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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1996
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COMMISSION FILE NUMBER 0-24132
ABR INFORMATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-3228107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34125 U.S. HIGHWAY 19 NORTH
PALM HARBOR, FLORIDA
(Address of registrant's principal executive offices)
34684-2116
(Zip Code)
(813) 785-2819
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
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Voting Common Stock $.0l Par Value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of October 18, 1996, there were outstanding 13,619,895 shares of
Common Stock. The aggregate market value of the voting stock held by
non-affiliates of the registrant based on the last sale price reported on the
Nasdaq National Market as of October 18, 1996 was $810,094,064.
DOCUMENTS INCORPORATED BY REFERENCE:
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DOCUMENTS FORM 10-K REFERENCE
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1996 Annual Report to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II Items 5, 6, 7 and 8
Proxy Statement dated November 8, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part III Items 10-12
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ABR INFORMATION SERVICES, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE NO.
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PART I
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Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . 10
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . 10
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . 11
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PART III
Item 10 Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . 11
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . 11
Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . 11
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . 12
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PART I
ITEM 1 -- BUSINESS
ABR Information Services, Inc. (the "Company") provides comprehensive
benefits administration, compliance and information services to employers
seeking to outsource their benefits administration functions. Currently, a
significant portion of the Company's revenues are derived from the Company's
COBRA compliance services. The Company believes it is the largest provider of
COBRA compliance services in the United States, serving more than 21,000
employers with a total employee population exceeding 10.0 million. The Company
serves approximately 400 of the estimated 12,000 U.S. companies employing 1,000
or more employees, including Fortune 500 companies. The Company provides COBRA
compliance services to approximately 3% of the estimated 650,000 companies that
are required to comply with COBRA.
Enacted in 1986, COBRA (the "Consolidated Omnibus Reconciliation Act")
requires virtually all employers with 20 or more employees that maintain group
health insurance plans to offer continued healthcare coverage for employees and
their dependents following "qualifying events," such as changes in employment
status. The Company assists its COBRA compliance customers in (i) complying
with complex and frequently changing regulations, (ii) reducing healthcare
costs through uniform enforcement of COBRA eligibility and other requirements,
and (iii) decreasing their exposure for federal excise taxes and other
obligations that may be imposed for noncompliance with COBRA.
The Company also provides administration services to large employers
for benefits provided to their retirees and inactive employees, including
retiree healthcare, disability, surviving dependent, family leave and severance
benefits. These services are currently utilized by 60 employers (most of which
are also COBRA compliance customers), including Fortune 500 companies.
Additionally, the Company provides administration services to large
employers for benefits provided to their active employees, including
enrollment, eligibility verification, QDRO (Qualified Domestic Relations Order)
administration, Flexible Spending Account ("FSA") administration and pension
services. These services are offered on either an "a la carte" basis or a total
outsourcing basis, allowing customers to outsource certain benefits
administration tasks that they find too costly or burdensome to perform
in-house, or to outsource the total benefits administration function. The
Company is currently providing these services to 1000 employers on an "a la
carte" basis, including Fortune 500 companies. In June of 1996, the Company
commenced providing services under a five-year contract with a Fortune 100
company with approximately 90,000 active and inactive employees and retirees,
whereby the Company provides total benefits administration services for this
customer.
TREND TOWARD OUTSOURCING
Since the late 1980s, many U.S. companies, in order to focus on core
competencies and revenue-producing activities, have sought to outsource to
specialized vendors certain functions or services that were historically
performed in-house. In addition, the trend in recent legislation and healthcare
reform proposals has been to provide employees with the ability to continue
their healthcare coverage after a change in employment status and to take
certain benefits with them to new employers, a concept known as "portability."
Based on the following factors, the Company believes that benefits
administration and compliance is often too complicated, costly and
administratively burdensome to be performed in-house:
- Extensive staff training and associated costs required to
monitor complex and frequently changing government
regulations.
- Substantial exposure to liability for noncompliance with
federal laws concerning benefits, such as COBRA.
