors, employees, representatives, consultants,
investment bankers, attorneys, accountants or other agents or affiliates, to so
take) any action to (i) encourage, solicit or initiate the submission of any
proposed merger or other business combination, sale or other disposition of any
material amount of assets, sale of shares of capital stock, tender offer or
exchange offer or similar transactions involving the Company or any of its
subsidiaries (an "Acquisition Proposal"), (ii) enter into any agreement with
respect to any Acquisition Proposal or (iii) participate in any way in
discussions or negotiations with, or, furnish any information to, any person
(other than the Company, OSI or Boxer) in connection with, or take any other
action to facilitate any inquiries or the making of any proposal (including
without limitation by taking any action that would make Section 180.1141 of the
WBCL inapplicable to an Acquisition Proposal) that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal, provided, however,
that the Company may participate in discussions or negotiations with or furnish
information to any third party which proposes a transaction which the Board of
Directors of the Company reasonably believes will result in a Superior Proposal
if the Board of Directors determines, in its good faith judgment (and has been
advised by independent legal counsel), that failing to take such action would
constitute a breach of its fiduciary obligations under applicable law. In
addition, neither the Board of Directors of the Company nor the Special
Committee may withdraw or modify, or propose to withdraw or modify, in a manner
adverse to OSI the approval and recommendation of the Merger and the Merger
Agreement or approve or recommend, or propose to approve or recommend, any
Acquisition Proposal; provided that the Board of Directors of the Company and
the Special Committee may recommend to the Company's shareholders an
Acquisition Proposal and in connection therewith withdraw or modify its
approval or recommendation of the Merger Agreement and the Merger if (i) the
Board of Directors of the Company and the Special Committee have determined
that such Acquisition Proposal is a bona fide proposal made by a third party to
acquire not less than 80% of the outstanding shares of the Company pursuant to
a tender offer, a merger or a sale of all or substantially all of the assets of
the Company on terms which a majority of the members of the Board of Directors
of the Company determines in its good faith judgment to be more favorable to
the Company's shareholders than the transactions contemplated by the Merger
Agreement (a "Superior Proposal"), (ii) all the conditions to the Company's
right to terminate the Agreement in accordance with the terms of the Merger
Agreement have been satisfied (including the payment of the termination fee and
expenses of OSI as required by the Merger Agreement) and (iii) the Merger
Agreement is terminated in accordance with its terms. See "- Expenses and
Termination Fees."
The Company has also agreed in the Merger Agreement that on the date of
receipt thereof the Company will advise OSI of any request for information or
of any Acquisition Proposal, or any proposal with respect to any Acquisition
Proposal, the material terms and conditions of such request or takeover
proposal, and the identity of the person making any such takeover proposal or
inquiry. The Company has further agreed to keep OSI fully informed in all
material respects of the status and details (including amendments or proposed
amendments) of any such request, takeover proposal or inquiry and to keep OSI
fully informed in all material respects as to the details of any information
requested of or provided by theCompany and as to the details of all discussions
or negotiations with respect to any such request, takeover proposal or inquiry.
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TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, before or after the approval of the
Merger Agreement by the shareholders of the Company, by the mutual consent of
OSI and the Company. In addition, the Merger Agreement may be terminated and
the Merger may be abandoned by action of the Board of Directors of either OSI
or the Company if (i) any governmental or regulatory agency has issued a final,
non-appealable order, decree or ruling permanently enjoining, restraining or
otherwise prohibiting the consummation of the Merger; (ii) the Merger has not
been consummated by February 12, 1997; (iii) the Board of Directors of the
Company and, if required, the Special Committee, determines in its good faith
judgment that an Acquisition Proposal will result in a Superior Proposal and
the Board determines in its good faith judgment (and has been advised by
independent legal counsel) that a failure to terminate the Merger Agreement and
enter into an agreement to effect the Superior Proposal would constitute a
breach of its fiduciary obligations under applicable law and, if terminated by
the Company, the Company has given reasonably prompt written notice to OSI of
the receipt of such Acquisition Proposal and, following such notification, the
Company has kept OSI reasonably informed of the terms and conditions of such
Acquisition Proposal (and any modification thereto), and the identity of the
person making such proposal and, prior to or simultaneously with such
termination, the Company has paid the Termination Fee to OSI, in cash, and,
prior to or simultaneously with such termination, the Company entered into a
definitive acquisition, merger or similar agreement to effect the Superior
Proposal.
OSI may also terminate the Merger Agreement if (i) there has been a breach
of any representation or warranty on the part of the Company contained in the
Merger Agreement which would reasonably be expected to have a Material Adverse
Effect, (ii) there has been a material breach of any covenant or agreement on
the part of the Company contained in the Merger Agreement and the Company has
failed to cure such breach within ten days after written notice from OSI, or
(iii) the Board of Directors of the Company or the Special Committee have
withdrawn or modified in a manner adverse to Parent its approval or
recommendation of this Agreement or the Merger and have not reinstated such
approval or recommendation within three business days or the Company has
entered into a definitive acquisition, merger or similar agreement to effect a
Superior Proposal.
The Company may also terminated the Merger Agreement if (i) the Merger has
not been consummated within 60 days after approval of the Agreement and the
Merger by the Company's shareholders, unless the Merger has not been
consummated because of an intentional or willful material breach of any
representation or warranty on the part of the Company set forth in the Merger
Agreement or because of a material breach of any covenant or agreement on the
part of the Company set forth in the Merger Agreement which the Company has
failed to cure within ten days after written notice thereof by OSI to the
Company; or (ii) any of the representations and warranties of OSI or Boxer
contained in theMerger Agreement were untrue or incorrect in any material
respect when made or have since become, and at the time of termination remain,
incorrect in any material respect, or OSI or
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Boxer have breached or failed to comply in any material respect with any of
their respective obligations under the Merger Agreement
EXPENSES AND TERMINATION FEES
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Merger Agreement and the transactions contemplated
thereby will be paid by the party incurring such expense, except as further
described below. If (i) the Merger Agreement is terminated (A) by the Company
because the Merger has not been consummated by February 12, 1997 under
circumstances where the Company's shareholders have not approved the Merger
Agreement and the Merger but the other significant conditions to the Company's
obligations to close the transaction, including the obtaining by OSI of its
required financing, have been satisfied and prior to such termination, the
Company has notified its shareholders that a third party has made a Superior
Proposal or a third party has publicly announced a proposal which may represent
a Superior Proposal, or (B) by OSI as a result of an intentional or willful
breach of a warranty or representation of the Company set forth in the Merger
Agreement which would reasonably be expected to have a Material Adverse Effect
or as a result of an intentional or willful breach of any covenant or agreement
on the part of the Company set forth in the Merger Agreement and the Company
has failed to cure such breach within ten days after written notice from OSI,
and within twelve months after such termination, the Company enters into an
agreement with respect to a Third Party Acquisition, or a Third Party
Acquisition occurs, involving any party (or any affiliate or associate thereof)
(x) with whom the Company (or its agents) during the term of the Merger
Agreement had any discussions with respect to a Third Party Acquisition, (y) to
whom the Company (or its agents) during the term of the Merger Agreement
furnished information with respect to or with a view toward a Third Party
Acquisition, or (z) who during the term of the Merger Agreement submitted a
proposal or expressed any interest publicly or to the Company in a Third Party
Acquisition, which Third Party Acquisition contemplates a direct or indirect
consideration for shares of Common Stock in excess of the Merger Consideration,
in the case of each of clauses (x), (y) and (z) prior to such termination or
(ii) the Merger Agreement is terminated (A) by the Company because it has
accepted a Superior Proposal in accordance with the terms of the Merger
Agreement; or (B) by OSI because the Board of Directors of the Company or the
Special Committee has withdrawn or modified in a manner adverse to OSI its
approval or recommendation of the Merger Agreement or the Merger and has not
reinstated such approval or recommendation within three business days or the
Company has entered into a definitive acquisition, merger or similar agreement
to effect a Superior Proposal, then the Company is required to pay to OSI, in
cash, within two business days following such termination (except as required
to be earlier paid if the Company has terminated the Merger Agreement in
connection with the acceptance of a Superior Proposal in accordance with the
terms of the Merger Agreement) an amount equal to $4,800,000 (the "Termination
Fee") plus, within two business days of being furnished with appropriate
documentation, reimbursement for the out-of-pocket fees and expenses reasonably
incurred by OSI in connection with the Merger and the transactions contemplated
thereby (not to exceed $1,500,000 in the aggregate). The Company will receive
credit against such required payment for any amounts paid to OSI
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by the Company in the event that the Merger Agreement is terminated by OSI
as a result of an intentional or willful breach of a warranty or representation
of the Company set forth in the Merger Agreement which would reasonably be
expected to have a Material Adverse Effect or as a result of an intentional or
willful breach of any covenant or agreement on the part of the Company set
forth in the Merger Agreement which the Company has failed to cure within ten
days after written notice from OSI, as described below.
If OSI terminates the Merger Agreement as a result of an intentional or
willful breach of a warranty or representation of the Company set forth in the
Merger Agreement which would reasonably be expected to have a Material Adverse
Effect or as a result of an intentional or willful breach of any covenant or
agreement on the part of the Company set forth in the Merger Agreement which
the Company has failed to cure within ten days after written notice from OSI,
the Company is required to pay OSI, in cash, within two business days following
such termination $1,000,000, plus, within two business days of being furnished
with appropriate documentation, reimbursement for the out-of-pocket fees and
expenses reasonably incurred by OSI in connection with the Merger and the
transactions contemplated thereby (not to exceed $1,500,000 in the aggregate).
INDEMNIFICATION
OSI has agreed that the Articles of Incorporation and the by-laws of the
Surviving Corporation shall contain the provisions with respect to
indemnification and exculpation from liability set forth in the Company's
Articles of Incorporation and by-laws on the date of the Merger Agreement, and
that such provisions will not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who on or prior to the Effective
Time were directors, officers, employees or agents of the Company, unless such
modification is required by law.
OSI has further agreed that for three years from the Effective Time, the
Surviving Corporation shall maintain in effect the Company's current directors'
and officers' liability insurance policy covering those persons who are
currently covered on the date of the Merger Agreement by such policy but the
Surviving Corporation is not required to expend in any one year an amount in
excess of 150% of the $44,500 annual premiums currently paid by the Company for
such insurance (the "Current Premium") and if the annual premiums of such
insurance coverage exceed 150% of the Current Premium, the Surviving
Corporation may, at its option, terminate the existing policy and obtain a
policy with the greatest coverage available for a cost not exceeding 150% of
the Current Premium and containing terms and conditions which are no less
advantageous in any material respect to the Company's current and past
directors and officers and provided that said substitution does not result in
any gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time. Alternatively, the Surviving Corporation may either (i)
substitute for the Company policy a policy with at least the same coverage
containing terms and conditions which are no less advantageous in any
material respect to the Company's current and past directors and officers and
provided that said substitution does not result in any gaps or lapses in
coverage with respect to matters
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occurring prior to the Effective Time or (ii) cause OSI's directors' and
officers' liability insurance then in effect to cover those persons who are
covered on the date of the Merger Agreement by the Company's directors' and
officers' liability insurance policy, but only if OSI's policy provides at
least the same coverage containing terms and conditions which are no less
advantageous in any material respect to the Company's current and past
directors and officers and provided that said substitution does not result in
any gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time.
AMENDMENT
The Merger Agreement may be amended by OSI and the Company, by action
taken by their respective Boards of Directors, at any time before or after
approval of the Merger by the shareholders of the Company, but after any such
shareholder approval, no amendment may be made which by law requires the
further approval of shareholders unless such further approval is obtained.
TREATMENT OF STOCK OPTIONS
At the Effective Time, all options to purchase Common Stock under the
Company's 1988 Stock Option Plan and 1992 Stock Option Plan will be deemed to
be fully vested and option holders shall be entitled, upon exercise of the
Options on or after the Effective Time, only to receive the Merger
Consideration, without interest, subject to any applicable withholding taxes,
(the "Cash Payment"). All option holders have agreed to surrender their options
and receive in cancellation and settlement thereof a cash consideration equal
to the Cash Payment, less the exercise price of the related options.
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of the Record Date by (i) each director
of the Company, (ii) each of the Company's seven highest paid executive
officers, (iii) all of the Company's directors and executive officers as a
group, and (iv) each person who is known by the Company to own beneficially
more than five percent of the outstanding Common Stock:
42
<PAGE> 50
<TABLE>
<CAPTION>
Number of Shares Percent of
Name and Address Beneficially Owned (1)(2) Class
- ---------------- --------------------------- -------
<S> <C> <C>
Directors and Executive Officers(3)
James R. Bohmann 76,070(4) (5)
Patrick E. Carroll 75,747(4) (5)
Bo S. Goranson -- --
William A. Inglehart 15,596 (5)
William W. Kagel 154,208(4) 1.5%
Alvin W. Keeley 139,106(4) 1.4%
Raymond J. Larkin 600 (5)
Richard G. Miles -- --
David S. Patterson 45,585(4) (5)
Dennis G. Punches 1,602,681 15.8%
Dennis Shea 100 (5)
Neal R. Sparby 135,032(4) 1.3%
Directors and executive
officers as a group 2,353,899(4)(6) 22.4%
Other 5% Beneficial Owners
State of Wisconsin 957,000 9.4%
Investment Board
P.O. Box 7842
Madison, WI 53707
Heartland Advisors, Inc. 2,328,400 22.9%
790 North Milwaukee Street
Milwaukee, WI 53202
</TABLE>
__________
(1) Includes shares, if any, owned by spouse and minor children of each
director and officer. As to all material amounts of shares listed, the
indicated person possesses the sole voting and investment power unless
otherwise noted.
(2) Includes shares allocated to the account of each director and officer in
the Payco American Retirement Plan and Trust.
(3) The address of all directors and executive officers is c/o Payco American
Corporation, 180 North Executive Drive, Brookfield, Wisconsin 53005.
(4) Includes the following numbers of shares of common stock which such
individual or group has the right to acquire within 60 days of September
20, 1996 through the exercise of stock options: Mr. Bohmann - 43,878
shares; Mr. Carroll - 42,960 shares; Mr. Kagel -36,000 shares; Mr. Keeley
- 40,377 shares; Mr. Patterson - 45,000 shares; and Mr. Sparby - 49,377
shares; and all directors and executive officers as a group
43
<PAGE> 51
344,964 shares. For purposes of calculating the percentage of outstanding
shares beneficially owned by such individual or group, the shares which
such individual or group had the right to acquire within such period
through the exercise of stock options are deemed to be outstanding.
(5) Less than 1%.
(6) Does not include 108,322 shares owned by the Payco American Retirement
Plan and Trust and not allocated to the individual accounts of executive
officers or directors. If participants do not direct voting of shares
allocated to their accounts, the Trustee, who is selected by the Company,
may vote the shares as directed by the Company.
MARKET PRICE OF COMMON STOCK
The Common Stock is traded in the over-the-counter market on the NASDAQ
National Market under the symbol the "PAYC." The following table sets forth for
the periods indicated the high and low sale prices as reported by NASDAQ.
<TABLE>
QUARTER ENDED HIGH LOW
<S> <C> <C>
1993:
First Quarter 11.00 8.13
Second Quarter 9.25 7.25
Third Quarter 8.25 6.25
Fourth Quarter 11.50 7.00
1994:
First Quarter 12.00 9.00
Second Quarter 10.00 8.50
Third Quarter 9.50 8.25
Fourth Quarter 9.50 6.50
1995:
First Quarter 9.00 7.00
Second Quarter 8.50 6.38
Third Quarter 9.63 7.63
Fourth Quarter 9.50 8.25
1996:
First Quarter 9.50 7.00
Second Quarter 10.25 7.25
Third Quarter (through September 27) 13.75 8.75
</TABLE>
On July 22, 1996, the last full trading day prior to the public
announcement that the Company was engaged in discussions with potential
acquirors, the high and low sale prices per share reported on the NASDAQ
National Market for the Common Stock were $9.25 and $8.75, respectively. On
August 13, 1996, the last full trading day prior to the public announcement of
the signing of the Merger Agreement, the high and low sale prices per share
44
<PAGE> 52
reported on the NASDAQ National Market for the Common Stock were $12.00 and
$11.50, respectively. The average daily high and low sale prices per share
reported on the NASDAQ National Market for the Common Stock during the period
from June 22 through July 22, 1996 were $9.29 and $8.83, respectively.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial information, in part derived from the
audited financial statements of the Company, presents a summary of operations
and financial data of the Company and its subsidiaries for the five fiscal year
periods ended December 31, 1995, 1994, 1993, 1992 and 1991, and for the six
month periods ended June 30, 1996 and 1995. The selected financial data should
be read in conjunction with the financial information and accompanying notes
set forth in the Company's 1995 Annual Report to Shareholders which is
incorporated by reference in the Company's Annual Report of Form 10-K for the
fiscal year ended December 31, 1995, which is incorporated herein by reference.
45
<PAGE> 53
SELECTED FINANCIAL DATA
(in thousands except share & per share data)
<TABLE>
<CAPTION>
Six month
Period Ended
June 30, For the Years Ended December 31,
------------------------ ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Operating Revenues $ 89,116 $ 85,741 $ 175,560 $ 150,696 $ 150,795 $ 123,585 $ 112,452
Income before
Extraordinary Items 2,659 3,259 5,250 4,559 4,001 3,288 4,932
Extraordinary Items - - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income 2,659 3,259 5,250 4,559 4,001 3,288 4,932
PER COMMON SHARE DATA:
Primary
Income before
Extraordinary Items $ 0.26 $ 0.32 $ 0.52 $ 0.45 $ 0.40 $ 0.33 $ 0.49
Income from
Extraordinary Items - - - - - - -
Net Income $ 0.26 $ 0.32 $ 0.52 $ 0.45 $ 0.40 $ 0.33 $ 0.49
Average number of
Common
Shares Outstanding 10,155,085 10,133,478 10,133,173 10,080,889 10,075,886 10,075,886 10,043,056
Common Cash Dividends - - - - - - -
Book Value per Share (1) $ 5.50 $ 5.07 $ 5.25 $ 4.77 $ 4.33 $ 3.93 $ 3.60
FINANCIAL DATA
Current Assets $ 65,702 $ 63,799 $ 62,624 $ 59,848 $ 55,991 $ 47,130 $ 41,114
Total Assets 113,877 97,869 103,675 87,498 79,081 73,232 63,590
Current Liabilities 56,912 45,309 49,357 38,118 33,914 32,093 25,264
Long-term Debt and
Capitalized
Lease Obligations 334 365 334 395 447 255 95
Net Working Capital 8,790 18,490 13,267 21,730 22,077 15,037 15,850
Shareholders' Investment 55,809 51,338 53,150 48,043 43,584 39,583 36,200
1) Represents total shareholders' equity as of such dates divided by the total number of Common Shares
outstanding on such dates.
</TABLE>
46
<PAGE> 54
No pro forma financial information is included in this Proxy Statement.
Due to the nature of the Merger which is proposed, such information is not
deemed to be material to a shareholder's decision regarding approval of the
Merger Agreement.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company at and for the three
years ended December 31, 1995, incorporated in this Proxy Statement by
reference to the Company's Annual Report on Form 10-K for such period, have
been incorporated in reliance on the report of Arthur Andersen LLP, independent
certified public accountants, also incorporated by reference herein. A
representative of Arthur Andersen LLP will be at the Special Meeting to answer
questions by shareholders and will have the opportunity to make a statement, if
so desired.
INCORPORATION OF INFORMATION BY REFERENCE
The following documents previously filed with the SEC by the Company, File
No. 0-5589 are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, filed March 27, 1996, which incorporates by
reference the 1995 Annual Report to Shareholders which contains
audited financial statements of the Company for the fiscal years
ended December 31, 1994 and 1995;
2. The Company's 1996 Proxy Statement for the Annual Meeting of
Shareholders held on May 7, 1996;
3. The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1996 and June 30, 1996; and
4. The Company's Current Reports on Form 8-K filed on July 23,
1996 and on August 14, 1996.
All reports and definitive proxy or information statements filed by the
Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement and prior to the date of the
Special Meeting shall be deemed to be incorporated by reference into this Proxy
Statement from the date of filing of such documents. Any statement contained in
a document incorporated or deemed to be incorporated herein by reference shall
be deemed to be modified or superseded for purposes of this Proxy Statement to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated herein by reference
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
47
<PAGE> 55
THIS PROXY STATEMENT INCORPORATES CERTAIN DOCUMENTS OF THE COMPANY BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS
(NOT INCLUDING EXHIBITS THERETO) ARE AVAILABLE TO ANY PERSON TO WHOM THIS PROXY
STATEMENT IS DELIVERED, UPON ORAL OR WRITTEN REQUEST, WITHOUT CHARGE, DIRECTED
TO SUSAN MATHISON, SECRETARY, PAYCO AMERICAN CORPORATION, 180 NORTH EXECUTIVE
DRIVE, BROOKFIELD, WISCONSIN, 53005, TELEPHONE NUMBER (414) 780-7407. IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, SUCH REQUESTS SHOULD BE MADE BY
OCTOBER 18, 1996.
OTHER MATTERS
The Board of Directors knows of no other business which will be acted upon
at the Special Meeting other than the approval of the Merger Agreement. In the
event that any other business not known or determined at this time does come
before the meeting, the persons named in the enclosed proxy intend to vote in
accordance with their best judgment.