- Employer awareness of benefit plans, including the concern for
adverse effects on employee relations and potential litigation
due to inadequate benefits administration.
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- Cost of investment in specialized data processing systems
requiring periodic maintenance, updates and reinvestment.
- Disproportionate expenditures of management time and attention
to a function that is not directly related to the generation
of revenues.
The Company believes that its market position, proprietary software
and compliance systems and experience in benefits administration should enable
the Company to capitalize on trends favoring portability and outsourcing. The
Company is strategically positioned to capitalize on the benefits
administration outsourcing trend because of its proven ability to deliver (i)
economies of location by performing administrative functions in low-cost areas,
(ii) economies of scale by spreading fixed costs over a large number of
customers, and (iii) economies of technology by utilizing its sophisticated
information systems and proprietary databases.
STRATEGY
The Company's objective is to strengthen its market position by
becoming the leading provider of benefits administration services relating to
COBRA compliance, retiree/inactive employee benefits and benefits provided to
active employees. To achieve this objective, the Company has developed a
strategy that includes the following key components:
- Increase COBRA Compliance Market Share. This market consists
of approximately 650,000 employers that are required under
federal law to comply with COBRA. The Company believes that,
based on the number of current and former employees covered by
its customers' healthcare benefit plans, it is the largest
COBRA compliance service provider in the United States. The
Company provides COBRA compliance services for more than
21,000 employers, which represents approximately 3% of the
potential market. The Company intends to increase its market
share by expanding its marketing efforts and geographic
presence, and by marketing its services directly through its
sales force and indirectly through the Company's agreements
with insurance companies and other distribution channels.
- Increase Retiree/Inactive Employee Benefits Administration
Market Share. In response to demand from customers for
services beyond COBRA compliance, the Company provides
administration services to large employers for benefits
provided to their retirees and inactive employees. The Company
is marketing this service to its current customer base as well
as to other prospects. The Company believes that this market
is significant due to the large number of retirees and
inactive employees who make periodic payments for healthcare
and other benefits coverage, and the complexity and cost of
efficiently administering such arrangements.
- Expand Active Employee Benefits Administration Services. The
Company has invested significant resources in proprietary
information systems. The Company's databases include customer
healthcare benefit plan information, such as premium rates,
healthcare provider data and other employee and plan data that
may be readily stored, sorted and manipulated to support
additional benefit services. This data can be used to provide
other services for active employees (e.g., enrollment,
eligibility verification, QDRO administration, FSA plan
administration, HMO consolidation and pension services),
thereby leveraging the Company's investment in proprietary
information systems and databases. The Company's active
employee benefits administration services are offered on
either an "a la carte" basis or a total outsourcing basis.
This flexibility allows customers to outsource certain
benefits administration tasks that they find too costly or
burdensome, or to outsource the total benefits administration
function. The Company believes that customers who outsource
certain benefits administration tasks will take advantage of
the flexibility of the "a la carte" process by outsourcing an
increasing number of tasks.
- Acquire Complementary Businesses. The Company intends to
acquire complementary businesses in order to increase its
market share, expand its services and expand its geographic
presence. These
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acquisitions will permit the Company to cross-sell additional
services to its existing customer base and gain new customers
to increase market share.
- Generate Recurring Revenue. The Company's services are
structured to generate revenue based on events which occur in
the normal course of a customer's business and in a relatively
frequent manner. Furthermore, the Company develops extensive
systems and databases that are not easily duplicated,
resulting in favorable customer retention. Due to the
frequency of events that generate revenues, the Company's high
rate of customer retention, and the monthly billing
arrangements with capitation customers, the company generates
a high level of recurring revenue.
ACQUISITIONS
The Company intends to acquire complementary businesses in order to
increase its market share, expand its services and expand its geographic
presence. These acquisitions will permit the Company to cross-sell additional
services to its existing customer base and gain new customers to increase
market share. The Company believes that opportunities exist in the benefits
administration sector which would enable the Company to acquire complementary
businesses.
Since December 1995, the Company has acquired three benefits
administration companies, one of these acquisitions was completed by a pooling
of interest (all financial information has been restated to reflect this).