By Order of the Board of Directors,
SUSAN MATHISON, Secretary
48
<PAGE> 56
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 13, 1996 (this
"Agreement"), by and among OSI HOLDINGS CORP., a Delaware corporation
("Parent"), BOXER ACQUISITION CORP., a Delaware corporation ("Purchaser"), and
PAYCO AMERICAN CORPORATION, a Wisconsin corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Purchaser and
the Company have approved the acquisition of the Company by Parent and
Purchaser;
WHEREAS, to complete such acquisition, the respective Boards of
Directors of Parent, Purchaser and the Company have approved the merger of
Purchaser with and into the Company (the "Merger"), pursuant to and subject to
the terms and conditions of this Agreement;
WHEREAS, the Board of Directors of the Company and the Special
Committee of the Board of Directors of the Company (the "Special Committee")
has each determined that the Merger is fair to, and in the best interests of,
the stockholders of the Company;
WHEREAS, simultaneously with the execution of this Agreement, Purchaser
has entered into an agreement with certain stockholders of the Company pursuant
to which such stockholders agree, subject to certain conditions, to vote the
shares of the Common Stock of the Company owned by them in favor of the Merger;
and
WHEREAS, simultaneously with the execution of this Agreement, and as
required by the Purchaser, the Company has entered into a covenant not to
compete agreement and consulting agreement with Dennis G. Punches, covenant not
to compete agreements and employment agreements with eight other executive
officers of the Company and a covenant not to compete agreement with Joseph T.
Treleven, all of which agreements shall be effective only upon the consummation
of the Merger.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto agree as follows:
<PAGE> 57
ARTICLE I
THE MERGER AND RELATED MATTERS
1.01 The Merger. (a) Subject to the terms and conditions of this
Agreement, at the time of the Closing (as defined in Section 1.10 hereof),
articles of merger (the "Articles of Merger") shall be duly prepared, executed
and acknowledged by the Company in accordance with the Wisconsin Business
Corporation Law (the "WBCL") and a certificate of merger (the "Certificate of
Merger") shall be duly prepared, executed and acknowledged by Purchaser and the
Company in accordance with the Delaware General Corporation Law (the "DGCL")
and shall be filed on the Closing Date (as defined in Section 1.10 hereof). The
Merger shall become effective upon the filing of the Articles of Merger with
the Secretary of State of the State of Wisconsin and the Certificate of Merger
with the Secretary of State of the State of Delaware in accordance with
applicable law. The date and time when the Merger shall become effective is
hereinafter referred to as the "Effective Time."
(b) At the Effective Time, Purchaser shall be merged with and into the
Company and the separate corporate existence of Purchaser shall cease, and the
Company shall continue as the surviving corporation under the laws of the State
of Wisconsin under the name of "Payco American Corporation" (the "Surviving
Corporation").
(c) From and after the Effective Time, the Merger shall have the
effects set forth in the WBCL and the DGCL. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of the Company and Purchaser shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Purchaser shall become the debts, liabilities and duties of the
Surviving Corporation.
(d) If Purchaser so elects, the Merger may alternatively be structured
with Purchaser as the Surviving Corporation. In the event of such an election,
the parties agree to execute an appropriate amendment to this Agreement in
order to reflect such election. If Purchaser elects to structure the Merger so
that Purchaser rather than the Company is the Surviving Corporation, the
inaccuracy of any representation or warranty of the Company which becomes
inaccurate solely as a result of Purchaser becoming the Surviving Corporation,
rather than the Company, shall not be deemed to be a breach of such
representation or warranty.
1.02 Conversion of Stock. At the Effective Time:
(a) Each share of common stock, par value $.10 per share, of the
Company (the "Common Stock") then issued and outstanding (other than any shares
of Common Stock which are held by any subsidiary of the Company or in the
treasury of the Company, or which
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<PAGE> 58
are held, directly or indirectly, by Parent or any direct or indirect
subsidiary of Parent (including Purchaser), all of which shall be cancelled and
none of which shall receive any payment with respect thereto) shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into and represent the right to receive an amount in cash, without
interest, equal to $14.00 (the "Merger Consideration") payable to the holder
thereof less any required withholding taxes; and
(b) Each share of capital stock of Purchaser then issued and
outstanding shall, by virtue of the Merger and without any action on the part
of the holder thereof, become one fully paid and nonassessable share of capital
stock of like tenor of the Surviving Corporation.
1.03 Surrender of Certificates. (a) Prior to the Effective Time,
Parent shall designate a bank or trust company located in the United States,
reasonably satisfactory to Company, to act as paying agent (the "Paying Agent")
for purposes of making the cash payments contemplated hereby. As soon as
practicable after the Effective Time, Parent shall cause the Paying Agent to
mail and/or make available to each holder of a certificate theretofore
evidencing shares of Common Stock (other than those which are held by any
subsidiary of the Company or in the treasury of the Company or which are held
directly or indirectly by Parent or any direct or indirect subsidiary of Parent
(including Purchaser)) a notice and letter of transmittal advising such holder
of the effectiveness of the Merger and the procedure for surrendering to the
Paying Agent such certificate or certificates which immediately prior to the
Effective Time represented outstanding Common Stock (the "Certificates") in
exchange for the Merger Consideration deliverable in respect thereof pursuant
to this Article I. Upon the surrender for cancellation to the Paying Agent of
such Certificates, together with a letter of transmittal, duly executed and
completed in accordance with the instructions thereon, and any other items
specified by the letter of transmittal, the Paying Agent shall promptly pay to
the Person (as defined in Section 8.14 hereof) entitled thereto the Merger
Consideration deliverable in respect thereof. Until so surrendered, each
Certificate shall be deemed, for all corporate purposes, to evidence only the
right to receive upon such surrender the Merger Consideration deliverable in
respect thereof to which such Person is entitled pursuant to this Article I. No
interest shall be paid or accrued in respect of such cash payments.
(b) If the Merger Consideration (or any portion thereof) is to be
delivered to a Person other than the Person in whose name the Certificates
surrendered in exchange therefor are registered, it shall be a condition to the
payment of the Merger Consideration that the Certificates so surrendered shall
be properly endorsed or accompanied by appropriate stock powers and otherwise
in proper form for transfer, that such transfer otherwise be proper and that
the Person requesting such transfer pay to the Paying Agent any transfer or
other taxes payable by reason of the foregoing or establish to the satisfaction
of the Paying Agent that such taxes have been paid or are not required to be
paid.
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<PAGE> 59
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed, the Paying Agent will issue
in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration deliverable in respect thereof as determined in accordance with
this Article I, provided that, the Person to whom the Merger Consideration is
paid shall, as a condition precedent to the payment thereof, give Parent a bond
in such sum as it may direct or otherwise indemnify Parent in a manner
satisfactory to it against any claim that may be made against Parent with
respect to the Certificate claimed to have been lost, stolen or destroyed.
1.04 Payment. Concurrently with or immediately prior to the Effective
Time, Parent or Purchaser shall deposit in trust with the Paying Agent cash in
United States dollars in an aggregate amount equal to the product of (i) the
number of shares of Common Stock outstanding immediately prior to the Effective
Time (other than shares of Common Stock which are held by any subsidiary of the
Company or in the treasury of the Company or which are held directly or
indirectly by Parent or any direct or indirect subsidiary of Parent (including
Purchaser)) and (ii) the Merger Consideration (such amount being hereinafter
referred to as the "Payment Fund"). The Payment Fund shall be invested by the
Paying Agent as directed by Parent in direct obligations of the United States,
obligations for which the full faith and credit of the United States is pledged
to provide for the payment of principal and interest, commercial paper rated of
the highest quality by Moody's Investors Services, Inc. or Standard & Poors
Ratings Group or certificates of deposit, bank repurchase agreements or
bankers' acceptances of a commercial bank having the highest rating of Moody's
Investors Services, Inc. or Standard & Poor's Ratings Group (collectively,
"Permitted Investments") or in money market funds which are invested in
Permitted Investments, and any net earnings with respect thereto shall be paid
to Parent as and when requested by Parent. The Paying Agent shall, pursuant to
irrevocable instructions, make the payments referred to in Section 1.02(a)
hereof out of the Payment Fund. The Payment Fund shall not be used for any
other purpose except as otherwise agreed to by Parent. Promptly following the
date which is three months after the Effective Time, the Paying Agent shall pay
to Parent all cash, certificates and other instruments in its possession that
constitute any portion of the Payment Fund, and the Paying Agent's duties shall
terminate. Thereafter, each holder of a Certificate may surrender such
Certificate to the Surviving Corporation and (subject to applicable abandoned
property, escheat and similar laws) receive in exchange therefor the Merger
Consideration, without interest, but shall have no greater rights against the
Surviving Corporation or Parent than may be accorded to general creditors of
the Surviving Corporation or Parent under applicable law. Notwithstanding the
foregoing, neither the Paying Agent nor any party hereto shall be liable to a
holder of shares of Common Stock for any Merger Consideration delivered to a
public official pursuant to applicable abandoned property, escheat and similar
laws.
1.05 No Further Rights of Transfers. At and after the Effective Time,
each holder of a Certificate shall cease to have any rights as a stockholder of
the Company, except for, in the case of a holder of a Certificate (other than
shares to be cancelled pursuant to
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<PAGE> 60
Section 1.02(a) hereof), the right to surrender his or her Certificate in
exchange for payment of the Merger Consideration, and no transfer of shares of
Common Stock shall be made on the stock transfer books of the Surviving
Corporation. Certificates presented to the Surviving Corporation after the
Effective Time shall be cancelled and exchanged for cash as provided in this
Article I. At the close of business on the day of the Effective Time the stock
ledger of the Company with respect to Common Stock shall be closed.
1.06 Stock Option and Other Plans. (a) Prior to the Effective Time,
the Board of Directors of the Company shall adopt amendments to the stock
option plans of the Company (the "Stock Plans") to provide that in the event of
a merger pursuant to which the stockholders of the Company receive cash for
their shares, the holders of outstanding options to purchase Common Stock (the
"Options") heretofore granted under the Stock Plans shall be entitled, upon
exercise of the Options on or after the effective date of such merger, only to
receive the same cash consideration per share with respect to each share
subject to such Options as received by the stockholders in connection with such
merger, without interest (subject to any applicable withholding taxes, the
"Cash Payment"). Except for any benefits due participants under the Company's
Common Share Equivalent Plan, any then outstanding stock appreciation rights or
limited stock appreciation rights shall be cancelled as of immediately prior to
the Effective Time without any payment therefor. All vested benefits as of the
Effective Time pursuant to the Company's Common Share Equivalent Plan shall be
paid in cash at the Effective Time whether or not payment would otherwise then
be due. As provided herein, the Stock Plans and any other plan, program or
arrangement providing for the issuance or grant of any other interest in
respect of the capital stock of the Company or any subsidiary (collectively
with the Stock Plans, referred to as the "Stock Incentive Plans") shall
terminate as of the Effective Time. The Company will use its reasonable best
efforts to obtain all necessary consents to ensure that upon the Effective
Time, the holders of Options, all of which shall become fully vested as of the
Effective Time, shall surrender the same in cancellation and settlement thereof
for a cash consideration equal to the Cash Payment, less the exercise price of
such related Options.
(b) All Stock Plans shall terminate as of the Effective Time and the
provisions in any other Employee Benefit Plan (as defined in Section 2.11)
providing for the issuance, transfer or grant of any capital stock of the
Company or any interest in respect of any capital stock of the Company shall be
deleted as of the Effective Time, and the Company shall use its best efforts to
ensure that following the Effective Time no holder of an Option or any
participant in any Stock Plans shall have any right thereunder to acquire any
capital stock of the Company, Parent or the Surviving Corporation.
1.07 Articles of Incorporation of the Surviving Corporation. The
Articles of Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation.
1.08 By-Laws of the Surviving Corporation. The By-Laws of the
Company,
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<PAGE> 61
as in effect immediately prior to the Effective Time, shall be the By-Laws of
the Surviving Corporation.
1.09 Directors and Officers of the Surviving Corporation. At the
Effective Time, the directors of Purchaser immediately prior to the Effective
Time shall be the directors of the Surviving Corporation, each of such
directors to hold office, subject to the applicable provisions of the Articles
of Incorporation and By-Laws of the Surviving Corporation, until the next
annual stockholders' meeting of the Surviving Corporation and until their
respective successors shall be duly elected or appointed and qualified. At the
Effective Time, the officers of the Company immediately prior to the Effective
Time shall, subject to the applicable provisions of the Articles of
Incorporation and By-Laws of the Surviving Corporation, be the officers of the
Surviving Corporation until their respective successors shall be duly elected
or appointed and qualified.
1.10 Closing. The closing of the Merger (the "Closing") shall take
place at the offices of White & Case, 1155 Avenue of the Americas, New York,
New York, as soon as practicable after the last of the conditions set forth in
Articles V and VI hereof is fulfilled or waived (subject to applicable law) but
in no event later than February 12, 1997, or at such other time and place and
on such other date as Parent and the Company shall mutually agree (the "Closing
Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent and Purchaser as follows:
2.01 Due Organization, Good Standing and Corporate Power. The Company
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Wisconsin. The Company has the requisite corporate
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted. The Company is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the character or location of the properties owned, leased or operated
by the Company or the nature of the business conducted by the Company makes
such qualification necessary, except where the failure to be so duly qualified
would not have a material adverse effect on the business, properties, assets,
liabilities, operations, financial condition, results of operations or
prospects of the Company and its subsidiaries (as hereinafter defined) taken as
a whole (a "Material Adverse Effect").
2.02 Authorization and Validity of Agreement. The Company has full
corporate power and authority to execute and deliver this Agreement, to perform
its
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<PAGE> 62
obligations hereunder and, subject to requisite approval by the holders of its
Common Stock of this Agreement and the Merger, to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company, and the consummation by it of the transactions
contemplated hereby, have been duly authorized and approved by its Board of
Directors and the Special Committee and no other corporate action on the part
of the Company is necessary to authorize the execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby (other than the approval of this Agreement and
the Merger by the holders of a majority of the shares of Common Stock). This
Agreement has been duly executed and delivered by the Company, and assuming the
valid authorization, execution and delivery of this Agreement by Parent and
Purchaser, is a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
2.03 Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, $0.10 par value, and 500,000
shares of preferred stock, no par value (the "Preferred Stock"). As of August
9, 1996, (i) 10,155,085 shares of Common Stock were issued and outstanding,
(ii) 610,426 shares of Common Stock were reserved for issuance pursuant to
outstanding options granted under the Stock Plans, (iii) no shares of Preferred
Stock were issued and outstanding, and (iv) no shares of Common Stock were held
in the Company's treasury. All issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable, and are not subject to, nor were they issued in violation of,
any preemptive rights. Except as set forth in this Section 2.03 or on Schedule
2.03 previously delivered to Parent, (i) there are no shares of capital stock
of the Company authorized, issued or outstanding and (ii) there are not as of
the date hereof, and at the Effective Time there will not be, any outstanding
or authorized options, warrants, rights, subscriptions, claims of any
character, agreements, obligations, convertible or exchangeable securities, or
other commitments, contingent or otherwise, relating to Common Stock or any
other shares of capital stock of the Company, pursuant to which the Company is
or may become obligated to issue shares of Common Stock, any other shares of
its capital stock or any securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of the capital stock of the
Company. The Company has no authorized or outstanding bonds, debentures, notes
or other indebtedness the holders of which have the right to vote (or
convertible or exchangeable into or exercisable for securities having the right
to vote) with the stockholders of the Company or any of its subsidiaries on any
matter.
2.04 Subsidiaries and Investments. Set forth on Schedule 2.04
previously delivered to Parent is a list of each corporation, partnership and
other business entity in which the Company owns, directly or indirectly, any
equity security or other equity interest and which is controlled, directly or
indirectly, by the Company (a "subsidiary"). Except as set
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forth on Schedule 2.04 each subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation (as set forth on Schedule 2.04), and has all requisite power to
own its property and to carry on its business as now being conducted. Set
forth on Schedule 2.04 is a list of jurisdictions in which each subsidiary is
qualified as a foreign corporation. Such jurisdictions are the only
jurisdictions in which the character or location of the properties owned or
leased by each subsidiary, or the nature of the business conducted by each
subsidiary, makes such qualification necessary, except where the failure to be
so qualified would not have a Material Adverse Effect. All of the outstanding
shares of capital stock and other equity interests of each subsidiary have been
duly authorized and validly issued, are fully paid and nonassessable, and,
except as set forth on Schedule 2.04, are owned, of record and beneficially, by
the Company or a subsidiary, free and clear of all liens, encumbrances,
restrictions and claims of every kind. Except as disclosed on Schedule 2.04,
no shares of capital stock and other equity interests of any subsidiary are
reserved for issuance and there are no outstanding options, warrants, rights,
subscriptions, claims, agreements, obligations, convertible or exchangeable
securities or other commitments, contingent or otherwise, relating to the
capital stock of any subsidiary or pursuant to which any subsidiary is or may
become obligated to issue or exchange any shares of capital stock or other
equity interests. Neither the Company nor any subsidiary owns, directly or
indirectly, any capital stock or other equity or ownership or proprietary
interest in any corporation, partnership, association, trust, joint venture or
other entity except as set forth on Schedule 2.04.
2.05 Consents and Approvals; No Violations. Assuming (i) the filings
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), are made and the waiting period thereunder has been
terminated or has expired, (ii) the filings required to be made with the
Securities and Exchange Commission (the "Commission") in connection or in
compliance with the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations of the Commission are made, (iii) such
filings are made and approvals received as may be required pursuant to any
applicable state securities, "blue sky" or anti-takeover laws, (iv) the filing
of the Articles of Merger as required by the WBCL, the filing of the
Certificate of Merger as required by the DGCL and the filing of other
appropriate merger documents is made, (v) the valid authorization, execution
and delivery of this Agreement by Parent and Purchaser and (vi) requisite
approval of the Merger by the holders of Common Stock is received, the
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby will not: (1) violate any
provision of the Articles of Incorporation or the By-Laws of the Company or any
of its subsidiaries; (2) violate any statute, ordinance, rule, regulation,
order or decree of any court or of any governmental or regulatory body, agency
or authority applicable to the Company or any of its subsidiaries or by which
any of their respective properties or assets may be bound; (3) require any
filing with, or permit, consent or approval of, or the giving of any notice to,
any governmental or regulatory body, agency or authority; or (4) result in a
violation or breach of, conflict with, constitute (with or without due notice
or lapse of time or both) a default (or give rise to any
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right of termination, cancellation, payment or acceleration) under, or result
in the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of the Company or any of its subsidiaries under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, franchise, permit, agreement, lease, franchise agreement or
other instrument or obligation to which the Company or any of its subsidiaries
is a party, or by which it or any of their respective properties or assets may
be bound except for in the case of clauses (3) and (4) above for such filing,
permit, consent or approval listed on Schedule 2.05 to be delivered to Parent
within ten days after the date of this Agreement, the absence of which, and
violations, breaches, defaults, conflicts and Encumbrances of which, in the
aggregate, would not have a Material Adverse Effect.
2.06 Company Reports and Financial Statements. Since December 31,
1992 the Company has filed all forms, reports and documents with the Commission
required to be filed by it pursuant to the federal securities laws and the
Commission rules and regulations thereunder, and all forms, reports and
documents filed with the Commission have complied in all material respects with
all applicable requirements of the federal securities laws and the Commission
rules and regulations promulgated thereunder. The Company has, prior to the
date of this Agreement, made available to Parent true and complete copies of
all forms, reports, registration statements and other filings filed by the
Company with the Commission since December 31, 1992 (such forms, reports,
registration statements and other filings, together with any exhibits, any
amendments thereto and information incorporated by reference therein, are
sometimes collectively referred to as the "Commission Filings"). As of their
respective dates, the Commission Filings did not 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. Each of the
consolidated balance sheets as of the end of the fiscal years ended December
31, 1993, December 31, 1994 and December 31, 1995 and the consolidated
statements of earnings, consolidated statements of stockholders' equity and
consolidated statements of cash flows for the fiscal years ended December 31,
1993, December 31, 1994 and December 31, 1995 included in the Commission
Filings, were prepared in accordance with generally accepted accounting
principles (as in effect from time to time) applied on a consistent basis
(except as may be indicated therein or in the notes or schedules thereto) and
fairly present in all material respects the consolidated financial position of
the Company and its consolidated subsidiaries as of the dates thereof and the
results of their operations and cash flows for the periods then ended. The
consolidated balance sheet as of March 31, 1996 and the consolidated statement
of earnings, consolidated statement of stockholders' equity and consolidated
statement of cash flows for the fiscal quarter then ended included in the
Commission Filings were prepared in accordance with generally accepted
accounting principles (except as permitted by Regulation S-X adopted by the
Commission) applied on a consistent basis (except as may be indicated therein
or in the notes thereto) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated
subsidiaries as of March 31, 1996 and the results of operations and cash flows
for the fiscal quarter then ended.
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2.07 Absence of Certain Changes. Except as previously disclosed in
the Commission Filings or in Schedule 2.07 previously delivered to Parent,
since December 31, 1995 (i) there has not been any material adverse change in
the business, operations, financial condition or results of operations of the
Company and its subsidiaries taken as a whole; (ii) the businesses of the
Company and each of its subsidiaries have been conducted only in the ordinary
course; (iii) neither the Company nor any of its subsidiaries has, outside the
ordinary course of business, incurred any material liabilities (direct,
contingent or otherwise) or engaged in any material transaction or entered into
any material agreement; (iv) the Company and its subsidiaries have not
increased the compensation of any officer or granted any general salary or
benefits increase to their employees other than in the ordinary course of
business; (v) neither the Company nor any of its subsidiaries has taken any
action referred to in Section 4.03 hereof except as permitted or required
thereby; (vi) there has been no declaration, setting aside or payment of any
dividend or other distribution with respect to the capital stock of the
Company; and (vii) there has been no change by the Company in accounting
principles, practices or methods.
2.08 Title to Properties; Encumbrances. Except to the extent that any
breach of the representations set forth in this Section could not reasonably be
expected to have a Material Adverse Effect: the Company and each of its
subsidiaries has good title to (i) all its tangible properties and assets (real
and personal), including, without limitation, all the properties and assets
reflected in the consolidated balance sheet as of December 31, 1995 except as
indicated in the notes thereto and except for properties and assets reflected
in the consolidated balance sheet as of December 31, 1995 which have been sold
or otherwise disposed of in the ordinary course of business, and (ii) all the
tangible properties and assets purchased by the Company and any of its
subsidiaries since December 31, 1995 except for such properties and assets
which have been sold or otherwise disposed of in the ordinary course of
business, in each case subject to no encumbrance, lien, charge or other
restriction of any kind or character ("Encumbrances"), except for (a)
Encumbrances reflected in the consolidated balance sheet as of December 31,
1995, (b) Encumbrances for current taxes, assessments or governmental charges
or levies on property not yet due and delinquent, (c) Encumbrances arising by
operation of law and (d) Encumbrances described on Schedule 2.08 previously
delivered to Parent (Encumbrances of the type described in clauses (a), (b),
(c) and (d) above are hereinafter sometimes referred to as "Permitted
Encumbrances").
2.09 Compliance with Laws. Except as set forth on Schedule 2.09
previously delivered to Parent, each of the Company and its subsidiaries is in
compliance with all applicable laws, regulations, orders, judgments and decrees
(including, without limitation, the Fair Debt Collection Practices Act and any
state or local counterpart or equivalent) except for such noncompliances as
could not reasonably be likely to have a Material Adverse Effect.
2.10 Litigation. Except as disclosed in the Commission Filings or as
set forth
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in Schedule 2.10 previously delivered to Parent, there is no action,
suit, proceeding at law or in equity, or any arbitration or any administrative
or other proceeding by or before (or, to the knowledge of the Company, any
investigation by) any governmental or other instrumentality or agency, pending,
or, to the knowledge of the Company, threatened, against or affecting the
Company or any of its subsidiaries, or any of their properties or rights which
could materially and adversely affect the right or ability of the Company or
any of its subsidiaries to carry on its business as now conducted, which could
reasonably be likely to have a Material Adverse Effect or which could
reasonably be expected to prevent or materially delay consummation of the
transactions contemplated by this Agreement, and the Company knows of no valid
basis for any such action, proceeding or investigation. Except as set forth in
Schedule 2.10, none of the Company or any of its subsidiaries is subject to any
judgment, order or decree entered in any lawsuit, proceeding or administrative
action in which the Company or any of its subsidiaries is a party which could
reasonably be likely to have a Material Adverse Effect. There are no such
suits, actions, claims, proceedings or investigations pending or, to the
knowledge of the Company, threatened, seeking to prevent or challenging the
transactions contemplated by this Agreement.
2.11 Employee Benefit Plans.
(a) Schedule 2.11 previously delivered to Parent contains an accurate
and complete list of all domestic and foreign (1) "employee benefit plans,"
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended, and the rules and regulations thereunder ("ERISA");
(2) bonus, stock option, stock purchase, restricted stock, incentive,
profit-sharing, pension or retirement, deferred compensation, medical, life,
disability, accident, leave and supplemental retirement benefit plans,
programs, arrangements, commitments and/or practices (whether or not insured);
(3) employment, termination, and severance contracts or agreements; and (4)
consulting agreements in excess of $60,000 or not terminable by the Company
upon less than ninety days' notice; for active, retired or former employees or
directors that have been established, maintained or contributed to since
January 1, 1993 (or with respect to which an obligation to contribute has been
undertaken) or with respect to which any potential liability is borne by the
Company and/or any of its subsidiaries (including, for this purpose and for the
purpose of all of the representations in this Section 2.11, any predecessors to
the Company or to any of its subsidiaries and all employers (whether or not
incorporated) that are or were by reason of common control treated together
with the Company and/or any of its subsidiaries as a single employer within the
meaning of Section 414 of the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder (the "Code") ("Plans").
(b) Except to the extent that any breach of the representations set
forth in this sentence could not reasonably be expected to have a Material
Adverse Effect: (1) each Plan is in compliance with applicable law and has been
administered and operated in accordance with its terms; (2) each Plan which is
intended to be "qualified" within the meaning of Section 401(a) of the Code has
received a favorable determination letter from the
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Internal Revenue Service and, to the knowledge of the Company, no event has
occurred and no condition exists which could reasonably be expected to result
in the revocation of any such determination; (3) no Plan is subject to Section
412 of the Code or Section 302 or Title IV of ERISA and neither the Company nor
any of its subsidiaries has ever contributed to or had any obligation to
contribute to (or borne any liability with respect to) any "multiemployer plan"
(as defined in Section 4001(a)(3) of ERISA); (4) neither the Company nor any of
its subsidiaries nor, to the Company's knowledge, any other "disqualified
person" or "party in interest" (as defined in Section 4975(e)(2) of the Code
and Section 3(14) of ERISA, respectively) has engaged in any transactions in
connection with any Plan that could reasonably be expected to result in the
imposition of a penalty pursuant to Section 502(i) of ERISA, damages pursuant
to Section 409 of ERISA or a tax pursuant to Section 4975(a) of the Code; and
(5) no liability, claim, action or litigation, has been made, commenced or is
expected or, to the Company's knowledge, threatened with respect to any Plan
(other than for benefits payable in the ordinary course).
(c) The Company has delivered or caused to be delivered to Parent and
its counsel true and complete copies of all material documents in connection
with each Plan, including, without limitation (where applicable): (1) all Plans
as in effect on the date hereof, together with all amendments thereto,
including, in the case of any Plan not set forth in writing, a written
description thereof; (2) all current summary plan descriptions, summaries of
material modifications, and material communications; (3) all current trust
agreements, declarations of trust and other documents establishing other
funding arrangements (and all amendments thereto and the latest financial
statements thereof); (4) the most recent Internal Revenue Service determination
letter obtained with respect to each Plan intended to be qualified under
Section 401(a) of the Code or exempt under Section 501(a) of the Code; (5) the
most recently filed Internal Revenue Service Form 5500 for each Plan required
to file such Form; (6) the most recently prepared financial statements; and (7)
all material agreements and contracts relating to each Plan.
2.12 Taxes. (a) Tax Returns. The Company and each of its
subsidiaries, has timely filed or caused to be timely filed with the
appropriate taxing authorities all Federal and other material returns,
statements, forms and reports for Taxes (as hereinafter defined) ("RETURNS")
that are required to be filed by, or with respect to, the Company and such
subsidiaries. The Returns reflect accurately all material liability for Taxes
of the Company and such subsidiaries for the periods covered thereby. "TAXES"
means all taxes, assessments, charges, duties, fees, levies or other
governmental charges, including, without limitation, all Federal, state, local,
foreign and other income, franchise, profits, capital gains, capital stock,
transfer, sales, use, occupation, property, excise, severance, windfall
profits, stamp, license, payroll, withholding and other taxes, assessments,
charges, duties, fees, levies or other governmental charges of any kind
whatsoever (whether payable directly or by withholding and whether or not
requiring the filing of a Return), all estimated taxes, deficiency assessments,
additions to tax, penalties and interest and shall include any liability for
such amounts as a result either of being a member of a combined, consolidated,
unitary or affiliated
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group or of a contractual obligation to indemnify any person or other entity.
(b) Payment of Taxes. All material Taxes and Tax liabilities of the
Company and its subsidiaries have been timely paid or adequately disclosed and
fully provided for as a liability on the financial statements of the Company
and its subsidiaries in accordance with generally accepted accounting
principles.
(c) Other Tax Matters. (i) Schedule 2.12 previously delivered to
Parent sets forth (A) each taxable year or other taxable period of the Company
or any of its subsidiaries for which an audit or other examination of Taxes by
the appropriate tax authorities of any nation, state or locality is currently
in progress (or scheduled to be conducted) together with the names of the
respective tax authorities conducting (or scheduled to conduct) such audits or
examinations and a description of the subject matter of such audits or
examinations, (B) the most recent taxable year or other taxable period for
which an audit or other examination relating to Federal income taxes of the
Company and its subsidiaries has been finally completed and the disposition of
such audit or examination, (C) the taxable years or other taxable periods of
the Company or any of its subsidiaries which will not be subject to the
normally applicable statute of limitations by reason of the existence of
circumstances that would cause any such statute of limitations for applicable
Taxes to be extended, (D) the amount of any proposed adjustments (and the
principal reason therefor) relating to any Returns for Tax liability of the
Company or any of its subsidiaries which have been proposed or assessed by any
taxing authority and (E) a list of all notices received by the Company or any
of its subsidiaries from any taxing authority relating to any issue which could
affect the Tax liability of the Company or any of its subsidiaries, which issue
has not been finally determined and which, if determined adversely to the
Company or any such subsidiaries, could result in a material Tax liability.
(ii) Except as provided on Schedule 2.12, neither the Company nor any
of its subsidiaries has been included in any "consolidated," "unitary" or
"combined" Return (other than Returns which include only the Company and any
subsidiaries of the Company) provided for under the law of the United States,
any foreign jurisdiction or any state or locality with respect to Taxes for any
taxable period for which the statute of limitations has not expired.
(iii) All material Taxes which the Company or any of its subsidiaries
is (or was) required by law to withhold or collect have been duly withheld or
collected, and have been timely paid over to the proper authorities to the
extent due and payable.
(iv) Except as previously disclosed to Parent, the Company is not a
party to any agreement that would require it to make any payment that would
constitute an "excess parachute payment" for purposes of Sections 280G and 4999
of the Internal Revenue Code of 1986, as amended (the "CODE").
(v) There are no tax sharing, allocation, indemnification or similar
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agreements or arrangements in effect as between the Company, any subsidiary, or
any predecessor or affiliate thereof and any other party under which Parent,
Purchaser or the Company (or any of its subsidiaries) could be liable for any
Taxes or other claims of any party other than the Company or any subsidiary of
the Company.
(vi) No indebtedness of the Company or any of its subsidiaries
consists of "corporate acquisition indebtedness" within the meaning of Section
279 of the Code.
(vii) Neither the Company nor any of its subsidiaries has been
required to include in income any adjustment pursuant to Section 481 of the
Code by reason of a voluntary change in accounting method initiated by the
Company or any of its subsidiaries, and the Internal Revenue Service has not
initiated or proposed any such adjustment or change in accounting method.
2.13 Liabilities. Neither the Company nor any of its subsidiaries has
outstanding any material claims, liabilities or indebtedness, contingent or
otherwise, except as set forth in the consolidated balance sheet as of December
31, 1995, or referred to in the footnotes thereto, other than liabilities
incurred subsequent to December 31, 1995 in the ordinary course of business.
Neither the Company nor any of its subsidiaries is in default in respect of the
terms and conditions of any indebtedness or other agreement, except for such
defaults which are not likely to result in a Material Adverse Effect.
2.14 Licenses; Intellectual Property. The Company and its
subsidiaries each possess, or own sufficient legal rights to, all licenses,
patents, trade names, trademarks and service marks (each a "License") necessary
for the ownership or use of the Company's and each subsidiary's properties and
the conduct of their businesses as presently conducted, except for which the
failure to own or possess could not reasonably be likely to result in a
Material Adverse Effect. Except as set forth on Schedule 2.14 previously
delivered to Parent, all such Licenses are in full force and effect and, since
January 1, 1993, neither the Company nor any of its subsidiaries has received
any written notice of any event, inquiry, investigation or proceeding
threatening the validity of any such License. To the Company's knowledge,
neither the Company nor any of its subsidiaries has infringed, or is now
infringing, on any License or other right belonging to any other Person.
2.15 Broker's or Finder's Fee. Except for William Blair & Company,
L.L.C. (whose fees and expenses will be paid by the Company in accordance with
the Company's agreement with such firm, a true and correct copy of which has
been previously delivered to Parent by the Company), no agent, broker, Person
or firm acting on behalf of the Company is, or will be, entitled to any
broker's, finder's or other similar fee from any of the parties hereto, or from
any Person controlling, controlled by, or under common control with any of the
parties hereto, in connection with this Agreement or any of the transactions
contemplated hereby, based upon arrangements made by the Company.
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2.16 Environmental Laws and Regulations. Except as set forth on
Schedule 2.16 previously delivered to Parent:
(a) Neither the Company nor any of its subsidiaries has generated,
used, treated or stored any Hazardous Materials (as hereinafter defined) on any
Company Property (as hereinafter defined) and to the Company's knowledge, no
Hazardous Materials have been generated, used, treated or stored on or released
or disposed on any Company Property except in each case where the failure to be
in compliance with Environmental Laws (as hereinafter defined) could not
reasonably be expected to have a Material Adverse Effect.
(b) The Company and its subsidiaries are in compliance with
Environmental Laws and the requirements of permits issued under such
Environmental Laws with respect to any Company Property except where the
failure to be in such compliance could not reasonably be expected to have a
Material Adverse Effect.
(c) There are no pending or, to the Company's knowledge, threatened
Environmental Claims (as hereinafter defined) against the Company or its
subsidiaries or any Company Property.
(d) For purposes of this Section 2.16, the following definitions shall
apply:
"Company Property" means any real property and improvements owned,
leased, used, operated or occupied by the Company and its subsidiaries.
"Hazardous Materials" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is friable, urea formaldehyde
foam insulation, transformers or other equipment that contain dielectric fluid
containing levels of polychlorinated biphenyls, and radon gas; and (b) any
chemicals, materials or substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," or words of similar import, under any applicable Environmental
Law.
"Environmental Law" means any federal, state or local statute, law,
rule, regulation, ordinance, code, policy or rule of common law (and in each
case as may have been amended) in effect as of the date of this Agreement, and
any judicial or administrative interpretation thereof as of the date as of this
Agreement, including any judicial or administrative order, consent decree or
judgment, relating to the environment, health, safety or Hazardous Materials,
including the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, 42 U.S.C. Section 6901 et seq.; the Resource Conservation and
Recovery Act, 42 U.S.C. Section 9601 et seq.; the Federal Water Pollution
Control Act, 33 U.S.C. Section 1251 et seq.; the Toxic Substances Control Act,
15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et
seq.; the Safe Drinking Water Act, 42 U.S.C.
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Section 300f et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701
et seq.; and their state and local counterparts and equivalents.
"Environmental Claims" means administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, investigations or proceedings relating in any way
to any Environmental Law or any permit issued under any such Law (hereafter
"Claims"), including (a) Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and (b) Claims by any third party
seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
2.17 Real Property; Leases. Except as set forth on Schedule 2.17
previously delivered to Parent, neither the Company nor any of its subsidiaries
owns any real property. Schedule 2.17 also contains a list of all leases of
real property to which the Company or any subsidiary is a party requiring an
annual aggregate payment of at least $25,000. Except as otherwise set on
Schedule 2.17, each such lease set forth on Schedule 2.17 is in full force and
effect; all rents and additional rents due to date from the Company and its
subsidiaries on each such lease have been paid; neither the Company nor any of
its subsidiaries has received notice that it is in material default under any
such lease; and except as set forth on Schedule 2.17, there exists, with
respect to the Company and its subsidiaries, and to the Company's knowledge
with respect to any party other than the Company or its subsidiaries, no event,
occurrence, condition or act (including the consummation of the Merger) which,
with the giving of notice, the lapse of time or the happening of any further
event or condition, would become a default by the Company or any of its
subsidiaries under such lease, except for such defaults which could not
reasonably be expected to result in a Material Adverse Effect.
2.18 Material Contracts. Except as set forth on Schedule 2.17 and
Schedule 2.18 previously delivered to Parent, neither the Company nor any of
its subsidiaries has or is bound by:
(a) any agreement, contract or commitment that involves the
performance of services by it of an amount or value (as measured by the
revenue derived therefrom during 1995) in excess of $2,000,000 annually,
unless terminable by the Company on not more than 90 days notice,
(b) any material agreement, contract or commitment not in the
ordinary course of business,
(c) any agreement, indenture or other instrument which contains
restrictions with respect to payment of dividends or any other
distribution in respect of its capital stock,
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(d) any agreement, contract or commitment to be performed relating
to capital expenditures in excess of $500,000,
(e) any agreement, indenture or instrument relating to indebtedness
for borrowed money or the deferred purchase price of property (excluding
trade payables in the ordinary course of business, intercompany
indebtedness and leases for telephones, copy machines, facsimile machines
and other office equipment),
(f) any loan or advance to (other than advances to employees in the
ordinary course of business in amounts of $25,000 or less to any
individual and $100,000 in the aggregate or advances against future
collections entered into in the ordinary course of business not in excess
of $500,000 to any one client or $2,000,000 in the aggregate), or
investment in (other than investments in subsidiaries), any Person, or
any agreement, contract or commitment relating to the making of any such
loan, advance or investment or any agreement, contract or commitment
involving a sharing of profits (except for bonus arrangements with
employees entered into in the ordinary course of business consistent with
past practice),
(g) any guarantee or other contingent liability in respect of any
indebtedness or obligation of any Person (other than in the ordinary
course of business and other than with respect to any indebtedness or
obligation of the Company or any subsidiary),
(h) any management service, consulting or any other similar type of
contract (other than contingent fee agreements with collection
attorneys), involving payments of more than $60,000 annually, unless
terminable by the Company on not more than 90 days notice,
(i) any agreement, contract or commitment limiting the ability of
the Company or any of its subsidiaries to engage in any line of business
or to compete with any Person,
(j) any warranty, guaranty or other similar undertaking with
respect to a contractual performance extended by the Company or any of
its subsidiaries other than in the ordinary course of business, or
(k) any material amendment, modification or supplement in respect
of any of the foregoing.
Except as otherwise set forth on Schedule 2.18, each contract or
agreement set forth on Schedule 2.18 is in full force and effect and there
exists no default or event of default or event, occurrence, condition or act
(including the consummation of the Merger) on
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the part of the Company or any subsidiary or, to the knowledge of the Company,
on the part of any other Person which, with the giving of notice, the lapse of
time or the happening of any other event or condition, would become a default
or event of default thereunder, except for such default or event of default
which could not reasonably be likely to result in a Material Adverse Effect.
2.19 Employment Relations. Except as set forth on Schedule 2.19
previously delivered to Parent and except for any violations or breaches which,
singly or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect:
(a) The Company and each of its subsidiaries is in compliance with
all Federal, state or other applicable laws, domestic or foreign,
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not, and is not, engaged in any
unfair labor practice;
(b) no unfair labor practice complaint against the Company or any
of its subsidiaries is pending before the National Labor Relations Board;
(c) there is no labor strike, dispute, slowdown or stoppage actually
pending or threatened against or involving the Company or any of its
subsidiaries;
(d) neither the Company nor any of its subsidiaries is a party to
any collective bargaining agreement and no collective bargaining
agreement is currently being negotiated by the Company or any of its
subsidiaries; and
(e) no claim in respect of the employment of any employee has been
asserted or, to the knowledge of the Company, threatened, against the
Company or any of its subsidiaries.
2.20 Customers Relations. None of the top twenty customers of the
Company (based on the Company's 1995 consolidated revenues) has notified the
Company or any of its subsidiaries that it intends to either (i) terminate or
modify in a manner adverse to the Company or any of its subsidiaries its
contractual arrangements with the Company or any of its subsidiaries or (ii)
substantially curtail the amount of business it currently does with the Company
or any of its subsidiaries.
2.21 Voting Requirements. The affirmative vote of the holders of a
majority of all the shares of Common Stock entitled to be cast approving this
Agreement is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve this Agreement and the
transactions contemplated by this Agreement. Sections 180.1130-1133 of the
WBCL are inapplicable to the transactions contemplated by this Agreement. This
representation is made in reliance upon, and assumes the accuracy of, the
Parent's and Purchaser's representation made in Section 3.05 of this Agreement.
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2.22 Opinion of Financial Advisor. The Company has received the
opinion of William Blair & Company, L.L.C., to the effect that, as of the date
of this Agreement, the consideration to be received in the Merger by the
Company's stockholders is fair to the Company's stockholders from a financial
point of view, and a complete and correct signed and correct signed copy of
such opinion has been, or promptly upon receipt thereof will be, delivered to
Parent.
2.23 State Anti-Takeover Statutes. The Company has taken all
necessary action to render Sections 180.1140-1145 and Section 180.1150 of the
WBCL inapplicable to the transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS OF PARENT AND PURCHASER
3. Representations and Warranties of Parent and Purchaser. Each of
Parent and Purchaser represents and warrants to the Company as follows:
3.01 Due Organization; Good Standing and Corporate Power. Each of
Parent and Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
3.02 Authorization and Validity of Agreement. Each of Parent and
Purchaser has full corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by Parent and Purchaser, and the consummation by each of them of
the transactions contemplated hereby, have been duly authorized by the Boards
of Directors of Parent and Purchaser and, to the extent legally required, by
their respective stockholders. No other corporate action on the part of either
of Parent or Purchaser is necessary to authorize the execution, delivery and
performance of this Agreement by each of Parent and Purchaser and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by each of Parent and Purchaser and is a valid and
binding obligation of each of Parent and Purchaser, enforceable against each of
Parent and Purchaser in accordance with its terms, except that such enforcement
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally, and general
equitable principles.