These acquisitions have enabled the Company to increase the range of benefits
administration services it provides, expand its geographic presence and
decrease the Company's reliance on revenues from COBRA compliance services.
During fiscal 1995 and fiscal 1996, the Company derived approximately 83.8% and
69.9%, respectively, of its revenues from COBRA compliance services. Assuming
the New Jersey Acquisition had occurred on August 1, 1994, the Company would
have derived approximately 62.1% and 64.4%, respectively, of its revenues from
COBRA compliance services for the same periods. Assuming the New Jersey
Acquisition had occurred on August 1, 1995, the Company's revenues and net
income also would have been $34.7 million and $6.0 million, respectively, for
the year ended July 31, 1996. The recently completed acquisitions are discussed
below:
New Jersey Acquisition. On December 15, 1995, the Company acquired all
of the outstanding capital stock of Bullock Associates, Inc., which was
subsequently renamed ABR Benefits Services, Inc. ("BSI") for $12.5 million,
with an additional $2.0 million payable upon the attainment of certain revenue
requirements during 1996 and 1997. BSI is located in Princeton, New Jersey and
provides COBRA administration, retiree insurance administration, insurance
continuation billing and collection, pension benefits administration, QDRO
administration and educational benefit administration services, as well as
administration services for other employee benefits programs such as employee
discount plans, adoption programs, program rebates and emergency loans. For the
year ended December 31, 1995, BSI had revenues of $9.3 million. As part of the
New Jersey Acquisition, the Company entered into a four-year contract with
BSI's largest customer, which accounted for approximately 89.0% and 76.1% of
BSI's revenues in fiscal years 1994 and 1995, respectively. The New Jersey
Acquisition expands the Company's market share in the COBRA compliance market,
gives it a geographic presence in the northeast and expands the number of
active employee benefits administration services it provides.
California Acquisition. Effective February 1, 1996, the Company
acquired all of the outstanding capital stock of Total Cobra Services ("TCS")
for 132,712 shares of the Company's Common Stock, subject to possible
adjustment. TCS is located in Irvine, California and provides COBRA
administration and retiree billing services. For the fiscal year ended December
31, 1995, TCS had revenues of less than $2.0 million. The California
Acquisition increases the Company's market share in the COBRA compliance market
and enhances its ability to market its services to clients on the west coast of
the United States.
Virginia Acquisition. On June 28, 1996, the Company acquired, by a
pooling of interest, all of the outstanding stock of the L.P. Baier Company
("LPB") for 143,010 shares of the Company's Common Stock. LPB is located in
Fairfax, Virginia and provides primarily COBRA administration and FSA
administration. LPB had revenues of approximately $2.4 million in calendar year
1995.
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BENEFITS ADMINISTRATION SERVICES
The Company provides the following benefits administration, compliance
and information services to its customers, as described below:
COBRA Compliance Services. The Company provides comprehensive COBRA
compliance services to a diverse customer base throughout the United States.
Once the Company's customer or the qualified beneficiary notifies the Company
of a qualifying event, the Company assumes responsibility for COBRA compliance
and administration.
Under COBRA, premiums paid by continuants are generally limited to
102% of the applicable insurance premium. Eligible participants have in most
cases at least 105 days after the occurrence of a qualifying event to elect to
continue, and pay for, insurance coverage retroactively. As a result, COBRA
claims and administration costs generally exceed premiums due primarily to
adverse selection (i.e., those who are eligible for continued insurance
coverage under COBRA, and have pending claims, are more likely to select
coverage retroactively when the cost of claims exceeds the cost of healthcare
coverage, and those who have no need for healthcare coverage typically do not
elect coverage and consequently do not pay premiums).
According to an annual survey published in 1995 by Charles D. Spencer
& Associates, Inc., COBRA continuants have higher healthcare coverage claims
than active employees. Among those survey respondents that could compare COBRA
costs with the cost of active employee claims, healthcare coverage claim costs
for COBRA continuants were 149% and 155% of active employee claim costs in 1994
and 1995, respectively. The Company believes that uniform determination of
coverage eligibility and administration of COBRA claims in accordance with
applicable requirements can in most cases reduce COBRA claim costs and, as a
result, reduce healthcare costs for employers.