3.03 Consents and Approvals; No Violations. Assuming (i) the filings
required under the HSR Act are made and the waiting period thereunder has been
terminated or has expired, (ii) filings required to be made with the Commission
in connection or in
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compliance with the Exchange Act and the rules and regulations of the
Commission are made, (iii) the filing of the Articles of Merger as required by
the WBCL, the filing of the Certificate of Merger as required by the DGCL and
the filing of other appropriate merger documents, if any, is made and (iv) the
valid authorization, execution and delivery of this Agreement by the Company,
the execution and delivery of this Agreement by Parent and Purchaser and the
consummation by Parent and Purchaser of the transactions contemplated hereby
will not: (1) violate any provision of the Certificate of Incorporation or
By-Laws of Parent or Purchaser; (2) violate any statute, ordinance, rule,
regulation, order or decree of any court or of any governmental or regulatory
body, agency or authority applicable to Parent or Purchaser or by which either
of their respective properties or assets may be bound; (3) require any filing
with, or permit, consent or approval of, or the giving of any notice to any
governmental or regulatory body, agency or authority; or (4) result in a
violation or breach of, conflict with, constitute (with or without due notice
or lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets
of Parent or Purchaser under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, franchise, permit, agreement, lease
or other instrument or obligation to which Parent or Purchaser is a party, or
by which they or their respective properties or assets may be bound, except for
in the case of clauses (3) and (4) above, such filing, permit, consent,
approval or violation which would not reasonably be expected to prevent or
materially delay the consummation of the transactions contemplated by this
Agreement.
3.04 Broker's or Finder's Fee. No agent, broker, Person or firm
acting on behalf of Parent or Purchaser is, or will be, entitled to any fee,
commission or broker's or finder's fees from the Company or any stockholder of
the Company in connection with this Agreement or any of the transactions
contemplated hereby.
3.05 Ownership of Company's Common Stock. Neither Parent nor Purchaser
is a "significant shareholder", as defined in Section 180.1130 of the WBCL, of
the Company and neither Parent nor Purchaser is an affiliate, as defined in
Section 180.0103 of the WBCL, of a significant shareholder of the Company.
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ARTICLE IV
TRANSACTIONS PRIOR TO CLOSING DATE
4.01 Access to Information Concerning Properties and Records. During
the period commencing on the date hereof and ending on the Closing Date, the
Company shall, and shall cause each of its subsidiaries to, upon reasonable
notice, afford Parent and Purchaser, and their respective counsel, accountants,
consultants and other authorized representatives, full access during normal
business hours to the employees, properties, books and records of the Company
and its subsidiaries in order that they may have the opportunity to make such
investigations as they shall desire of the affairs of the Company and its
subsidiaries; provided that such investigations shall be conducted so as to
minimize disturbances to the operation of the Company's business. The Company
shall furnish reasonably promptly to Parent and Purchaser (a) a copy of each
report, schedule, registration statement and other document filed by it or its
subsidiaries during such period pursuant to the requirements of Federal or
state securities laws and (b) all other information concerning its or its
subsidiaries' business, properties and personnel as Parent and Purchaser may
reasonably request. The Company agrees to cause its officers and employees to
furnish such additional financial and operating data and other information and
respond to such inquiries as Parent or Purchaser shall from time to time
reasonably request.
4.02 Confidentiality. Information obtained by Parent and Purchaser
pursuant to Section 4.01 hereof shall be subject to the provisions of the
Confidentiality Agreement between the Company and Account Portfolios, Inc.
dated November 9, 1995 (the "Confidentiality Agreement"), to which Parent made
itself subject pursuant to a letter agreement dated May 3, 1996.
4.03 Conduct of the Business of the Company. During the period from
the date of this Agreement to the Closing Date, the Company shall, and shall
cause each of its subsidiaries to, conduct its operations only according to its
ordinary and usual course of business; use its reasonable efforts to (i)
preserve intact its business organizations, (ii) keep available the services of
its officers and employees and (iii) maintain satisfactory relationships with
licensors, suppliers, distributors, customers, landlords, employees, agents and
others having business relationships with it. Notwithstanding the immediately
preceding sentence, prior to the Closing Date, except as may be first approved
in writing by Parent or as is otherwise permitted or required by this
Agreement, the Company shall, and shall cause each of its subsidiaries to:
(a) maintain its Articles of Incorporation, by-laws and other
organizational documents, as applicable, in its form on the date of
this Agreement,
(b) other than in the ordinary course of business consistent with
past practice,
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refrain from paying or increasing any bonuses, salaries, or other
compensation to any director, officer, employee or stockholder or
entering into any employment, severance, or similar agreement with any
director, officer, or employee,
(c) refrain from the adopting or, other than in the ordinary course
of business consistent with past practice, increasing of any profit
sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any of its
employees except as required by law,
(d) refrain from entering into any material contract or commitment
except material contracts and commitments in the ordinary course of
business,
(e) refrain from increasing its indebtedness for borrowed money
except current borrowings in the ordinary course,
(f) refrain from cancelling or waiving any claim or right of
substantial value which individually or in the aggregate is material,
(g) refrain from declaring or paying any dividends in respect of
its capital stock or redeeming, purchasing or otherwise acquiring any of
its capital stock,
(h) refrain from making any material change in accounting methods
or practices, except as required by law or generally accepted accounting
principles,
(i) refrain from issuing or selling any shares of capital stock or
any other securities except pursuant to outstanding options, or issuing
any securities convertible into, or options, warrants or rights to
purchase or subscribe to, or entering into any arrangement or contract
with respect to the issue and sale of, any shares of its capital stock or
any other securities, or making any other changes in its capital
structure,
(j) refrain from selling, leasing or otherwise disposing of any
material asset or property other than sales in the ordinary course of
business consistent with past practice,
(k) refrain from making any capital expenditure or commitment
therefor, except in the ordinary course of business,
(l) refrain from writing off as uncollectible any notes or accounts
receivable, except write-offs in the ordinary course of business
consistent with past practice,
(m) refrain from purchasing or otherwise acquiring portfolios of
loans, notes, accounts receivable, mortgages or other indebtedness, for a
purchase price in excess of $500,000 for any such portfolio, and
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(n) refrain from agreeing in writing to do any of the foregoing.
4.04 Proxy Statement. As promptly as practicable, the Company will
prepare and file a preliminary Proxy Statement with the Commission and will use
its reasonable best efforts to respond to the comments of the Commission in
connection therewith and to furnish all information required to prepare the
definitive Proxy Statement (including, without limitation, financial statements
and supporting schedules and certificates and reports of independent public
accountants). The Company will cause the definitive Proxy Statement to be
mailed to the stockholders of the Company and, if necessary, after the
definitive Proxy Statement shall have been so mailed, promptly circulate
amended, supplemental or supplemented proxy material and, if required in
connection therewith, resolicit proxies. The Company will not use any proxy
material in connection with the meeting of its stockholders without Parent's
prior approval, which shall not be unreasonably withheld.
4.05 Stockholder Approval. The Company, acting through its Board of
Directors, shall, in accordance with applicable law, call a special meeting of
the holders of Common Stock for the purpose of voting upon this Agreement and
the Merger and the Company agrees that this Agreement and the Merger shall be
submitted at such special meeting. The Company shall use its reasonable
efforts to solicit from its stockholders proxies, and shall take all other
action necessary and advisable, to secure the vote of stockholders required by
applicable law to obtain the approval for this Agreement. Subject to Section
4.07 of this Agreement, the Company agrees that it will include in the Proxy
Statement the recommendation of its Board of Directors that holders of Common
Stock approve and adopt this Agreement and approve the Merger.
4.06 Reasonable Best Efforts. Each of the Company, Parent and
Purchaser shall, and the Company shall cause each of its subsidiaries to,
cooperate and use their respective reasonable best efforts to take, or cause to
be taken, all appropriate action, and to make, or cause to be made, all filings
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, their respective reasonable best efforts to
obtain, prior to the Closing Date, all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to contracts with the Company and its
subsidiaries as are necessary for consummation of the transactions contemplated
by this Agreement and to fulfill the conditions to the Merger.
4.07 No Solicitation of Other Offers. (a) Neither the Company nor
any of its subsidiaries shall, directly or indirectly, take (and the Company
shall not authorize or permit its or its subsidiaries' officers, directors,
employees, representatives, consultants, investment bankers, attorneys,
accountants or other agents or affiliates, to so take) any action to (i)
encourage, solicit or initiate the submission of any Acquisition Proposal (as
hereinafter
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defined), (ii) enter into any agreement with respect to any Acquisition
Proposal or (iii) participate in any way in discussions or negotiations with,
or, furnish any information to, any Person (other than the Company, Parent or
Purchaser) in connection with, or take any other action to facilitate any
inquiries or the making of any proposal (including without limitation by taking
any action that would make Section 180.1141 of the WBCL inapplicable to an
Acquisition Proposal) that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal, provided, however, that the Company may
participate in discussions or negotiations with or furnish information to
any third party which proposes a transaction which the Board of Directors of
the Company reasonably believes will result in a Superior Proposal if the Board
of Directors determines, in its good faith judgment (and has been advised by
independent legal counsel), that failing to take such action would constitute a
breach of its fiduciary obligations under applicable law. In addition, neither
the Board of Directors of the Company nor the Special Committee shall withdraw
or modify, or propose to withdraw or modify, in a manner adverse to Parent the
approval and recommendation of the Merger and this Agreement or approve or
recommend, or propose to approve or recommend, any Acquisition Proposal;
provided that the Board of Directors of the Company and the Special Committee
may recommend to its shareholders an Acquisition Proposal and in connection
therewith withdraw or modify its approval or recommendation of this Agreement
and the Merger if (i) the Board of Directors of the Company and the Special
Committee have determined that such Acquisition Proposal is a Superior
Proposal, (ii) all the conditions to the Company's right to terminate this
Agreement in accordance with Section 7.01(d) have been satisfied (including the
payment of the amounts required by Section 8.01) and (iii) this Agreement is
terminated in accordance with Section 7.01(d). Any actions permitted under,
and taken in compliance with, this Section 4.07 shall not be deemed a breach of
any covenant or agreement of such party contained in this Agreement.
"Acquisition Proposal" shall mean any proposed merger or other business
combination, sale or other disposition of any material amount of assets, sale
of shares of capital stock, tender offer or exchange offer or similar
transactions involving the Company or any of its subsidiaries. "Superior
Proposal" shall mean a bona fide proposal made by a third party to acquire not
less than 80% of the outstanding shares of the Company pursuant to a tender
offer, a merger or a sale of all or substantially all of the assets of the
Company on terms which a majority of the members of the Board of Directors of
the Company determines in its good faith judgment to be more favorable to the
Company's stockholders than the transactions contemplated hereby.
(b) In addition to the obligations of the Company set forth in
paragraph (a), on the date of receipt thereof the Company shall advise Parent
of any request for information or of any Acquisition Proposal, or any proposal
with respect to any Acquisition Proposal, the material terms and conditions of
such request or takeover proposal, and the identity of the person making any
such takeover proposal or inquiry. The Company will keep Parent fully
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informed in all material respects of the status and details (including
amendments or proposed amendments) of any such request, takeover proposal or
inquiry and keep Parent fully informed in all material respects as to the
details of any information requested of or provided by the Company and as to
the details of all discussions or negotiations with respect to any such
request, takeover proposal or inquiry.
(c) Immediately following the Closing, the Company will request each
person which has heretofore executed a confidentiality agreement in connection
with its consideration of acquiring the Company or any portion thereof to
return all confidential information heretofore furnished to such person by or
on behalf of the Company.
4.08 Notification of Certain Matters. The Company shall give prompt
notice to Parent of: (i) the occurrence, or non-occurrence, of any event known
to the Company, the occurrence, or non-occurrence, of which would reasonably be
expected to cause any representation or warranty of the Company contained in
this Agreement to be untrue or inaccurate in any material respect, (ii) any
failure of the Company to comply with or satisfy any covenants, condition or
agreement to be complied with or satisfied by it hereunder, (iii) any notice
of, or other communication relating to, a material default or event that, with
notice or lapse of time or both, would become a material default, received by
the Company or any of its subsidiaries subsequent to the date of this Agreement
and prior to the Effective Time, under any material contract to which the
Company or any of its subsidiaries is a party or is subject, and (iv) the
occurrence of any event known to the Company which has resulted in or could
reasonably be expected to result in a Material Adverse Effect. Each of the
Company and Parent shall give prompt notice to the other party of any notice or
other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
contemplated by this Agreement.
4.09 HSR Act. The Company and Parent shall, as soon as practicable,
file Notification and Report Forms under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") and shall use their reasonable best efforts to
respond as promptly as practicable to all inquiries received from the FTC or
the Antitrust Division for additional information or documentation.
4.10 Directors' and Officers' Insurance; Indemnification. (a) The
Articles of Incorporation and the by-laws of the Surviving Corporation (or
Purchaser if this Agreement shall be amended to provide that Purchaser is the
Surviving Corporation) shall contain the provisions with respect to
indemnification and exculpation from liability set forth in the Company's
Articles of Incorporation and by-laws on the date of this Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who on or prior to the Effective Time were
directors, officers, employees or agents of the Company, unless such
modification is required by law.
(b) For three years from the Effective Time, the Surviving Corporation
shall either (x) maintain in effect the Company's current directors' and
officers' liability
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insurance policy covering those persons who are currently covered on the date
of this Agreement by such policy (a copy of which has been heretofore delivered
to Parent) (the "Indemnified Parties"); provided, however, that in no event
shall the Surviving Corporation be required to expend in any one year an amount
in excess of 150% of the annual premiums currently paid by the Company for such
insurance which the Company represents to be $44,500 for the twelve month
period ended November 25, 1996 (the "Current Premium"); and provided further,
that if the annual premiums of such insurance coverage exceed 150% of the
Current Premium, the Surviving Corporation may, at its option, terminate the
existing policy and obtain a policy with the greatest coverage available for a
cost not exceeding 150% of the Current Premium and containing terms and
conditions which are no less advantageous in any material respect to the
Company's current and past directors and officers and provided that said
substitution does not result in any gaps or lapses in coverage with respect to
matters occurring prior to the Effective Time; provided further, that the
Surviving Corporation may substitute for such Company policy a policy with at
least the same coverage containing terms and conditions which are no less
advantageous in any material respect to the Company's current and past
directors and officers and provided that said substitution does not result in
any gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time or (y) cause Parent's directors' and officers' liability
insurance then in effect to cover those persons who are covered on the date of
this Agreement by the Company's directors' and officers' liability insurance
policy, but only if Parent's policy provides at least the same coverage
containing terms and conditions which are no less advantageous in any material
respect to the Company's current and past directors and officers and provided
that said substitution does not result in any gaps or lapses in coverage with
respect to matters occurring prior to the Effective Time.
ARTICLE V
CONDITIONS PRECEDENT TO
OBLIGATIONS OF THE COMPANY
5. Conditions Precedent to Obligations of the Company. The
obligations of the Company to effect the Merger are subject to the satisfaction
or waiver (subject to applicable law) at or prior to the Effective Time of each
of the following conditions:
5.01 Truth of Representations and Warranties. The representations and
warranties of Parent and Purchaser contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date.
5.02 Performance of Agreements. All of the agreements of Parent and
Purchaser to be performed prior to the Closing pursuant to the terms of this
Agreement shall have been duly performed in all material respects.
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5.03 Approval of Company's Stockholders. This Agreement and the
Merger shall have been approved and adopted by the holders of the outstanding
Common Stock in accordance with the requirements of the WBCL.
5.04 HSR Act. Any waiting period (and any extension thereof) under
the HSR Act applicable to the Merger shall have expired or been terminated.
5.05 Injunction. No preliminary or permanent injunction or other
order shall have been issued by any court or by any governmental or regulatory
agency, body or authority which prohibits the consummation of the Merger and
the other transactions contemplated by this Agreement and which is in effect at
the Effective Time; provided, however, that, in the case of a decree,
injunction or other order, each of the parties shall have used reasonable
efforts to prevent the entry of any such injunction or other order and to
appeal as promptly as possible any decree, injunction or other order that may
be entered.
5.06 Statutes. No statute, rule, regulation, executive order, decree
or order of any kind shall have been enacted, entered, promulgated or enforced
by any court or governmental authority which prohibits the con summation of the
Merger or has the effect of making the consummation of the Merger illegal.
5.07 Financing. Parent shall have received financing necessary to
enable it and Purchaser to consummate the transactions contemplated by this
Agreement in accordance with the terms contained in the "highly confident"
letters dated August 12, 1996 to Parent from Goldman, Sachs & Co. and Chase
Securities Inc. and the commitment letter dated August 7, 1996 to Parent from
Pearl Street L.P., The Chase Manhattan Bank and Chase Securities Inc.
5.08 Third Party Consents; Governmental Approvals. All consents,
approvals or waivers, if any, required in connection with the consummation of
the transactions contemplated by this Agreement shall have been received. All
of the consents, approvals, authorizations, exemptions and waivers from
governmental agencies that shall be required in order to enable Company to
consummate the transactions contemplated hereby shall have been obtained.
5.09 Certificates. The Company shall have received a certificate of
Parent executed on its behalf by an executive officer of Parent to the effect
that the conditions set forth in Sections 5.01, 5.02 and 5.07 hereof have been
satisfied.
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ARTICLE VI
CONDITIONS PRECEDENT TO
OBLIGATIONS OF PARENT AND PURCHASER
6. Conditions Precedent to Obligations of Parent and Purchaser. The
obligations of Parent and Purchaser to effect the Merger are subject to the
satisfaction or waiver (subject to applicable law) at or prior to the Effective
Time of each of the following conditions:
6.01 Truth of Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, except
where the failure of such representations and warranties to be true and correct
shall not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect.
6.02 Performance of Agreements. All of the agreements of the Company
to be performed prior to the Closing pursuant to the terms of this Agreement
shall have been duly performed in all material respects.
6.03 No Material Adverse Effect. Prior to the Closing there shall
have been no Material Adverse Effect.
6.04 Approval of Company's Stockholders. This Agreement and the Merger
shall have been approved and adopted by the holders of the outstanding Common
Stock in accordance with the requirements of the WBCL.
6.05 HSR Act. Any waiting period (and any extension thereof) under
the HSR Act applicable to the Merger shall have expired or been terminated.
6.06 Injunction. No preliminary or permanent injunction or other
order shall have been issued by any court or by any governmental or regulatory
agency, body or authority which prohibits the consummation of the Merger and
the other transactions contemplated by this Agreement and which is in effect at
the Effective Time; provided, however, that, in the case of a decree,
injunction or other order, each of the parties shall have used reasonable
efforts to prevent the entry of any such injunction or other order and to
appeal as promptly as possible any decree, injunction or other order that may
be entered.
6.07 Statutes. No statute, rule, regulation, executive order, decree
or order of any kind shall have been enacted, entered, promulgated or enforced
by any court or governmental authority which prohibits the consummation of the
Merger or has the effect of
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making the consummation of the Merger illegal.
6.08 Financing. Parent shall have received financing necessary to
enable it and Purchaser to consummate the transactions contemplated by this
Agreement in accordance with the terms contained in the "highly confident"
letters dated August 12, 1996 to Parent from Goldman, Sachs & Co. and Chase
Securities Inc. and the commitment letter dated August 7, 1996 to Parent from
Pearl Street L.P., The Chase Manhattan Bank and Chase Securities Inc.
6.09 Third Party Consents; Governmental Approvals. All consents,
approvals or waivers, if any, required in connection with the consummation of
the transactions contemplated by this Agreement shall have been received. All
of the consents, approvals, authorizations, exemptions and waivers from
governmental agencies that shall be required in order to enable Parent and
Purchaser to consummate the transactions contemplated hereby shall have been
obtained.
6.10 Certificates. Parent and Purchaser shall have received a
certificate of the Company executed on its behalf by an executive officer of
the Company to the effect that the conditions set forth in Sections 6.01 and
6.02 hereof have been satisfied.
6.11 Amendment of Stock Plans and Consents to Cancellation of Options.
The Board of Directors of the Company shall have amended the Stock Plans in
accordance with Section 1.06 hereof, and the Company shall, as provided in such
Section, have obtained all necessary consents to ensure that, upon the
Effective Time, the holders of Options shall surrender the same in cancellation
and settlement thereof for a cash consideration equal to the Cash Payment,
less the exercise price of such related Options. After the Effective Time, the
Surviving Corporation shall have no obligation to issue, transfer or sell any
shares of common stock of the Surviving Corporation pursuant to any Employee
Benefit Plan.
ARTICLE VII
TERMINATION AND ABANDONMENT
7.01 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned, at any time prior to the
Effective Time, whether before or after approval of the Merger by the Company's
stockholders:
(a) by mutual written consent of the Company and Parent;
(b) by either Parent, on the one hand, or the Company, on the other
hand, if any governmental or regulatory agency shall have issued an order,
decree or ruling or taken any other action permanently enjoining, restraining
or otherwise prohibiting the
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consummation of the Merger and such order, decree or ruling or other action
shall have become final and nonappealable;
(c) by either Parent, on the one hand, or the Company, on the other
hand, if the Merger shall not have been consummated by February 12, 1997, or by
the Company if the Merger shall not have been consummated within 60 days after
approval of this Agreement and the Merger by the Company's stockholders, unless
the Merger shall not have been consummated because of an intentional or willful
material breach of any repre sentation or warranty on the part of the Company
set forth in this Agreement or because of a material breach of any covenant or
agreement on the part of the Company set forth in this Agreement which the
Company has failed to cure within ten days after written notice thereof by
Parent to the Company;
(d) by either Parent, on the one hand, or the Company, on the other
hand, if the Board of Directors of the Company and if required the Special
Committee, determines in its good faith judgment that an Acquisition Proposal
will result in a Superior Proposal and the Board determines in its good faith
judgment (and has been advised by independent legal counsel) that a failure to
terminate this Agreement and enter into an agreement to effect the Superior
Proposal would constitute a breach of its fiduciary obligations under
applicable law; provided, however the Company may not terminate this Agreement
pursuant to this Section 7.01(d) unless (i) the Company has given reasonably
prompt written notice to Parent of the receipt of such Acquisition Proposal and
following such notification by the Company of Parent of receipt of such
Acquisition Proposal the Company keeps Parent reasonably informed of the terms
and conditions of such Acquisition Proposal (and any modification thereto), and
the identity of the Person making such Proposal, (ii) prior to or
simultaneously with such termination the Company has paid the $4,800,000 amount
set forth in Section 8.01 by wire transfer in same day funds to the account
identified in Schedule 7.01(d) previously delivered to the Company and (iii)
prior to or simultaneously with such termination the Company enters into a
definitive acquisition, merger or similar agreement to effect the Superior
Proposal;
(e) by Parent if (i) there shall have been a breach of any
representation or warranty on the part of the Company contained in this
Agreement which would reasonably be expected to have a Material Adverse Effect,
(ii) there shall have been a material breach of any covenant or agreement on
the part of the Company contained in this Agreement and the Company has failed
to cure such breach within ten days after written notice thereof from Parent,
or (iii) the Board of Directors of the Company or the Special Committee shall
have withdrawn or modified in a manner adverse to Parent its approval or
recommendation of this Agreement or the Merger and shall not have reinstated
such approval or recommendation within three business days thereof or the
Company shall have entered into a definitive acquisition, merger or similar
agreement to effect a Superior Proposal; or
(f) by the Company if (i) any of the representations and warranties of
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Parent or Purchaser contained in this Agreement were untrue or incorrect in any
material respect when made or have since become, and at the time of termination
remain, incorrect in any material respect, or (ii) Parent or Purchaser shall
have breached or failed to comply in any material respect with any of their
respective obligations under this Agreement.
7.02 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.01 hereof by Parent, on the one hand, or the
Company, on the other hand, written notice thereof shall forthwith be given to
the other party or parties specifying the provision hereof pursuant to which
such termination is made, and this Agreement shall become void and have no
effect, and there shall be no liability hereunder on the part of Parent,
Purchaser or the Company, except that Sections 4.02, 8.01 and this Section 7.02
hereof shall survive any termination of this Agreement.
ARTICLE VIII
MISCELLANEOUS
8.01 Fees and Expenses. (a) Except as provided in paragraphs (b) or
(c) below, all costs and expenses incurred in connection with this Agreement
and the consummation of the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
(b) (i) If this Agreement is terminated (A) by the Company pursuant to
Section 7.01(c) under circumstances where the conditions to the Company's
obligations set forth in Sections 5.01, 5.02 and 5.04 through 5.08, inclusive,
have been satisfied and prior to such termination, the Company shall have
notified its stockholders that a third party has made a Superior Proposal or a
third party shall have publicly announced a proposal which may represent a
Superior Proposal, or (B) by Parent pursuant to Section 7.01(e)(i) or (ii) as a
result of an intentional or willful breach, and within twelve months after such
termination, the Company enters into an agreement with respect to any merger or
any other business combination, sale or other disposition of any material
amount of assets, sale of shares of capital stock, tender offer or exchange
offer or similar transaction involving the Company or any of its subsidiaries
(a "Third Party Acquisition"), or a Third Party Acquisition occurs, involving
any party (or any affiliate or associate thereof) (x) with whom the Company (or
its agents) during the term of this Agreement had any discussions with respect
to a Third Party Acquisition, (y) to whom the Company (or its agents) during
the term of this Agreement furnished information with respect to or with a view
toward a Third Party Acquisition, or (z) who during the term of this Agreement
had submitted a proposal or expressed any interest publicly or to the Company
in a Third Party Acquisition, which Third Party Acquisition contemplates a
direct or indirect consideration for shares of Common Stock in excess of the
Merger Consideration, in the case of each of clauses (x), (y) and (z) prior to
such termination or (ii) if this Agreement is terminated (A) by the Company in
accordance with Section
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<PAGE> 87
7.01(d), or (B) by Parent pursuant to Section 7.01(e)(iii), then the Company
shall pay to Parent in same day funds, within two business days following such
termination (except as required to be earlier paid in accordance with Section
7.01(d)) an amount (reduced by any amount or reimbursement paid pursuant to
Section 8.01(c)) equal to $4,800,000 plus, within two business days of being
furnished with appropriate documentation, reimbursement for the out-of-pocket
fees and expenses reasonably incurred by Parent in connection with the Merger
and the transactions contemplated thereby (not to exceed $1,500,000 in the
aggregate).
(c) If Parent terminates this Agreement pursuant to Section 7.01(e)(i)
or (ii) as a result of an intentional or willful breach, then the Company shall
pay to Parent in same day funds, within two business days following such
termination $1,000,000, plus, within two business days of being furnished with
appropriate documentation, reimbursement for the out-of-pocket fees and
expenses reasonably incurred by Parent in connection with the Merger and the
transactions contemplated thereby (not to exceed $1,500,000 in the aggregate).
8.02 Representations and Warranties. The respective representations
and warranties of the Company, on the one hand, and Parent and Purchaser, on
the other hand, contained herein or in any certificates or other documents
delivered prior to or at the Closing shall not be deemed waived or otherwise
affected by any investigation made by any party. Each and every such
representation and warranty shall expire with, and be terminated and
extinguished as of the Effective Time and thereafter none of the Company,
Parent or Purchaser or their respective officers, directors, employees and
agents shall be under any liability whatsoever with respect to any such
representation or warranty.
8.03 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken by or on behalf of the Board of Directors of
the Company and the Special Committee and the Board of Directors of Parent or
Purchaser, may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein by any
other applicable party or in any document, certificate or writing delivered
pursuant hereto by any other applicable party or (iii) waive compliance with
any of the agreements or conditions contained herein. Any agreement on the
part of any party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
8.04 Public Announcements. The Company, on the one hand, and Parent
and Purchaser, on the other hand, agree to consult promptly with each other
prior to issuing any press release or otherwise making any public statement
with respect to the transactions contemplated hereby, and shall not issue any
such press release or make any such public statement prior to such consultation
and review by the other party of a copy of such release or statement, unless
such party has been advised by counsel that such release or statement is
required by applicable law.
8.05 Notices. All notices, requests, demands, waivers and other
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<PAGE> 88
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered in person
or mailed, certified or registered mail with postage prepaid, or sent by telex,
telegram or telecopier, as follows:
(a) if to the Company, to it at:
Payco American Corporation
180 North Executive Drive
Brookfield, Wisconsin 53005
Attention: Dennis G. Punches
with a copy to:
Hecht & Lentz
333 Bridge, N.W., Suite 330
Grand Rapids, Michigan 49504
Attention: David M. Hecht, Esq.
(b) if to Parent, to it at:
OSI Holdings Corp.
300 Galleria Parkway, Suite 690
Atlanta, Georgia 30339
Attention: David B. Kreiss
with a copy to:
McCown De Leeuw & Co.
101 East 52nd Street
31st Floor
New York, New York 10022
Attention: David E. King
with a further copy to:
White & Case
1155 Avenue of the Americas
New York, New York 10036
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<PAGE> 89
Attention: Frank L. Schiff, Esq.
(c) if to Purchaser, to it at:
c/o OSI Holdings Corp.
300 Galleria Parkway, Suite 690
Atlanta, Georgia 30339
Attention: David B. Kreiss
with a copy to:
McCown De Leeuw & Co.
101 East 52nd Street
31st Floor
New York, New York 10022
Attention: David E. King
with a further copy to:
White & Case
1155 Avenue of the Americas
New York, New York 10036
Attention: Frank L. Schiff, Esq.
or to such other Person or address as any party shall specify by notice in
writing to each of the other parties. All notices, requests, demands, waivers
and communications shall be deemed received as follows; (i) if sent by prepaid
registered or certified mail, return receipt requested, on the earlier of the
date shown on the receipt or three (3) days after being deposited with the U.S.
Postal Service; (ii) if placed for delivery with a recognized overnight courier
service, on the regularly scheduled date for delivery established by such
courier service; (iii) if delivered by hand, when delivered.
8.06 Entire Agreement. This Agreement, the schedules previously
delivered to Parent and the Company, the Confidentiality Agreement and other
documents referred to herein or delivered pursuant hereto, collectively contain
the entire understanding of the parties hereto with respect to the subject
matter contained herein and supersede all prior agreements and understandings,
oral and written, with respect thereto.
8.07 Binding Effect; Benefit; Assignment. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and per-
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<PAGE> 90
mitted assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto without
the prior written consent of the other parties. Nothing in this Agreement,
expressed or implied, is intended to confer on any Person other than the
parties hereto or their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
8.08 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in writing by the parties
hereto in any and all respects before the Effective Time (notwithstanding any
stockholder approval), by action taken by the Board of Directors of the Company
and the Special Committee and the Board of Directors of Parent and Purchaser or
by the respective officers authorized by them; provided, however, that after
any such stockholder approval, no amendment shall be made which by law requires
further approval by such stockholders without such further approval.
8.09 Further Actions. Each of the parties hereto agrees that, subject
to the provisions of this Agreement and to its legal obligations, it will use
its reasonable best efforts to fulfill all conditions precedent specified
herein, to the extent that such conditions are within its control, and to do
all things reasonably necessary to consummate the transactions contemplated
hereby.
8.10 Headings. The descriptive headings of the several Articles and
Sections of this Agreement are inserted for convenience only, do not constitute
a part of this Agreement and shall not affect in any way the meaning or
interpretation of this Agreement.
8.11 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
8.12 Applicable Law. This Agreement and the legal relations between
the parties hereto shall be governed by and construed in accordance with the
laws of the State of Wisconsin, without regard to the conflict of laws rules
thereof.
8.13 Severability. If any term, provision, covenant or restriction
contained in this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
8.14 Certain Definitions . "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, a group and a government or other department or
agency thereof. "Knowledge of the Company", "known to the Company" or words of
similar import mean the actual knowledge of any executive officer or director
of the Company. "Notice to the Company", "notice received by
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<PAGE> 91
the Company" or words of similar import shall mean written notice received by
any executive officer or director of the Company.
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<PAGE> 92
IN WITNESS WHEREOF, each of Parent, Purchaser and the Company have caused
this Agreement to be executed by their respective officers thereunto duly
authorized, all as of the date first above written.
OSI HOLDINGS CORP.
By: /s/ DAVID E. KING
Name: David E. King
----------------
Title: Secretary and
Treasurer
BOXER ACQUISITION CORP.
By: /s/ DAVID E. KING
-----------------
Name: David E. King
Title: President
PAYCO AMERICAN CORPORATION
By: /s/ DENNIS G. PUNCHES
------------------
Name: Dennis G. Punches
Title: Chairman
<PAGE> 93
ANNEX B
AGREEMENT
THIS AGREEMENT, dated as of August 12, 1996, is made by and between
____________ (the "Shareholder") and Boxer Acquisition Corp., a Delaware
corporation (the "Purchaser").
WHEREAS, contemporaneously herewith, the Purchaser, OSI Holdings Corp.,
the Purchaser's parent corporation ("Parent"), and Payco American Corporation,
a Wisconsin corporation (the "Company"), have executed and delivered an
Agreement and Plan of Merger, dated as of the date hereof (as may be amended or
supplemented from time to time, the "Merger Agreement"); and
WHEREAS, capitalized terms not otherwise defined herein shall have the
respective meanings set forth in the Merger Agreement; and
WHEREAS, the Shareholder owns, of record and beneficially, [___] shares of
common stock of the Company (the "Shares", which term shall include for the
purposes of this Agreement all other shares of common stock of the Company
acquired or otherwise received by the Shareholder on or after the date of this
Agreement); and
WHEREAS, in order to induce the Purchaser to execute the Merger Agreement,
the Shareholder has agreed to vote in favor of the Merger as herein provided.
NOW, THEREFORE, the parties hereto agree as follows:
1. Voting of Shares. Unless (i) the Board of Directors of the Company or
the Special Committee of the Board of Directors of the Company has withdrawn or
modified in a manner adverse to Parent its approval or recommendation of this
Agreement or the Merger and (ii) as a result thereof the Merger Agreement has
been terminated, the Stockholder hereby agrees to vote the Shares in favor of
the Merger.
2. Representations and Warranties of the Shareholder. The Shareholder
hereby represents and warrants to the Purchaser that:
(a) The Shareholder is the sole record and beneficial owner of the Shares
and no other person has a right to acquire or direct the disposition, or holds
a proxy or other right to vote or direct the voting, of such Shares. Other
than this Agreement and the
<PAGE> 94
Merger Agreement, there is no option, warrant, right, call, proxy, agreement,
commitment or understanding of any nature whatsoever, fixed or contingent, that
directly or indirectly (i) calls for the sale, pledge or other transfer or
disposition of any of the Shares, any interest therein or any rights with
respect thereto, or related to the voting, disposition or control of the
Shares, or (ii) obligates the Shareholder to grant, offer or enter into any of
the foregoing.
(b) The Shareholder has the full legal power and authority to enter into
this Agreement, and this Agreement has been duly and validly executed and
delivered by the Shareholder and constitutes a valid and binding obligation of
the Shareholder, enforceable against the Shareholder in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency and
other similar laws affecting creditors' rights generally or by general
principles of equity.
3. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Shareholder that:
(a) It has the full corporate power to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby.
(b) It has taken all corporate action necessary to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby; and that this Agreement has been duly and
validly executed and delivered by the Purchaser and constitutes a valid and
binding obligation of the Purchaser, except as such enforcement may be limited
by bankruptcy, insolvency and other similar laws affecting creditors' rights
generally or by general principles of equity.
4. Binding Effect; Assignment. This Agreement shall inure to the benefit
of and be binding upon the parties and their respective heirs, personal
representatives, successors and permitted assigns.
5. Specific Performance. The parties hereto agree that if for any reason
the Shareholder fails to perform any of the Shareholder's obligations under
this Agreement, the Purchaser would be irreparably damaged and money damages
would not constitute an adequate remedy. Accordingly, the Purchaser shall be
entitled to specific performance and injunctive and other equitable relief to
enforce the performance of such obligations by the Shareholder. This provision
is without prejudice to any other rights the Purchaser may have against the
Shareholder for failure to perform any of the Shareholder's obligations under
this Agreement.
<PAGE> 95
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the law of
conflicts of laws thereof.
7. Counterparts. This Agreement may be executed in one or more
counterparts, all of which together shall constitute a single agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be signed as of the date first above written.
_______________________________
BOXER ACQUISITION CORP.
By:____________________________
<PAGE> 96
[William Blair & Company Letterhead]
ANNEX C
August 13, 1996
Board of Directors
Payco American Corporation
180 North Executive Drive
Brookfield, WI 53005
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the Shareholders of Payco American Corporation (the "Company") of the
consideration to be received pursuant to the terms of the Agreement and Plan of
Merger dated as of August 13, 1996 (the "Merger Agreement") by and among, OSI
Holdings Corp, Boxer Acquisition Corporation, and the Company. The terms of
the Merger Agreement contemplate an aggregate consideration of approximately
$145 million of $14.00 per share to the Shareholders of the Company (the
"Consideration").
In connection with our review of the proposed transaction (the "Transaction")
and the preparation of our opinion herein, we have examined: (a) a draft of
the Merger Agreement; (b) audited financial statements of the Company for each
of the five fiscal years ended December 31, 1995; (c) the unaudited financial
statements of the Company for the quarters ended March 31, 1996, and June 30,
1996; (d) certain internal financial information and forecasts for the Company,
prepared by management of the Company; (e) certain other publicly available
information on the Company. We have also held discussions with members of the
senior management of the Company to discuss the foregoing, and have considered
other matters which we have deemed relevant to our inquiry.
Although we have no reason to believe that any of the financial or other
information on which we have relied is not accurate or complete, we have
assumed the accuracy and completeness of all such information and have not
attempted to verify independently any of such information, nor have we made or
obtained an independent appraisal of the assets of the Company. With respect
to financial forecasts, we have assumed that such forecasts have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the Company's management, as the case may be, as to the
respective future financial performance of the Company. Our opinion herein is
based upon circumstances existing and disclosed to us and can be evaluated as
of August 13, 1996.
222 West Adams Street Chicago, Illinois 60606 (312) 236-1600
<PAGE> 97
In rendering our opinion, we have assumed that the Transaction will be
consummated on the terms described in the Agreement, without any waiver of any
material terms or conditions by the Company.
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including (a) historical revenues, operating earnings, operating cash flows,
net income and capitalization, as to the Company and certain publicly held
companies; (b) the current financial position and results of operations of the
Company; (c) the historical market prices and trading volume of the Common
Stock of the Company; (d) financial information concerning selected actual and
proposed business combinations which we believe to be relevant; and (e) the
general condition of the securities markets. We were not requested to, nor did
we, seek alternative participants for the proposed Transaction.
William Blair & Company has been engaged in the investment banking business
since 1935. We undertake the valuation of investment securities in
connection with public offerings, private placements, business combinations,
estate and gift tax valuations and similar transactions. For our services,
including the rendering of this opinion, the Company will pay us a fee and
indemnify us against certain liabilities.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of date hereof, the Consideration is fair, from a financial
point of view, to the Shareholders of the Company.
Very truly yours,
William Blair & Company, L.L.C.
-------------------------------
William Blair & Company, L.L.C.
<PAGE> 98
ANNEX D
CONSULTING AGREEMENT
This Agreement is made as of the 12th day of August, 1996 between Payco
American Corporation, a Wisconsin corporation, with offices at 180 North
Executive Drive, Brookfield, Wisconsin 53005-6066 (the "Company"), and Dennis
G. Punches, an individual residing in the State of Florida (the "Consultant").
R E C I T A L S
WHEREAS, the Consultant is a founder and long-time employee of the Company
and is presently serving as Chairman of the Board of Directors of the Company;
WHEREAS, during the term of his employment with the Company, the
Consultant has actively established and maintained relationships with the
Company's key customers and strategic partners;
WHEREAS, the Consultant possesses an intimate knowledge of the business
and affairs of the Company and its policies, procedures, methods and personnel;
WHEREAS, OSI Holdings Corp., Boxer Acquisition Corp. and the
Company have executed and delivered an Agreement and Plan of Merger, dated as
of the date hereof (the "Merger Agreement");
WHEREAS, the Company desires to secure the continued services of the
Consultant on behalf of the Company after consummation of the transactions
contemplated by the Merger Agreement, and the Consultant desires to continue
providing such services to the Company, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound
hereby, agree as follows:
1. Engagement, Duties. The Company hereby engages the Consultant to
provide such advisory and consulting services to the Company as shall be
mutually agreed between the Consultant and the Company from time to time, and
the Consultant accepts such engagement for the term specified in Section 2
below (the "Term").
2. Effectiveness; Term. The Term shall begin at the Effective Time (as
defined in the Merger Agreement) and continue until the third anniversary date
of the
<PAGE> 99
Effective Time, unless earlier terminated by either party with thirty
days notice to the other.
3. Fee. During the Term, the Company shall pay to the Consultant $150,000
on the third anniversary date of the Effective Time.
4. Expenses. The Consultant shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of his
duties hereunder in accordance with Company policy and upon receipt of
appropriate documentation.
5. Independent Contractor. It is the express intention of the parties
that Consultant is an independent contractor and not an employee, agent, joint
venturer or partner of the Company. Nothing in this contract shall be
interpreted or construed as creating or establishing a relationship of employer
and employee between the Company and Consultant or any employee or agent of
Consultant.
6. Secret Processes and Confidential Information. For the Term and
thereafter, (a) the Consultant will not divulge, transmit or otherwise disclose
(except as legally compelled by court order, and then only to the extent
required, after prompt notice to the Company of any such order), directly or
indirectly, other than in the regular and proper course of business of the
Company, any confidential knowledge or information with respect to the
operations or finances of the Company or with respect to confidential or
secret processes, services, techniques, customers or plans with respect to the
Company and (b) the Consultant will not use, directly or indirectly, any
confidential information for the benefit of anyone other than the Company;
provided, however, that the Consultant has no obligation, express or implied,
to refrain from using or disclosing to others any such knowledge or information
which is or hereafter shall become available to the public other than through
disclosure by the Consultant. All new processes, techniques, know-how,
inventions, plans, products, patents and devices developed, made or invented by
the Consultant, alone or with others, while a consultant of the Company, shall
be and become the sole property of the Company, unless released in writing by
the Company, and the Consultant hereby assigns any and all rights therein or
thereto to the Company.
During the term of this Agreement and thereafter, the Consultant shall not
take any action to disparage or criticize to any third parties any of the
services of the Company or to commit any other action that injures or hinders
the business relationships of the Company.
All files, records, documents, memorandums, notes or other documents
relating to the business of Company, whether prepared by the Consultant or
otherwise coming into his possession in the course of the performance of his
services under this
<PAGE> 100
Agreement, shall be the exclusive property of Company and shall be
delivered to the Company and not retained by the Consultant upon termination of
this Agreement for any reason whatsoever.