The COBRA compliance process begins when the Company or the employer
sends each employee and his or her dependents a notification of COBRA rights
letter when they become eligible to participate in the employer's group
healthcare plan. Thereafter, it is the employer's or the participant's
responsibility to send the Company a qualifying event notice following any
qualifying event. After processing the qualifying event, the Company
communicates with any qualified beneficiary who elects COBRA coverage
throughout the period of coverage, which typically extends for 18 to 36 months
after the qualifying event. During this period, the Company: (i) processes and
archives all election forms and correspondence; (ii) determines whether
coverage elections have been made on a timely basis; (iii) sends premium
notices to, and collects payments from, continuants; (iv) generates daily and
monthly reports for customers; and (v) maintains automated and customer
representative telephone services for continuant and customer inquiries.
As a provider of COBRA compliance and administration services, the
Company is subject to excise taxes for noncompliance with certain provisions of
COBRA. Under current federal laws, the maximum amount of such taxes that may be
imposed on the Company in any year for unintentional violations of COBRA is
$2.0 million. In addition to the excise tax liability that may be imposed on
the Company, substantial excise taxes may be imposed under COBRA on the
Company's customers. Under the Company's service agreements with its customers,
the Company assumes financial responsibility for the payment of such taxes
assessed against its customers arising out of the Company's failure to comply
with COBRA, unless such taxes are attributable to the customer's failure to
comply with COBRA or with the terms of its agreement with the Company. In
addition to liability for excise taxes for noncompliance with COBRA, the
Company accepts financial responsibility for certain liabilities incurred by
its customers that are attributable to the Company's failure to comply with
COBRA or to fulfill its obligations to its customers under its agreements.
These liabilities could, in certain cases, be substantial. Although there can
be no assurance that the Company will not incur any material liability for
noncompliance with COBRA or for its failure to comply with its agreement with
any customer, as of July 31, 1996, the Company has not incurred any such
material liability. The imposition of such liability on the Company in excess
of any available insurance coverage could have a material adverse effect on the
Company. See "--Regulatory Environment."
Retiree/Inactive Employee Benefits Administration. The Company's
experience with benefits administration and compliance services, and the
extensive databases maintained to provide these services, have enabled the
Company
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to provide for the administration of various employer-sponsored benefits that
are not mandated by law. For example, the Company provides benefits
administration services to employers who offer healthcare benefits to their
retirees. Financial accounting standards that require the accrual of certain
retiree healthcare costs have increased employer awareness in this area. As a
result, many employers have modified retiree healthcare benefit arrangements,
often requiring retirees to pay a portion of this cost. The Company provides
notification, billing, collection, record keeping and reporting services to
larger employers where a periodic benefit plan contribution is required to be
made by retirees or their dependents. The Company also administers benefits
provided for inactive employees, such as healthcare benefits.
Active Employee Benefits Administration. The Company also provides services
to large employers for benefits provided to their active employees. These
services are offered on either an "a la carte" basis or a total outsourcing
basis, thus allowing customers to outsource certain benefits administration
tasks that they find too costly or burdensome, or to outsource the total
benefits administration function. The Company is currently providing these
services to 1000 employers on an "a la carte" basis. In June of 1996, the
Company commenced providing services under a five-year contract with a Fortune
100 company with approximately 90,000 active and inactive employees and
retirees, whereby the Company provides total benefits administration services
for this customer. The menu of services the Company offers to customers with
respect to their active employees, many of which are also provided with respect
to retirees and inactive employees, includes the following:
- Enrollment Services. Provide enrollment services for
employers, such as disseminating enrollment materials,
processing responses, providing telephone assistance to
enrollees, determining eligibility for coverage and reporting.
Provide employers with assistance in enrollment
communications.