7. Notice. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or
when mailed, certified or registered mail, postage prepaid, to the following
addresses:
If to the Consultant:
c/o Payco American Corporation
180 North Executive Drive
Brookfield, Wisconsin 53005-6066
If to the Company:
Payco American Corporation
180 North Executive Drive
Brookfield, Wisconsin 53005-6066
With a copy to:
McCown De Leeuw & Co.
101 East 52nd Street
31st Floor
New York, New York 10022
Attention: David E. King
The Company shall give the Consultant written notice of any default under this
Agreement and afford the Consultant fifteen days to cure such default.
8. General.
(a) Governing Law; Jurisdiction. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of New York applicable to contracts executed and to be performed
entirely within said State. Any judicial proceeding brought against any of the
parties to this Agreement or any dispute arising out of this Agreement or any
matter related hereto may be brought in the courts of the State of New York or
in the United States District Court for the Southern District of New York, and,
by execution and delivery of this Agreement, each of the parties to this
Agreement accepts the jurisdiction of said courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement. The
<PAGE> 101
foregoing consent to jurisdiction shall not be deemed to confer rights on any
person other than the respective parties to this Agreement.
(b) Assignability. The Consultant may not assign his interest in or
delegate his duties under this Agreement. Notwithstanding anything else in
this Agreement to the contrary, the Company may assign this Agreement to and
all rights hereunder shall inure to the benefit of any person, firm or
corporation succeeding to all or substantially all of the business or assets of
the Company by purchase, merger or consolidation.
(c) Enforcement Costs. In the event that either the Company or the
Consultant initiates an action or claim to enforce any provision or term of
this Agreement, the costs and expenses (including attorney's fees) of the
prevailing party shall be paid by the other party, such party to be deemed to
have prevailed if such action or claim is concluded pursuant to a court
order or final judgment which is not subject to appeal, a settlement agreement
or dismissal of the principle claims.
(d) Binding Effect. This Agreement is for the engagement of the
Consultant, personally, and for the services to be rendered by him must be
rendered by him and no other person. This Agreement shall be binding upon and
inure to the benefit of the Company and its successors and assigns.
(e) Entire Agreement; Modification. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the term of engagement hereunder, this
Agreement shall continue for so long as any obligations remain under this
Agreement.
(g) Survival. The covenants set forth in Section 6 of this Agreement
shall survive and shall continue to be binding upon the Consultant as set forth
in such Sections notwithstanding the termination of this Agreement for any
reason whatsoever. The covenants set forth in Section 6 of this Agreement
shall be deemed and construed as separate agreements independent of any other
provision of this Agreement. The existence of any claim or cause of action by
the Consultant against Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by Company of any
or all covenants.
(h) Remedies. The parties recognize that the performance of the
obligations under Section 6 of this Agreement by the Consultant is special,
unique and extraordinary in character, and that in the event of the breach by
the Consultant of the terms and conditions of Section 6 of this Agreement, the
Company or any of its Affiliates
<PAGE> 102
shall be entitled to (a) institute and prosecute proceedings in any court of
competent jurisdiction to enforce the specific performance hereof by the
Consultant or to enjoin the Consultant from engaging in any activities
prohibited hereunder or (b) pursue any other remedy available at law or in
equity.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first written above.
PAYCO AMERICAN CORPORATION
By: /s/ William W.Kagel
-------------------------------
Name: William W. Kagel
Title: Senior Vice-President
CONSULTANT
/s/ Dennis G. Punches
----------------------------------
Dennis G. Punches
<PAGE> 103
ANNEX E
COVENANT NOT-TO-COMPETE AGREEMENT
THIS COVENANT NOT-TO-COMPETE AGREEMENT, dated August 12, 1996, is made
between Payco American Corporation, a Wisconsin corporation, with offices at
180 North Executive Drive, Brookfield, Wisconsin 53005-6066 (the "Company"),
and Dennis G. Punches, an individual residing in the State of Florida
("Punches").
R E C I T A L S
WHEREAS, Punches is a founder and long-time employee of the Company and is
presently serving as Chairman of the Board of Directors of the Company;
WHEREAS, during the term of his employment with the Company, Punches has
actively established and maintained relationships with the Company's key
customers and strategic partners;
WHEREAS, Punches possesses an intimate knowledge of the business and
affairs of the Company and its policies, procedures, methods and personnel;
WHEREAS OSI Holdings Corp., Boxer Acquisition Corp. and the Company have
entered into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), pursuant to which Boxer Acquisition Corp. will be merged
with and into the Company;
WHEREAS, Punches is willing to enter into the Consulting Agreement dated
as of the date hereof pursuant to which the Company will secure the continued
services of Punches on behalf of the Company;
WHEREAS, in order to provide reasonable assurances and to induce the
Company to enter into the Consulting Agreement with Punches, the Company and
Punches have agreed to enter into this Agreement for the consideration called
for hereby.
NOW, THEREFORE, the parties hereto hereby agrees as follows:
1. Covenant Not-to-Compete. (a) Punches covenants and agrees that
<PAGE> 104
he will not:
(i) for a period of three (3) years from the Effective Time (as
defined in the Merger Agreement), within North America (including Canada,
Mexico and Puerto Rico) and any other jurisdiction or marketing area in
which the Company or any of its Affiliates (as defined below) is doing
business or is qualified to do business as of the date of this Agreement,
directly or indirectly own, manage, operate, control, be employed by or
participate in the ownership, management, operation or control of, or be
connected in any manner with, any business of the type and character
engaged in and competitive with that currently conducted by the Company
or any of its Affiliates; provided, however, that Punches shall be
permitted to serve as a member of the Supervisory Board of Intrum
Justitia. For these purposes, ownership of securities of 5% or less of
any class of securities of a public company shall not be considered to be
competition with the Company or any of its Affiliates; or
(ii) other than Robert Duersten and Beverly Wortman, employ, solicit
for employment or otherwise contract for the services of any employee of
the Company or any of its Affiliates at the time of this Agreement or who
shall subsequently become an employee of the Company or any of its
Affiliates.
(b) For the purposes of this Section 1, the term "Affiliate" shall
mean, with respect to the Company, any person or entity which, directly or
indirectly, owns or is owned by, or is under common ownership with, the
Company. The term "own" (including, with correlative meanings, "owned by" and
"under common ownership with") shall mean the ownership of 50% or more of the
voting securities (or their equivalent) of a particular entity.
2. Effectiveness; Consideration for Covenant. This Agreement shall
be effective at the Effective Time. In consideration for Punches' entering
into the foregoing covenant, the Company will pay to Punches $3,000,000 at
the Effective Time.
3. Severability. It is the desire and intent of the parties to this
Agreement that the provisions of Section 1 shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. If any particular provision or
portion of Section 1 shall be adjudicated to be invalid or unenforceable,
Section 1 shall be deemed amended to delete therefrom such provision or portion
adjudicated to be invalid or unenforceable, such amendment to apply only with
respect to the operation of Section 1 in the particular
-2-
<PAGE> 105
jurisdiction in which such adjudication is made.
4. General.
(a) Governing Law; Jurisdiction. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of New York applicable to contracts executed and to be performed
entirely within said State. Any judicial proceeding brought against any of the
parties to this Agreement or any dispute arising out of this Agreement or any
matter related hereto may be brought in the courts of the State of New York or
in the United States District Court for the Southern District of New York, and,
by execution and delivery of this Agreement, each of the parties to this
Agreement accepts the jurisdiction of said courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement. The
foregoing consent to jurisdiction shall not be deemed to confer rights on any
person other than the respective parties to this Agreement.
(b) Assignability. Notwithstanding anything else in this Agreement to the
contrary, the Company may assign this Agreement to and all rights hereunder
shall inure to the benefit of any person, firm or corporation succeeding to all
or substantially all of the business or assets of the Company by purchase,
merger or consolidation.
(c) Enforcement Costs. In the event that either the Company or Punches
initiates an action or claim to enforce any provision or term of this
Agreement, the costs and expenses (including attorney's fees) of the prevailing
party shall be paid by the other party, such party to be deemed to have
prevailed if such action or claim is concluded pursuant to a court order or
final judgment which is not subject to appeal, a settlement agreement or
dismissal of the principle claims.
(d) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
(e) Entire Agreement; Modification. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. This Agreement shall continue for so long as any
obligations remain under this Agreement.
(g) Survival. The covenants set forth in Section 1 of this Agreement
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<PAGE> 106
shall survive and shall continue to be binding upon Punches as set forth in
such Section. The existence of any claim or cause of action by Punches against
the Company, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of any or all covenants.
(h) Remedies. The parties recognize that the performance of the
obligations under Section 1 of this Agreement by Punches is special, unique and
extraordinary in character, and that in the event of the breach by Punches of
the terms and conditions of Section 1 of this Agreement, the Company or any of
its Affiliates shall be entitled to (a) institute and prosecute proceedings in
any court of competent jurisdiction to enforce the specific performance hereof
by Punches or to enjoin Punches from engaging in any activities prohibited
hereunder or (b) pursue any other remedy available at law or in equity.
(i) Notices. The Company shall give Punches written notice of any default
under this Agreement and afford Punches 15days to cure such default.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first written above.
PAYCO AMERICAN CORPORATION
By: /s/ WILLIAM W. KAGEL
---------------------
Name: William W. Kagel
Title: Senior Vice-President
/s/ DENNIS G. PUNCHES
---------------------
Dennis G. Punches
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<PAGE> 107
ANNEX F
EMPLOYMENT AGREEMENT
This Agreement is made as of the 12th day of August, 1996 between Payco
American Corporation, a Wisconsin corporation, with offices at 180 North
Executive Drive, Brookfield, Wisconsin 53005-6066 (the "Company"), and
__________, an individual residing in the State of Wisconsin (the "Employee").
R E C I T A L S
WHEREAS, the Employee has been and is presently in the employ of the
Company and is presently serving as __________________________________ of the
Company;
WHEREAS, the Employee possesses an intimate knowledge of the business and
affairs of the Company and its policies, procedures, methods and personnel;
WHEREAS, OSI Holdings Corp., Boxer Acquisition Corp. and the Company have
executed and delivered an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement");
WHEREAS, the Company desires to secure the continued services and
employment of the Employee on behalf of the Company, and the Employee desires
to continue in the employment of the Company, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound
hereby, agree as follows:
1. Employment. The Company hereby employs the Employee
_________________________ of the Company, and the Employee accepts such
employment for the term of the employment specified in Section 3 below. During
the Employment Term, the Employee shall serve as
__________________________________of the Company, performing such duties as
shall be reasonably required of an executive-level employee of the Company, and
shall have such other powers and perform such other additional executive duties
as may from time to time be assigned to him by the Company.
2. Performance. The Employee will serve the Company faithfully and to
the best of his ability and will devote substantially all of his time, energy,
experience and talents during regular business hours and as otherwise
reasonably necessary to such
<PAGE> 108
employment, to the exclusion of all other business activities.
3. Effectiveness; Employment Term. This Agreement shall become effective
at the Effective Time (as defined in the Merger Agreement) and continue until
the first anniversary date of the Effective Time, unless earlier terminated
pursuant to Section 7 below (the "Employment Term").
4. Compensation.
(a) Salary. During the Employment Term, the Company shall pay the
Employee a base salary, payable in equal monthly installments, subject to
withholding and other applicable taxes, at an annual rate of
______________________. In addition, the Employee will be entitled to receive
such Employee's bonus compensation, or portion thereof, for the Company's 1996
year in accordance with the past practices of the Company, ii) if applicable,
the Employee shall be entitled to receive such Employer's ratable percentage of
bonus compensation, if any, for the Company's 1997 year.
(b) Medical and Dental Health Benefits. During the Employment Term,
Employee shall be entitled to medical and dental heath benefits in accordance
with the Company's established policies for key employees.
(c) Vacation; Sick Leave. During the Employment Term, Employee shall be
entitled to vacation and sick leave in accordance with the Company's
established policies for key employees.
5. Expenses. The Employee shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of his
duties hereunder in accordance with policies established by the Company from
time to time and upon receipt of appropriate documentation.
6. Secret Processes and Confidential Information. For the Employment
Term and thereafter, (a) the Employee will not divulge, transmit or otherwise
disclose (except as legally compelled by court order, and then only to the
extent required, after prompt notice to the Company of any such order),
directly or indirectly, other than in the regular and proper course of business
of the Company, any confidential knowledge or information with respect to the
operations or finances of the Company or with respect to confidential or
secret processes, services, techniques, customers or plans with respect to the
Company and (b) the Employee will not use, directly or indirectly, any
confidential information for the benefit of anyone other than the Company;
provided, however, that the Employee has no obligation, express or implied, to
refrain from using or disclosing to others any such knowledge or information
which is or hereafter shall become available to the public other than through
disclosure by the Employee. All new processes, techniques, know-how,
inventions, plans, products, patents and devices developed, made or invented by
the Employee, alone or with
<PAGE> 109
others, while an employee of the Company, shall be and become the sole
property of the Company, unless released in writing by the Company, and the
Employee hereby assigns any and all rights therein or thereto to the Company.
During the term of this Agreement and thereafter, Employee shall not take
any action to disparage or criticize to any third parties any of the services
of the Company or to commit any other action that injures or hinders the
business relationships of the Company.
All files, records, documents, memorandums, notes or other documents
relating to the business of Company, whether prepared by Employee or otherwise
coming into his possession in the course of the performance of his services
under this Agreement, shall be the exclusive property of Company and shall be
delivered to Company and not retained by Employee upon termination of this
Agreement for any reason whatsoever.
7. Termination. The employment of the Employee hereunder shall
automatically terminate at the end of the Employment Term, as provided in
Section 3. The employment of the Employee hereunder may also be terminated at
any time by the Company with or without "cause". For purposes of this
Agreement, "cause" shall mean: (i) embezzlement, theft or other
misappropriation of any property of the Company or any subsidiary, (ii) gross
or willful misconduct resulting in substantial loss to the Company or any
subsidiary or substantial damage to the reputation of the Company or any
subsidiary, (iii) any act involving moral turpitude which if the subject of a
criminal proceeding could reasonably result in a conviction for a felony
involving moral turpitude, fraud or misrepresentation, (iv) gross breach of his
fiduciary obligations to the Company or any subsidiary, (v) a breach of his
covenant not to compete, or (vi) any chemical dependence which materially
affects the performance of his duties and responsibilities to the Company or
any subsidiary.
8. Severance.
(a) Termination Without "Cause". If the Employee's employment is
terminated by the Company without "cause", the Employee shall be
entitled to receive his salary, and any unpaid bonus as provided in Section
4(a), for the period from the date of termination until the first anniversary
of the Effective Time (the "Severance Period"), provided that if at any time
during the Severance Period the Employee shall obtain other employment, the
Company's obligation to pay severance under this Section 8(a) shall
automatically be reduced from the date of commencement of such other employment
until the termination of the Severance Period to an amount equal to the ratable
difference between the Employee's salary and any unpaid bonus under Section
4(a) and the base salary earned by Employee in such other employment. The
Employee shall not be an employee of the Company during the Severance Period,
and except for such severance payment or as otherwise required by law, shall
not be entitled to any compensation or benefits under Section
<PAGE> 110
4(a), 4(c) or 4(d) with respect to the Severance Period or bonus under
Section 4(b) with respect to either the Severance Period.
(b) Termination "For Cause". If the Employee's employment is
terminated by the Company "for cause", the Employee shall not be entitled
to severance compensation.
9. Notice. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or
when mailed, certified or registered mail, postage prepaid, to the following
addresses:
If to the Employee:
c/o Payco American Corporation
180 North Executive Drive
Brookfield, Wisconsin 53005-6066
If to the Company:
Payco American Corporation
180 North Executive Drive
Brookfield, Wisconsin 53005-6066
With a copy to:
McCown De Leeuw & Co.
101 East 52nd Street
31st Floor
New York, New York 10022
Attention: David E. King
<PAGE> 111
10. General.
(a) Governing Law; Jurisdiction. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of New York applicable to contracts executed and to be performed
entirely within said State. Any judicial proceeding brought against any of the
parties to this Agreement or any dispute arising out of this Agreement or any
matter related hereto may be brought in the courts of the State of New York or
in the United States District Court for the Southern District of New York, and,
by execution and delivery of this Agreement, each of the parties to this
Agreement accepts the jurisdiction of said courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement. The
foregoing consent to jurisdiction shall not be deemed to confer rights on any
person other than the respective parties to this Agreement.
(b) Assignability. The Employee may not assign his interest in or
delegate his duties under this Agreement. Notwithstanding anything else in
this Agreement to the contrary, the Company may assign this Agreement to and
all rights hereunder shall inure to the benefit of any person, firm or
corporation succeeding to all or substantially all of the business or assets of
the Company by purchase, merger or consolidation.
(c) Enforcement Costs. In the event that either the Company or the
Employee initiates an action or claim to enforce any provision or term of this
Agreement, the costs and expenses (including attorney's fees) of the prevailing
party shall be paid by the other party, such party to be deemed to have
prevailed if such action or claim is concluded pursuant to a court order or
final judgment which is not subject to appeal, a settlement agreement or
dismissal of the principle claims.
(d) Binding Effect. This Agreement is for the employment of Employee,
personally, and for the services to be rendered by him must be rendered by him
and no other person. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
(e) Entire Agreement; Modification. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the term of employment hereunder, this
Agreement shall continue for so long as any obligations remain under this
Agreement.
(g) Survival. The covenants set forth in Section 6 of this Agreement
shall survive and shall continue to be binding upon Employee as set forth in
such Sections notwithstanding the termination of this Agreement for any reason
whatsoever. The
<PAGE> 112
covenants set forth in Section 6 of this Agreement shall be deemed and
construed as separate agreements independent of any other provision of this
Agreement. The existence of any claim or cause of action by Employee against
Company, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Company of any or all covenants.
(h) Remedies. The parties recognize that the performance of the
obligations under Section 6 of this Agreement by the Employee is special,
unique and extraordinary in character, and that in the event of the breach by
the Employee of the terms and conditions of Section 6 of this Agreement, the
Company or any of its Affiliates shall be entitled to (a) institute and
prosecute proceedings in any court of competent jurisdiction to enforce the
specific performance hereof by the Employee or to enjoin the Employee from
engaging in any activities prohibited hereunder or (b) pursue any other remedy
available at law or in equity.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first written above.
PAYCO AMERICAN CORPORATION
By:_____________________
Name:
Title:
EMPLOYEE
<PAGE> 113
ANNEX G
COVENANT NOT-TO-COMPETE AGREEMENT
THIS COVENANT NOT-TO-COMPETE AGREEMENT, dated August 12, 1996, is made
between Payco American Corporation, a Wisconsin corporation, with offices at
180 North Executive Drive, Brookfield, Wisconsin, 53005-6066, (the "Company"),
and __________, an individual residing in the State of Wisconsin (the
"Employee").
R E C I T A L S
WHEREAS OSI Holdings Corp., Boxer Acquisition Corp. and the Company have
entered into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), pursuant to which Boxer Acquisition Corp. will be merged
with and into the Company;
WHEREAS, the Employee has been and is presently in the employ of the
Company;
WHEREAS, the Employee possesses an intimate knowledge of the business and
affairs of the Company and its policies, procedures, methods and personnel;
WHEREAS, the Employee is willing to enter into the Employment Agreement
dated as of the date hereof whereby the Company has secured the continued
services and employment of the Employee on behalf of the Company;
WHEREAS, in order to provide reasonable assurances and to induce the
Company to enter into the Employment Agreement with Employee, the Company and
Employee have agreed to enter into this Agreement for consideration called for
hereby;
NOW, THEREFORE, the parties hereto hereby agrees as follows:
1. Covenant Not-to-Compete. (i) The Employee covenants and agrees that
he will not:
(i) for a period of one (1) year from the Effective Time (as defined
in the Merger Agreement), within any jurisdiction or marketing area in
which the
<PAGE> 114
Company or any of its Affiliates (as defined below) is doing business or
is qualified to do business, directly or indirectly own, manage,
operate, control, be employed by or participate in the ownership,
management, operation or control of, or be connected in any manner with,
any business of the type and character engaged in and competitive with
that currently conducted by the Company or any of its Affiliates. For
these purposes, ownership of securities of 5% or less of any class of
securities of a public company shall not be considered to be competition
with the Company or any of its Affiliates; or
(ii) employ, solicit for employment or otherwise contract for the
services of any employee of the Company or any of its Affiliates at the
time of this Agreement, or who shall subsequently become an employee of
the Company or any of its Affiliates.
(b) For the purposes of this Section 1, the term "Affiliate" shall
mean, with respect to the Company, any person or entity which, directly or
indirectly, owns or is owned by, or is under common ownership with, the
Company. The term "own" (including, with correlative meanings, "owned by" and
"under common ownership with") shall mean the ownership of 50% or more of the
voting securities (or their equivalent) of a particular entity.
2. Effectiveness; Consideration for Covenant. This Agreement shall
become effective at the Effective Time. In consideration for Employee's
entering into the foregoing covenant, the Company will pay to the Employee
$______ at the Effective Time.
3. Severability. It is the desire and intent of the parties to
this Agreement that the provisions of Section 1 shall be enforced to the
fullest extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. If any particular provision or
portion of Section 1 shall be adjudicated to be invalid or unenforceable,
Section 1 shall be deemed amended to delete therefrom such provision or portion
adjudicated to be invalid or unenforceable, such amendment to apply only with
respect to the operation of Section 1 in the particular jurisdiction in which
such adjudication is made.
4. General.
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<PAGE> 115
(a) Governing Law; Jurisdiction. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of New York applicable to contracts executed and to be performed
entirely within said State. Any judicial proceeding brought against any of the
parties to this Agreement or any dispute arising out of this Agreement or any
matter related hereto may be brought in the courts of the State of New York or
in the United States District Court for the Southern District of New York,
and, by execution and delivery of this Agreement, each of the parties to this
Agreement accepts the jurisdiction of said courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement. The
foregoing consent to jurisdiction shall not be deemed to confer rights on any
person other than the respective parties to this Agreement.
(b) Assignability. Notwithstanding anything else in this Agreement to the
contrary, the Company may assign this Agreement to and all rights hereunder
shall inure to the benefit of any person, firm or corporation succeeding to all
or substantially all of the business or assets of the Company by purchase,
merger or consolidation.
(c) Enforcement Costs. In the event that either the Company or the
Employee initiates an action or claim to enforce any provision or term of this
Agreement, the costs and expenses (including attorney's fees) of the prevailing
party shall be paid by the other party, such party to be deemed to have
prevailed if such action or claim is concluded pursuant to a court order or
final judgment which is not subject to appeal, a settlement agreement or
dismissal of the principle claims.
(d) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
(e) Entire Agreement; Modification. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. This Agreement shall continue for so long as any
obligations remain under this Agreement.
(g) Survival. The covenants set forth in Section 1 of this Agreement
shall survive and shall continue to be binding upon Employee as set forth in
such Section. The existence of any claim or cause of action by Employee
against Company, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Company of any or all covenants.
-3-
<PAGE> 116
(h) Remedies. The parties recognize that the performance of the
obligations under Section 1 of this Agreement by the Employee is special,
unique and extraordinary in character, and that in the event of the breach by
the Employee of the terms and conditions of Section 1 of this Agreement, the
Company or any of its Affiliates shall be entitled to (a) institute and
prosecute proceedings in any court of competent jurisdiction to enforce the
specific performance hereof by the Employee or to enjoin the Employee from
engaging in any activities prohibited hereunder or (b) pursue any other remedy
available at law or in equity.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first written above.
PAYCO AMERICAN CORPORATION
By:_____________________
Name:
Title:
EMPLOYEE________________________
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<PAGE> 117
ANNEX H
[Goldman Sachs & Co letterhead]
August 12, 1996
OSI Holdings Corp.
101 East 52nd Street
31st Floor
New York, New York 10022
Attention: Mr. David King
Director
Ladies and Gentlemen:
You have advised us that OSI Holdings Corp. (the "Company") has an interest in
acquiring all of the outstanding capital stock of Payco American Corporation
("Target") in a negotiated merger transaction (the "Transaction"). We
understand that the total funding needs in connection with the Transaction and
the refinancing of the outstanding debt of the Company will be approximately
$255 million. We further understand that the arrangements required to finance
the proposed purchase and repayment of debt and to pay related fees and
expenses are expected to consist of: (i) an initial borrowing by the Company of
approximately $150 million under a senior bank facility of $200 million (the
"Bank Facility"); (ii) the private placement or public offering of
approximately $100 million of senior subordinated notes of the Company, which
will be guaranteed by the Company's subsidiaries on a senior subordinated basis
(the "Senior Subordinated Notes"); and (iii) approximately $5 million of cash
on hand. Following the Transaction, the Company will not have any debt except
as described in this paragraph.
Pursuant to an engagement letter dated June 10, 1996, you have engaged Goldman,
Sachs & Co. ("Goldman Sachs") to act as financial advisor to the Company in
connection with the possible acquisition of Target. By accepting this letter,
you agree that the provisions relating to our indemnity in such engagement
letter and the other matters as set forth in Annex A thereto shall apply in
connection with this letter.
Based on the information that you have provided to us to date and our analysis
of the current market for securities issued for acquisition financing, we are
pleased to inform you that we are highly confident of our ability to sell or
place the Senior Subordinated Notes to finance a portion of the financing of
the Transaction as described above, subject to the matters set forth in the
following paragraph.
Our ability to consummate the sale or placement of the Senior Subordinated
Notes is subject to: (i) the terms and conditions of the Senior Subordinated
Notes and all other debt and equity financing for the Transaction (including
any debt to be assumed) and all existing debt of the Company, if any, and all
related documentation being reasonably satisfactory in form and substance to
Goldman Sachs; (ii) the
<PAGE> 118
OSI Holdings Group
August 12, 1996
Page 2
execution and delivery of documentation with respect to the Transaction and all
related transactions in form and substance reasonably satisfactory to Goldman
Sachs; (iii) the absence of any material adverse change in the business,
condition (financial or otherwise), results of operations, assets, liabilities
or prospects of the Company or Target, as determined by Goldman Sachs in its
sole discretion; (iv) the receipt of all necessary governmental, regulatory and
third party approvals and consents in connection with the Transaction; (v) the
execution and delivery of documentation with respect to the Senior Subordinated
Notes and the offering and sale thereof (including, but not limited to, the
underwriting agreement, purchase agreement or placement agreement) that is in
form and substance reasonably satisfactory to Goldman Sachs; (vi) our
continuing due diligence investigation not disclosing any facts that would
materially alter our current view with respect to any aspect of the Company or
Target; (vii) the receipt of audited, unaudited and pro forma financial
statements for the Company that meet the requirements for a registration
statement on form S-1 and that are consistent with the financial results
outlined in the presentation made to Goldman Sachs dated July 25, 1996; (viii)
there having not occurred any disruption or adverse change, as determined by
Goldman Sachs in its sole discretion, in the market for new issuances of high
yield debt securities or in the securities markets in general; (iv) our having
reasonable time to market the Senior Subordinated Notes with the assistance of
management of the Company and Target, based on our experience in comparable
transactions sold in comparable markets; (x) the capitalization of the Company
being as described in the first paragraph of this letter; (xi) satisfaction of
all conditions precedent set forth in the acquisition agreement and the Bank
Facility; (xii) there being at least $50 million of available borrowings under
the Bank Facility immediately after consummation of the Transaction; (xiii) the
completion of an offering circular or prospectus reasonably acceptable to
Goldman Sachs; and (xiv) the absence of any change or proposed change in United
States law that would reasonably be expected to materially adversely affect the
economic consequences that you and your subsidiaries contemplate deriving from
the Transaction.
Please note that this letter is not a commitment to purchase or place the
Senior Subordinated Notes. Such a commitment would be subject, among other
things, to the execution and delivery by Goldman Sachs of a separate written
agreement. This letter shall be treated by you as confidential and is being
provided to you solely in connection with the Company's proposed acquisition of
Target and may not be used, circulated, quoted or otherwise referred to in any
document, except with Goldman Sachs' prior written consent. Notwithstanding
the foregoing, this letter may be shown to Target and its agents provided that
they agree to keep this letter confidential.
This letter shall be governed by and construed in accordance with the laws of
the State of New York, without giving effect to the principles of conflicts of
laws thereof.
<PAGE> 119
OSI Holdings Group
August 12, 1996
Page 3
We look forward to working with you toward the successful completion of the
proposed financing.
Sincerely yours,
/s/ GOLDMAN, SACHS & CO.
- ------------------------
Goldman, Sachs & Co.
<PAGE> 120
ANNEX I
[CHASE LETTERHEAD]
August 12, 1996
OSI Holdings Corp.
c/o McCown DeLeeuw & Co.
101 East 52nd Street
31st Floor
New York, New York 10022
Attn: Mr. David King
Ladies and Gentlemen:
You have advised Chase Securities, Inc. ("CSI") that OSI Holdings Corp. (the
"Company") has an interest in acquiring all of the outstanding capital stock of
Payco American Corporation (the "Target") in a negotiated merger transaction
(the "Transaction"). We understand that the total funding needs in connection
with the Transaction and the refinancing of the Company will be approximately
$255 million. We further understand that the arrangements required to finance
the proposed purchase and repayment of debt and to pay related fees and expense
are expected to consist of: (i) an initial borrowing by the Company of
approximately $150 million under a senior credit facility of $200 million (the
"Credit Facility"); (ii) the private placement or public offering of
approximately $100 million of senior subordinated notes of the Company, which
will be guaranteed by the Company's subsidiaries on a senior subordinated basis
(the "Senior Subordinated Notes"); and (iii) approximately $5 million of cash
on hand. Following the Transaction, the Company will not have any debt except
as described in this paragraph.
Based on this information that you have provided us to date and our analysis of
the current market for securities issued by entities engaged in similar
industries, we are pleased to inform you that we are highly confident of our
ability to sell or place the Senior Subordinated Notes to finance a portion of
the financing of the Transaction as described above, subject to the matters set
forth in the following paragraph.
Our view expressed above is based on the preliminary outline of the Transaction
as currently structured, including our understanding of the business, tax
status, results, operations, condition and prospects of the Company after
giving effect to the Transaction and is based on current general economic and
industry conditions. Our view is also subject to: (i) the terms and
conditions of the Senior Subordinated Notes and all other debt and equity
financing for the Transaction (including any debt to be assumed) and all
existing debt of the Company, if any, and all related documentation being
reasonably satisfactory in form and substance to CSI; (ii) the execution and
delivery of documentation with respect to the Transaction and all related
transactions in form and substance reasonably satisfactory to CSI; (iii) the
absence of any material adverse changes in the business, condition (financial
or otherwise), results of operation, assets, liabilities or prospects of the
Company or Target, as determined by CSI in its sole discretion; (iv) the
receipt of all necessary governmental, regulatory and third party approvals and
consents in connection with the Transaction; (v) the execution and delivery of
documentation with respect to the Senior Subordinated Notes and the offering
and sale thereof (including, but not limited to, the underwriting
<PAGE> 121
agreement, purchase agreement or placement agreement) that is in form and
substance reasonably satisfactory to CSI; (vi) our continuing due diligence
investigation not disclosing any facts that would materially alter our
current view with respect to the Company or Target; (vi) the receipt of audited
financial statements of the Company covering the three years ended December 31,
1995 that meet the requirements of Regulation S-X and that are consistent with
the financial results outlined in the presentation made at Goldman Sachs dated
July 25, 1996; (viii) there having not occurred any disruption or adverse
change, as determined by CSI in its sole discretion, in the market for new
issuance of high yield debt securities or in the securities market in general;
(iv) our having reasonable time to market the Senior Subordinated Notes with
the assistance of management of the Company and Target, based on our experience
in comparable transactions and in comparable markets; (x) satisfaction of all
conditions precedent set forth in the acquisition agreement and the Credit
Facility; (xi) there being at least $50 million of available borrowings under
the Credit Facility immediately after consummation of the Transaction; (xii)
the completion of an offering circular or prospectus reasonably acceptable to
CSI; and (xiii) the absence of any change or proposed change in United States
law that would reasonably be expected to materially adversely affect the
economic consequences that you and your subsidiaries contemplate deriving from
the Transaction.
This letter is not intended to be, and shall not constitute, a commitment
letter or undertaking by CSI to place or to purchase the Senior Subordinated
Notes.
This letter has been delivered to you for your information and is not to be
distributed or disclosed to, or otherwise relied upon, by any other person
without CSI's consent, except as required by law. Notwithstanding the
foregoing, this letter may be shown to the Target and its agents provided that
they agree to keep this letter confidential.
Very truly yours,
CHASE SECURITIES INC.
By:/s/ David Fass
-------------------
David Fass
<PAGE> 122
ANNEX J
[PEARL STREET, L.P.] [THE CHASE MANHATTAN BANK]
PERSONAL & CONFIDENTIAL
August 7, 1996
OSI Holdings Corp.
c/o McCown De Leeuw & Co.
101 East 52nd Street
New York, New York 10022
Attention: Mr. David King
Gentlemen:
You have advised us that OSI Holdings Corp. ("OSI"), through one or more newly
created entities, intends to acquire (the "Acquisition") all of the capital
stock of Payco American Corporation ("Payco"). You have also advised us that
it is anticipated that, in order to finance the Acquisition (including
transaction costs), to refinance certain existing debt of Payco and OSI and to
provide for OSI's and its subsidiaries' general corporate purposes and
acquisition financing requirements after the Acqusition, you will require up to
$300 million of financing consisting of (i) $200 million of senior secured
credit facilities (the "Senior Facilities") and (ii) $100 million of
subordinated debt (the "Subordinated Debt"). You have further advised us that
the cash purchase price to be paid for the shares of capital stock of Payco in
connection with the Acquisition will not exceed $14.00 per share.
Each of Pearl Street L.P., an affiliate of Goldman, Sachs & Co. ("Pearl
Street"), and The Chase Manhattan Bank ("Chase") is pleased to confirm its
commitment to provide one-half of the $200 million of Senior Facilities on the
terms and subject to the conditions contained in this letter, the attached
Annex A and the attached Annex B (together, the "Commitment Letter"). In
addition, on the terms and subject to the conditions of the Commitment Letter,
Pearl Street and Chase will act as Co-Administrative Agents with respect to the
Senior Facilities and Goldman, Sachs & Co. ("Goldman Sachs") and Chase
Securities, Inc. ("Chase Securities") will act as Arranging Agents
in connection with the Senior Facilities.
The Senior Facilities will consist of a maximum of $150 million of senior
secured term loan facilities (the "Term Facilities") and a $50 million senior
secured revolving credit facility (the "Revolving Facility"). The proceeds
from the Term Facilities, together with the proceeds of the Subordinated Debt
are expected to be used to finance the Acquisition and related transaction
costs. Amounts under the Revolving Facility are expected to be used for
certain acquisitions and to provide working capital.
Our commitments are subject, in our respective reasonable discretion, to the
following conditions: (i) there shall not have been, since the date of the
financial statements for OSI and Payco furnished to Pearl Street and Chase in
the "OSI Holdings Management Presentation dated July 25, 1996" (the "Management
Presentation"), any material adverse change in the capitalization or long-term
debt of OSI and its subsidiaries or Payco and its subsidiaries (other than with
respect to the repurchase of preferred stock of
<PAGE> 123
OSI) or any material adverse change in the business, condition (financial or
otherwise) results of operations, assets, liabilities, financial performance
or prospects of OSI and its subsidiaries or Payco and its subsidiaries, or (ii)
there shall not have been any disruption or adverse change in the financial or
capital markets generally or in the market for loan syndications in particular,
which in any case under clause (i) or (ii) Pearl Street, Chase or Chase
Securities, in their respect judgment, reasonably deems material. Our
commitments are also subject to our respective reasonable discretion, to the
satisfactory negotiation, execution and delivery of appropriate loan documents
relating to the Senior Facilities, including without limitation, a credit
agreement, guaranties, security agreements, pledge agreements, real property
security agreements, opinions of counsel and other related definitive documents
(collectively, the "Loan Documents") to be based upon and substantially
consistent with the terms set forth in this Commitment Letter. We have
reviewed certain information with respect to the business and operations of OSI
and Payco and we are pleased to advise you that we are satisfied with the
results of our due diligence investigation of OSI and Payco to date. However,
neither we nor our counsel have had an opportunity to complete the due
diligence efforts necessary in connection with the proposed financing and,
therefore, in addition to the foregoing, our commitments are subject, to each
of Pearl Street, Chase and Chase Securities being reasonably satisfied with the
results of its anticipated, but not yet completed, due diligence with respect
to the structure and terms of the Acquisition, and the tax, accounting, legal,
regulatory and other issues relevant to OSI, Payco and their respective
subsidiaries, and the Acquisition and the financing contemplated hereby.
The terms of this Commitment Letter are intended as an outline of certain of
the material terms of the Senior Facilities, but do not include all of the
terms, conditions, covenants, representations, warranties, default clauses and
other provisions that will be contained in the Loan Documents. The Loan
Documents shall include, in addition, provisions that are customary or typical
for financings of this type and other provisions that Pearl Street and/or Chase
may reasonably determine to be appropriate in the context of the proposed
transactions.
Each of Pearl Street and Chase intends and reserves the right to syndicate the
Senior Facilities to the Lenders (as defined in the attached Annex B). Pearl
Street, Goldman Sachs, Chase and Chase Securities will coordinate all aspects
of the syndication of the Senior Facilities, including determining the
selection of potential Lenders, the timing of all offers to potential Lenders,
any designation of agent or other title awarded to a Lender, the acceptance of
commitments, the amounts offered and the compensation provided to each Lender
and the final commitment allocations (with OSI's consent not to be unreasonably
withheld).
You agree to cooperate with Pearl Street, Goldman Sachs, Chase and Chase
Securities in connection with (i) the preparation of an information package
regarding the business, operations and prospects of OSI and Payco, including,
without limitation, the delivery of all information relating to the
transactions contemplated hereunder prepared by or on behalf of OSI or Payco
deemed reasonably necessary by Pearl Street, Goldman Sachs, Chase or Chase
Securities to complete the syndication of the Senior Facilities and (ii) the
presentation of such information package in bank meetings and other
communications with prospective Lenders in connection with the syndication of
the Senior Facilities. You shall be solely responsible for the contents of any
such information package and presentation and you acknowledge that Pearl
Street, Goldman Sachs, Chase and Chase Securities will be using and relying
upon the information contained in such information package and presentation
without independent verification thereof. In addition, you represent and
covenant that all information provided directly or indirectly by you to Pearl
Street, Goldman Sachs, Chase, Chase Securities or the Lenders in connection
with the transactions
<PAGE> 124
contemplated hereunder is and will be complete and correct in all material
respects and does not and will not contain any untrue statements of a material
fact or omit to state a material fact necessary to make the statements
contained therein not misleading.
In connection with arrangements such as this, it is our policy to receive
indemnification. You agree to the provisions with respect to our indemnity and
other matters set forth in Annex A which is incorporated by reference into this
Commitment Letter.
You also agree to reimburse us for our reasonable out-of-pocket expenses,
including the reasonable fees and disbursements of our attorneys and any other
consultants or advisors that we have retained with your consent (not to be
unreasonably withheld), plus any sales, use or similar taxes (including
additions to such taxes, if any) arising in connection with any matter referred
to in this Commitment Letter (whether incurred before or after the date
hereof).
Please note this Commitment Letter and any written or oral advise provided by
Pearl Street, Goldman Sachs, Chase or Chase Securities in connection with this
arrangement is exclusively for the information of OSI and may not be disclosed
to any third party (other than Payco and its advisors after execution of this
Commitment Letter by you) or circulated or referred to publicly without our
prior written consent, except as required by law. With respect to any
disclosures required by law, you agree to provide Pearl Street and Chase with
prior notice of your intention to make any such disclosure and an opportunity
to consult with you with respect thereto. The foregoing agreements regarding
confidentiality shall survive the termination of this Commitment Letter.
As you know, each of Pearl Street and Chase may from time to time effect
transactions, for their own accounts or the account of customers, and hold
positions in loans or options on loans of OSI, Payco and other companies that
may be subject of this arrangement. In addition, Goldman Sachs and Chase
Securities Inc. are full service securities firms and as such may from time to
time effect transactions, for their own accounts or the accounts of customers,
and hold positions in securities or options on securities of OSI, Payco and
other companies that may be the subject of this arrangement. In addition,
Pearl Street and Chase may employ the services of its affiliates in providing
services hereunder and may exchange with such affiliates information concerning
OSI, Payco and other companies that may be the subject of this arrangement, and
such affiliates may be entitled to the benefits afforded to Pearl Street and
Chase hereunder.
Our commitments hereunder shall terminate on the earlier of (x) six months from
the date of this Commitment Letter and (y) the date of termination of your
agreement with Payco with respect to the Acquisition, unless the closing of the
Senior Facilities, on the terms and subject to the conditions contained herein,
shall have been consummated by such date.
The obligations of Pearl Street, Chase and Chase Securities hereunder are
several obligations and the failure of Pearl Street, Chase or Chase Securities,
as the case may be, to perform its obligations hereunder shall not give rise to
any liability on the part of any or all of the other Lenders party to this
letter with respect to such failure. The respective rights of Pearl Street,
Goldman Sachs, Chase and Chase Securities hereunder may be enforced
independently.
<PAGE> 125
Please confirm that the foregoing is in accordance with your understanding by
signing and returning to Pearl Street, Chase and Chase Securities the enclosed
copy of this Commitment Letter, on or before the close of business on August
13, 1996, whereupon this Commitment Letter shall become a binding agreement
between us. If not signed and returned as described in the preceding sentence
by such date, this offer will terminate on such date. We look forward to
working with you on this assignment.
Very truly yours,
PEARL STREET, L.P.
By: /s/
-----------------------
Authorized Signatory
THE CHASE MANHATTAN BANK
By: /s/ D. DAVEY
-------------------
Name: D. Davey
Title: Vice President
CHASE SECURITIES, INC.
By: /s/
-----------------------------
Name:
Title
ACCEPTED AS OF THE DATE ABOVE:
OSI HOLDINGS CORP.