- Pension Services. Provide active and retired employees who are
vested in their company's pension plan with benefit
information, process retirement election forms and other
materials to begin the retirement payment process. Maintain
Retiree and Vestee Answer Centers which provide access to
benefit analysts who are proficient in client-specific plans
and procedures.
- QDRO Services. Develop packages to assist QDRO participants of
the process to properly and accurately divide pension plan
assets. Verify "qualification" of a domestic relations order.
Respond to telephone and written inquires regarding QDRO
benefits.
- Educational Benefits Administration Services. Administer
various educational benefit programs such as student loans,
reimbursements and scholarships. Verify eligibility and
process payments and loan forms. Monitor for compliance
against the customer's benefit plan.
- New Hire Processing Services. Process benefits administration
forms and information relating to the provision of benefits to
newly hired employees.
- FSA Administration Services. Design and support all types of
Section 125 flexible benefit formats, including plan design,
legal documents, employee education, enrollment support,
compliance testing, claims administration and the preparation
of required IRS forms.
- Other. Administer employee discount plans, adoption programs,
employee emergency loan programs, product rebate programs, HMO
consolidation, employee help desk, eligibility verification,
tuition refund, education and other loan programs, and FMLA
insurance programs.
Summary of Functions. In connection with the performance of benefits
administration services, the Company generally provides one or more of the
following functions:
- Notification. Provide timely notifications of eligibility for
coverage and healthcare benefit plan requirements to
participants, employers and insurance companies.
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- Billing and Premium Collections. Send detailed monthly premium
notice, return envelope for payment and request for ongoing
certification of eligibility to participants. Remit collected
premiums to employers on a monthly basis in accordance with
employer's instructions.
- Automated Response System. Maintain 24 hour-a-day, 365
day-a-year toll-free automated voice and facsimile response
systems for certain status information available to customers
and participants.
- Customer Service Hotline. Respond during normal business hours
to inquiries from participants or employers requiring
individual attention from trained customer service
representatives.
- Compliance Monitoring and Determination of eligibility.
Monitor government compliance guidelines regarding
availability of healthcare coverage. Determine whether
applications and premium payments comply with applicable
regulations and established eligibility criteria.
- Reporting and Auditing. Generate daily reports for employers
to monitor elections and terminations of coverage by
participants. Generate monthly reports for employers providing
current status of all participants.
- Archive and Record-keeping Systems. Archive in an off-site
facility all electronic storage media, correspondence,
postmarked envelopes and copies of premium notices and checks
evidencing payment.
SALES, MARKETING AND CUSTOMER SERVICE
Approximately 36.3%, 35.2% and 39.7% of the Company's revenues in
fiscal 1994, 1995 and 1996, respectively, were derived solely from agreements
with the Company's ten largest customers. Assuming the New Jersey Acquisition
had occurred on August 1, 1994, approximately 51.7% and 44.9% of the Company's
revenues in fiscal 1995 and fiscal 1996, respectively, would have been
attributable to the Company's ten largest customers, with approximately 24.6%
and 20.8% of such revenues being derived from the largest customer of the
company acquired in the New Jersey Acquisition. As part of the New Jersey
Acquisition, the Company entered into a four-year contract with this customer.
The Company's loss of any of these large customers could have a material
adverse effect on the Company.
The Company markets its services throughout the United States through
a sales, marketing and support staff consisting of 30 employees as of July 31,
1996. The Company identifies prospective customers through a combination of
direct mail, telemarketing and advertising.
Generally, the Company markets its services in one of two ways,
depending upon whether a potential customer is a large employer or insurance
company, or a small employer. When a large employer or insurance company has
been identified as a potential customer, the Company's sales strategy is to
focus its sales and marketing efforts on developing relationships with key
decision makers, such as the potential customer's chief executive officer,
chief financial officer or director of human resources or benefits. The
Company's sales executives make presentations that are designed to acquaint the
potential customer with the Company's services and the benefits associated with
outsourcing functions to the Company. A formal presentation is usually followed
by a visit to the Company's facility where the prospective customer evaluates
the Company's internal procedures, data processing capabilities and customer
support team.