By: DAVID E. KING
--------------------
Name: David E. King
Title: Secretary & Treasurer
<PAGE> 126
ANNEX A
In the event that Pearl Street or Chase becomes involved in any capacity in any
action, proceeding or investigation brought by or against any person,
including, without limitation, stockholders of OSI or Payco, in connection with
or as a result of either this arrangement or any matter referred to in this
Commitment Letter or any related agreement (collectively, the "Letter"), OSI
periodically will reimburse Pearl Street and/or Chase, as the case may be, for
its reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith. OSI also will
indemnify and hold Pearl Street and Chase harmless against any and all losses,
claims, damages or liabilities to any such person in connection with or as a
result of either this arrangement or any matter referred to in the Letter,
except to the extent that any such loss, claim, damages or liability results
from the gross negligence or bad faith of Pearl Street or Chase, as the case
may be, in performing the services that are the subject of the Letter. If for
any reason the foregoing indemnification is unavailable to Pearl Street or
Chase, as the case may be, or insufficient to hold it harmless, then OSI shall
contribute to the amount paid or payable by Pearl Street or Chase, as the case
may be, as a result of such loss, claim, damage or liability in such proportion
as is appropriate to reflect the relative economic interests of OSI and its
stockholders on the one hand and Pearl Street or Chase, as the case may be, on
the other hand in the matters contemplated by the Letter as well as the
relative fault of OSI and Pearl Street or Chase, as the case may be, with
respect to such loss, claim, damage or liability and any other relative
equitable considerations. The reimbursement, indemnity and contribution
obligations of OSI under this paragraph shall be in addition to any liability
which OSI may otherwise have, shall extend upon the same terms and conditions
to any affiliate of Pearl Street or Chase (including without limitation Goldman
Sachs and Chase Securities, Inc.) and the partners, directors, agents,
employees, and controlling persons (if any), of Pearl Street or Chase, as the
case may be, and any such affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of OSI,
Pearl Street, Chase or any such affiliate and any such person. OSI also agrees
that none of Pearl Street, Chase or any of their respective affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to OSI, any person asserting claims on behalf of or in right of OSI
or any other person in connection with or as a result of either this
arrangement or any matter referred to in the Letter except to the extent that
any losses, claims, damages, liabilities or expenses incurred by OSI result
from the gross negligence or bad faith of Pearl Street or Chase, as the case
may be, in performing the services that are the subject of the Letter. Any
right to trial by jury with respect to any action or proceeding arising in
connection with or as a result of either this arrangement or any matter
referred to in the Letter is hereby waived by the parties hereto. The
provisions of this Annex A shall survive any termination or completion of the
arrangement provided by the Letter, and the Letter shall be governed by and
construed in accordance with the laws of the State of New York without regard
to principles of conflicts of law.
<PAGE> 127
ANNEX B
SUMMARY OF TERMS AND CONDITIONS OF THE SENIOR FACILITIES
This Summary of Terms and Conditions outlines certain terms of the Senior
Facilities referred to in the Commitment Letter, of which this Annex B is a
part. Certain capitalized terms used herein are defined in the Commitment
Letter.
BORROWER: OSI Holdings Corp.
GUARANTORS: Each of the Borrower's subsidiaries shall guaranty
(the "Guarantees") all obligations under the Senior
Facilities.
CO-ADMINISTRATIVE Pearl Street and The Chase Manhattan Bank ("Chase").
AGENTS:
ARRANGING Goldman Sachs or any of its affiliates and Chase Securities
AGENTS:
LENDERS: Pearl Street, Chase and/or other financial institutions
AMOUNT OF SENIOR Up to $200 million of senior secured bank financing (the
SENIOR FACILITIES: "Senior Facilities") to include:
(i) $75 million senior term loan (the "Term Loan A")'
(ii) $75 million senior amortization extended term
loan (the "Term Loan B" together with the Term
Loan A, the "Term Facilities");
(iii) $50 million senior revolving credit facility
(the "Revolving Facility")
Pearl Street and Chase reserve the right to alter
the amounts of the Term Loan A and the Term Loan B,
provided that the aggregate amount of the Term
Facilities shall be $150 million (any such
alteration to be made only after consultation with
the Borrower).
AVAILABILITY: Term Facilities - One drawing may be made under each
of the Term Facilities on the Closing Date.
Revolving Facilities - Amounts available under the
Revolving Facility may be borrowed after the Closing
Date until the maturity date of the Revolving
Facility. The maximum amounts available under the
Revolving Facility will be reduced in amounts and on
dates to be determined.
<PAGE> 128
PURPOSE/USE OF Term Facilities - To finance the acquisition, to
refinance certain existing indebtedness and to
PROCEEDS pay fees and expenses associated therewith.
Revolving Facility - Up to $10 million of the
Revolving Facility may be used to finance the general
corporate purposes of Borrower's subsidiaries. In
addition up to $40 million may be utilized for
Permitted Acquisitions (to be defined based upon
portfolio eligibility requirements to be determined
(in the case of portfolio purchases) and subject to
satisfaction of certain pro forma leverage and
interest coverage tests) for a period to be
determined. Borrowings for Permitted Acquisitions in
excess of $40 million may be permitted, subject to
satisfaction by Borrower and its subsidiaries of
certain minimum working capital and/or cash
availability requirements to be determined.
MATURITIES: Term Loan A 4 years
Term Loan B 6 years
Revolving Facility 5 years
CLOSING DATE: The date on or before February 15, 1997 on which the
initial borrowers under the Senior Facilities are
made.
AMORTIZATION: The Term Facilities shall be amortized in equal
quarterly installments in the aggregate amounts
indicated for each year below:
<TABLE>
<CAPTION>
Year
following
the Term Term
Closing Date Loan A Loan B
-------------------- ----------- ----------
<S> <C> <C>
1 $12,000,000 $ 1,000,000
2 $18,000,000 $ 1,000,000
3 $20,000,000 $ 1,000,000
4 $25,000,000 $ 2,000,000
5 $30,000,000
6 $40,000,000
</TABLE>
LETTERS OF CREDIT: At the Borrower's option, a portion of the Revolving
Facility not to exceed $5 million will be made available
for the issuance of letters of credit ("Letters of
Credit").
INTEREST RATE: All amounts outstanding under the Senior Facilities shall
bear interest, at the Borrower's option (provided that the
Borrower may not select the reserve adjusted Eurodollar
Rate until 60 days after the Closing Date), as follows:
<PAGE> 129
A. With respect to the Term Loan A:
(i) at the Base Rate plus 1.50% per annum; or
(ii) at the reserve adjusted Eurodollar Rate
plus 2.5% per annum.
B. With respect to the Term Loan B:
(i) at the Base Rate plus 2.00% per annum; or
(ii) at the reserve adjusted Eurodollar Rate
plus 3.00% per annum.
C. With respect to loans made under the Revolving
Facility:
(i) at the Base Rate plus 1.50% per annum; or
(ii) at the reserve adjusted Eurodollar Rate
plus 2.50% per annum.
As used herein, (x) the term "reserve adjusted
Eurodollar Rate" shall have meaning customary and
appropriate for financings of this type, and the
base of calculating accrued interest and the
interest periods for loans bearing interest at the
reserve adjusted Eurodollar Rate shall be customary
and appropriate for financings of this type and (y)
the term Base Rate shall mean, at any time, the
higher of (x) the rate announced by Chase from time
to time as its prime rate for commercial lending and
(y) the federals funds rate plus 1/2 of 1%. Upon
the occurrence and continuance of an Event of
Default, interest shall accrue at a rate equal to
the rate on loans bearing interest at the rate
determined by reference to the Base Rate plus an
additional two percentage points (2.00%) per annum
and shall be payable on demand.
INTEREST PAYMENTS: Quarterly for loans bearing interest with reference to the
Base Rate; on the last day of selected interest periods
(which shall be one, two, three or six months) for loans
bearing interest with reference to the reserve adjusted
Eurodollar Rate (and at the end of every three months, in
the case of interest periods of longer than three months);
and upon prepayment, in each case payable in arrears and
computed on the basis of a 360-day year.
INTEREST RATE Within 180 days following the Closing Date, the Borrower
PROTECTION: will obtain interest rate protection through interest
rate swaps, caps or other agreements satisfactory to the
Arranging Agents against increases in the interest rates
with respect to not less than $50 million of the Term
Facilities for a period and with respect to rates to be
determined.
<PAGE> 130
FUNDING PROTECTION: Customary for transactions of this type, including
breakage costs, gross-up for withholding, compensation for
increased costs and compliance with capital adequacy and
other regulatory restrictions.
COMMITMENT FEES: Commitment fees equal to .50% per annum times the daily
average unused portion of the Revolving Facility (reduced
by the amount of letters of credit issued and outstanding)
shall accrue from the Closing Date and shall be payable
quarterly in arrears on the unused portion of the
Revolving Facility.
LETTER OF CREDIT A fee of 2.50% per annum on the maximum amount
FEES: which may be drawn thereunder shall be payable quarterly
with respect to each Letter of Credit. In addition, a
fronting fee of .25% to the maximum amount which may be
drawn under each Letter of Credit shall be payable to the
issuer of the Letter of Credit. In addition, certain
customary fees assessed by the issuing lender shall be
payable.
VOLUNTARY The Senior Facilities may be prepaid in whole or
PREPAYMENTS: in part without premium or penalty other than the Call
Premium set forth below (provided that loans bearing
interest with reference to the reserve adjusted Eurodollar
Rate shall be prepayable only on the last day of the
related period). Voluntary prepayments of the Term
Facilities shall be applied ratably among the Term
Facilities and to scheduled amortization payments pro rata.
MANDATORY The Borrower shall make the following mandatory
PREPAYMENTS: prepayments (subject to certain exceptions and basket
amounts to be negotiated in the definitive Loan
Documents):
1. Asset sales - prepayments in the amount of all of
the net after tax cash proceeds of the sale or other
disposition of any property or assets of the Borrower
or its subsidiaries, other than net cash proceeds of
sales or other dispositions of inventory in the
ordinary course of business, payable no later than the
first Business Day following the date of receipt;
2. Equity Offerings - prepayments in an amount equal to
100% of the net cash proceeds received from the
issuance of equity securities of the Borrower (but
not sales of equity securities of Borrower by existing
shareholders) or its subsidiaries, payable no later
that the first Business Day following the date of
receipt; provided that exceptions to such prepayment
requirement, to be determined, shall apply to equity
offerings (other than public offerings) the proceeds
of which are designated for reinvestment in the
businesses of the Borrower and its subsidiaries.
<PAGE> 131
3. Excess Cash Flow - prepayments in an amount equal to
50% of excess cash flow (to be defined,
including adjustments with respect to that portion of
cash flow relating to owned accounts receivable),
payable within 100 days of fiscal year end, commencing
with the fiscal year ending December 31, 1997; and
4. Insurance/Condemnation Proceeds- prepayments in
the amount of all net cash proceeds received
from property and casualty insurance or
condemnation awards, payable no later than the
second Business Day following the date of
receipt unless no event of default has occurred
or is continuing and the Borrower uses such
proceeds to repair, restore or replace the
assets in respect of which such proceeds were
received.
All such prepayment shall be applied without penalty or
premium (except for any call premium as set forth below
and breakage costs, if any) to repay, first outstanding
loans under the Term Facilities and, second, outstanding
loans (and to the permanent reduction of commitments) under
the Revolving Facility. All mandatory prepayments shall be
applied ratably among the Term Facilities and pro rata to
remaining scheduled amortization payments; provided that,
at the election of the holders of the Term Loan B, the
portion of proceed otherwise applied to prepay the Term
Loan B, may be applied to the prepayment of the Term Loan
A.
SECURITY: The Senior Facilities and each Guarantee will be
secured by first priority security interests in all
assets, including, without limitation, all property,
plant and equipment, intangible assets and other
personal, real and mixed property of the Borrower and
its subsidiaries. In addition, the Senior Facilities
shall be secured by a first priority security interest
in 100% of the stock of each subsidiary of the Borrower
and all intercompany debt. All security arrangements
shall be in form and substance reasonably satisfactory
to the Arranging Agents and the Co-Administrative
Agents.
REPRESENTATIONS AND Customary and appropriate including without
WARRANTIES: limitation, due organization and authorization,
execution, delivery and enforceability of the Loan
Documents, financial condition, no material adverse
change, title to properties, liens, litigation, payment
of taxes, no material adverse agreements, compliance
with laws, environmental and ERISA matters, consents and
approvals and full disclosure.
COVENANTS: Customary and appropriate affirmative and negative
covenants,
<PAGE> 132
including, without limitation, financial covenants,
related to minimum fixed charge coverage, minimum
EBITDA, minimum interest coverage, a leverage test and a
limitation on capital expenditures (such financial
covenants to be structured in a manner appropriate for
credits of this nature). Other covenants will include,
without limitation, limitations on other indebtedness,
liens, negative pledge, investments, guarantees,
restricted junior payments (dividends, redemptions and
payments on subordinated debt), mergers and
acquisitions, sales of assets, capital expenditures,
portfolio purchases, lease, transactions with
affiliates, including exceptions and baskets to be
mutually agreed upon.
EVENTS OF DEFAULT: Customary and appropriate including, without limitation,
failure to make payments when due, defaults under other
agreements or instruments of indebtedness,
noncompliance with covenants, breaches of
representations and warranties, bankruptcy, judgments in
excess of specified amounts, ERISA, impairment of
security interests in collateral, invalidity of
guarantees, and "changes of control" (to be defined in a
mutually agreed upon manner).
CONDITIONS PRECEDENT 1. Satisfactory Documentation. The definitive
TO INITIAL BORROWINGS: documentation evidencing the Senior Facilities
shall be prepared by counsel to the Arranging
Agents and shall be in form and substance reasonably
satisfactory to the Arranging Agents and the
Lenders.
2. Acquisition. Concurrently with the borrowings
under the Term Facilities, the Acquisition shall be
consummated, and all documentation relating thereto
shall be in form and substance, reasonably
satisfactory to Arranging Agents. Without limiting
the generality of the foregoing, Arranging Agents
shall be reasonably satisfied with the amount and
terms of any debt of Payco or OSI not repaid
concurrently with the consummation of the
Acquisition.
3. Subordinated Debt. On or prior to the Closing
Date, Borrower shall have received not less than
$100 million in gross proceeds from the issuance of
unsecured subordinated indebtedness on terms and
conditions reasonably satisfactory to Arranging
Agents, such amount to be applied in full to fund a
portion of the purchase price paid in connection
with the Acquisition.
4. Security. The Co-Administrative Agents, for the
benefit of the Lenders, shall have been granted
perfected first priority
<PAGE> 133
security interests in all assets to the
extent described above under the heading
"Security" in form and substance reasonably
satisfactory to the Arranging Agents.
5. Environmental Matters. The Lenders shall have
received information in form, scope and
substance reasonably satisfactory to the
Arranging Agents and the Lenders concerning any
environmental liabilities.
6. No Material Adverse Change. Since the date of
the financials contained in the Management
Presentation, there shall not have been any
adverse change, or any development involving a
prospective adverse change, in or affecting the
general affairs, management, financial position,
shareholders' equity or results of operations of
OSI and its subsidiaries, or Payco and its
Subsidiaries which the Arranging Agents, or
Lenders, in their reasonable judgment, deem
material.
7. Financial Statements. The Lenders shall have
received and be satisfied with the audited
financial statements for OSI and its
subsidiaries and Payco and its subsidiaries for
the period ended December 31, 1995, and the
unaudited financial statements for the most
recently concluded monthly period.
8. Consents and Approvals. All necessary
governmental, third party and shareholder
approvals in connection with the Senior
Facilities, the transactions contemplated by the
Senior Facilities, the Acquisition and otherwise
referred to herein shall have been obtained and
remain in effect and all applicable waiting
periods shall have expired without any action
being taken by any applicable authority.
9. Payments of Amounts Due. All costs, fees,
expenses (including, without limitation,
legal fees and expenses, title premiums, survey
charges and recording taxes and fees) and other
compensation contemplated hereby payable to the
Arranging Agents, the Co-Administrative Agents
or the Lenders shall have been paid to the
extent due.
10. Capital Structure; Related Agreements. All
agreements relating to, and the corporate
structure of, OSI, Payco and their respective
subsidiaries and all organizational documents
<PAGE> 134
of such entities and all material
contracts, licenses, permits, franchises,
insurance policies and other intangible rights
shall be reasonably satisfactory to the
Arranging Agents.
11. Solvency Opinion and Other Reports. Lenders
shall have received a certificate from the
chief financial officer of the Borrower, in form
and substance satisfactory to Co-Arranging
Agents, to the effect that, after giving effect
to the Acquisition and contemplated borrowings
of the full amounts which will be available
under the Senior Facilities and the Subordinated
Debt, the Borrower on a consolidated basis will
not be insolvent or rendered insolvent by the
indebtedness incurred in connection therewith,
or be left with unreasonably small capital with
which to engage in business, or have incurred
debts beyond its ability to pay such debts as
they mature.
12. Management and Business Plan. The Arranging
Agents shall be reasonably satisfied with the
senior management of the Borrower and its
subsidiaries, after giving effect to the
Acquisition, and with the employment contracts
with key employees and executives. The
Arranging Agents should have received a business
plan submitted by management of Borrower with
respect to the incorporation of Payco into the
Borrower's existing businesses, in form, scope
and substance reasonably satisfactory to the
Arranging Agents.
13. Customary Closing Documents. All documents
required to be delivered under the definitive
financing documents, including customary legal
opinions, corporate records and documents from
public officials and officers' certificates
shall have been delivered.
CONDITIONS TO ALL The conditions to all borrowings will include
BORROWINGS: requirements relating to prior written notice of
borrowing, the accuracy of representations and
warranties, and the absence of any default or
potential event of default, and will otherwise be
customary and appropriate for financings of this
type.
ASSIGNMENTS AND The Lenders may assign all or, in an amount
PARTICIPATION: of not less than $5 million any part of their share
of the Senior Facilities to affiliates or one
or more banks, financial institutions or
other entities that are eligible assignees (to be
described in the Loan Documents) which
<PAGE> 135
are acceptable to the Co-Administrative Agents, such
consent not to be unreasonably withheld, and upon
such assignment, such affiliate, bank, financial
institution or entity shall become a Lender for all
purposes of the loan documentation; provided that
assignments made to affiliates and other Lenders
shall not be subject to the $5 million minimum
assignment requirement. The Lenders will have the
right to sell participations, subject to customary
limitations on voting rights, in their share of the
Senior Facilities.
REQUISITE LENDERS: Lenders holding 51% of total commitments or
exposure under the Senior Facilities, except
that (x) any amendment which would disproportionately
affect the holders of the Term Loan A, Term Loan B or
the loans under the Revolving Facility shall not be
effective without the approval of holders of 51% of
such class of holders and (y) with respect to matters
relating to the interest rates, maturity,
amortization, collateral issues, the definition of
Requisite Lenders etc. Requisite Lenders will be
defined as Lenders holding 100% of total commitments
of exposure, under the Senior Facilities.
TAXES, RESERVE All payments are to be made free and clear
REQUIREMENTS AND of any taxes (other than franchise taxes and
INDEMNITIES: taxes on overall net income) imposts, assessments,
withholdings or other deductions whatsoever,
Foreign Lenders shall furnish to Agent
appropriate certificates or other evidence of
exemption from U.S. federal tax withholding.
The Borrower will indemnify the Lenders against all
increased costs of capital resulting from reserve
requirements or otherwise imposed, in each case
subject to customary increased costs, capital
adequacy and similar provisions to the extent not
taken into account in the calculation of the Base
Rent or the Eurodollar Rate.
INDEMNITY: Borrower will provide standard indemnification for
the Arranging Agents, Co-Administrative Agents and
Lenders.
GOVERNING LAW AND The Borrower will submit to the non-exclusive
JURISDICTION: jurisdiction and venue of the federal and state
courts of the State of New York and shall
waive any right to trial by jury. New York law shall
govern the Loan Documents.
The foregoing is intended to summarize certain basic terms of the Senior
Facilities. It is not intended to be a definitive list of all of the
requirements of the Lenders in connection with the Senior Facilities.
<PAGE> 136
PAYCO AMERICAN CORPORATION
PROXY FOR SPECIAL MEETING OCTOBER 28, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Dennis G. Punches, Neal
R. Sparby and Susan Mathison, and each or any of them, proxies with full power
of substitution, to vote all stock of Payco American Corporation, a Wisconsin
corporation, which the undersigned is entitled to vote at the Special Meeting
of the Company to be held at its offices located at 180 North Executive Drive,
Brookfield, Wisconsin 53005, on Monday, October 28, 1996, at 11:00 a.m. local
time and at any adjournment thereof:
1. PROPOSAL TO APPROVE AN AGREEMENT AND PLAN OF MERGER, DATED AS OF AUGUST
13, 1996, AMONG PAYCO AMERICAN CORPORATION, OSI HOLDINGS CORP. AND
BOXER ACQUISITION CORP.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 137
IF YOU SIGN AND RETURN THIS PROXY, THE SHARES REPRESENTED HEREON WILL BE VOTED
IN ACCORDANCE WITH THE SPECIFICATIONS MADE HEREON. IF NOT OTHERWISE SPECIFIED,
THE PROXY WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
THE PROXIES WILL VOTE IN ACCORDANCE WITH THEIR BEST JUDGMENT ON ANY OTHER
MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF,
EXCEPT THAT SHARES REPRESENTED BY PROXIES WHICH HAVE BEEN VOTED "AGAINST" THE
MERGER AGREEMENT AND THE MERGER WILL NOT BE USED TO VOTE "FOR" POSTPONEMENT OR
ADJOURNMENT OF THE SPECIAL MEETING FOR THE PURPOSE OF ALLOWING ADDITIONAL TIME
FOR SOLICITING ADDITIONAL VOTES FOR THE MERGER AGREEMENT AND THE MERGER.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders and Proxy Statement dated October 4, 1996.
Date Signed:___________________
_______________________________
Signature
_______________________________
Signature
Please sign exactly as name appears hereon. If stock is held jointly,
each holder should sign. When signing as attorney, executor, administrator,
trustee, guardian, corporate officer or in any other capacity, please state in
full title as such.
YOU ARE REQUESTED TO SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE
ENCLOSED ENVELOPE.
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