With respect to potential customers who are small employers, the
Company markets its services directly to the employer via telemarketing. The
Company's telemarketing staff sells the Company's services by educating the
potential customer about the benefits of its outsourcing services without the
need for face-to-face presentations.
The Company is also expanding its channels of distribution, such as
marketing its services through independent insurance agents. The agents
typically receive a one-time commission for each client who utilizes the
Company's services.
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The Company also emphasizes account development to strengthen its
relationship with existing customers. The Company disseminates information
about its services through newsletters and various periodic reports. These
activities are designed to increase existing customer awareness and
understanding of the scope of benefits administration services offered by the
Company.
COMPUTER OPERATIONS, SOFTWARE DEVELOPMENT AND PROPRIETARY PRODUCT PROTECTION
The Company's central data processing and information system consists
of high-performance micro processors linked in multiple local-area networks
through high-speed routers and intelligent hubs. Installed in the data center
located at the Company's headquarters, the network utilizes client-server
technology in a DOS and Windows environment. The Company is currently
expanding its capacity by implementing systems based on a UNIX platform and
Oracle database environment, which the Company believes will increase its
capacity to service its growing customer base.
The Company meets the changing information needs of its customers by
developing, maintaining and enhancing its software. The Company provides its
services to customers using proprietary software that is owned by the Company
and is not licensed to others. The Company's computer system provides for
timely system updates and modifications because of its flexible modular design.
The Company's computer system works with on-line, real-time information, thus
allowing its service representatives to give accurate, up-to-date information
to continuants and customers. In addition, the Company believes that its
ability to upload and download information to customers and insurance carriers
with minimal development time provides the Company with a competitive
advantage. The Company's software and systems have supported the customer base
without interruption for over eight years. As of July 31, 1996, the Company had
58 employees in programming, software development, modifications and
maintenance.
The Company's primary data center is protected by a fire extinguishing
system and by two centralized UPS (uninterruptible power supply) systems that
provide short-term battery backup in the event of a power outage, reduced
voltage or power surge. Multiple layers of password and access authorization
are imposed to prevent unauthorized access, use or distribution of information.
The Company maintains log-in records of all users, restricts certain key record
fields and maintains audit trail records of all changes. Software and related
data files are backed up three times a day and stored off-site at multiple
locations. The Company is currently in the process of developing a disaster
recovery facility which will provide the Company with off-site data storage and
archiving as well as a secure, off-site facility for the continuation of
operations in the event of a natural disaster.
The Company believes that the quality of its systems and the ability
to adapt to the changing business requirements of its customers have proven to
be key factors in maintaining its current customers and obtaining new
customers. The Company ensures the accuracy of data, customers' deposits and
continuant records by independent double-entry of premium payments and
verification and reconciliation of continuant records.
The Company carries property insurance and business interruption
insurance covering interruptions that might occur as a result of damage to its
business See "-- Insurance." In addition, the Company believes that it has
adequate arrangements with its equipment vendors pursuant to which damaged
equipment can be replaced promptly. The Company does not believe that its
system faces a material risk of technological change. The Company relies upon a
combination of contract provisions and trade secret laws to protect its
proprietary technology. The Company attempts to protect its trade secrets and
other proprietary information through agreements with employees and
consultants. The Company does not hold any patents and does not have any patent
applications pending. There can be no assurance that the steps taken by the
Company to protect its proprietary technology will be adequate to deter
misappropriation of its proprietary rights or third party development of
similar proprietary software.
REGULATORY ENVIRONMENT
The benefit plans administered by the Company generally are subject to
various laws and regulations, including COBRA, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), the Internal Revenue Code of 1986,
as amended (the "Internal Revenue Code"), proposed regulations of the Internal
Revenue Service and the Public Health Service Act. These laws and regulations
are administered by numerous agencies, such as the Internal Revenue Service,
the Department of Labor and the Department of Health and Human Services. The
Company's internal
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compliance department regularly reviews the Company's operations to ensure
compliance with applicable federal laws and regulations.
Enacted in 1986, COBRA was amended significantly by Congress in 1987
and 1989 and is the subject of proposed regulations of the Internal Revenue
Service. COBRA, which amended the Internal Revenue Code, ERISA, and the Public
Health Service Act, is subject to interpretation by the federal courts and is
administered jointly by several federal agencies, including the Internal
Revenue Service, the Department of Labor and the Department of Health and Human
Services. In addition, COBRA is affected by certain other federal legislation
and entitlement programs, such as Medicaid, Medicare, FMLA and, most recently,
Health Insurance Portability and Accountability Act of 1996 ("HIPA"). COBRA
applies to virtually all employers with 20 or more employees that maintain
group health insurance plans, including fully-insured, self-insured or
partially-insured plans, and union or non-union plans. Church groups and the
District of Columbia government are exempt from compliance with COBRA.
To comply with COBRA, an employer must provide written notice to all
employees, including newly hired employees and their dependents, of their
rights under COBRA. Employees and their dependents become eligible for COBRA
coverage upon the occurrence of a qualifying event. The occurrence of a
qualifying event triggers a series of notifications and related response and
payment deadlines, including grace periods, that results in an employee's or
qualified beneficiary's ability to elect continued group healthcare plan
coverage retroactively, and often after the occurrence of an event leading to
claims under the related coverage.
The penalties for noncompliance with COBRA are substantial. As a
provider of COBRA compliance and administration services, the Company's
exposure under the Internal Revenue Code for excise taxes imposed for
unintentional violations of certain provisions of COBRA is limited to an
aggregate of $2.0 million per year. Under the Internal Revenue Code, employers
that are subject to COBRA are liable for excise taxes at the rate of $100 per
"qualified beneficiary" ($200 if the qualified beneficiary has covered
dependents) for each day during which the group healthcare plan is in
noncompliance, subject to an annual maximum for unintentional violations. When
such noncompliance is not corrected before an audit by the Internal Revenue
Service, the employer is subject to certain minimum excise tax obligations,
depending on whether or not the violations are "de minimis." ERISA also imposes
personal liability on the plan administrator for the benefit of plan
participants for COBRA violations in the form of a penalty of up to $100 for
each day the violation continues. In addition to liability for COBRA violations
under the Internal Revenue Code and ERISA, improper denial of coverage under
COBRA or failure to comply with COBRA's notification requirements may result in
an employer's liability for damages and equitable remedies, including, but not
limited to healthcare coverage for a former employee or dependent retroactive
to the date of the qualifying event which triggered the notification
requirement. Depending on the terms of the employer's group healthcare plan,
such an employer may be required to provide this type of retroactive coverage
without reimbursement from its insurance carrier.
The Company is not subject to federal or state regulations
specifically applicable to financial and insurance institutions such as banks,
thrifts, credit unions, insurance companies and third-party administrators. As
a provider of COBRA compliance services to its customers, the Company is
required to comply with various federal laws and regulations as noted above.
The Company follows changes in federal laws and regulations related to COBRA
and judicial interpretations of COBRA and promptly implements required changes
to its data processing operations.
COMPETITION
The market for the Company's services is highly competitive. The
Company's existing competitors include insurance companies, third-party
administrators and other outsourcing service companies. Certain of these
existing competitors, as well as a number of potential competitors, possess
substantially greater resources than the Company. In addition to the Company's
competitors, services offered by the Company are often provided in-house.
Consequently, outsourcing may require the Company's potential customers to
reduce, reassign or eliminate in-house benefits administration or human
resource personnel, who often have an interest in maintaining these
responsibilities in-house.
The Company believes that the most significant competitive factors in
the sale of its services include quality, reliability of services and integrity
of data provided, flexibility in tailoring services to client needs, assumption
of certain responsibilities for compliance with complex laws and regulations,
experience, reputation, comprehensive services, integrated services and price.
8
<PAGE> 11
EMPLOYEES
As of July 31, 1996, the Company had approximately 557 full-time
equivalent employees, including 30 in sales and marketing, 437 in customer
support services, 58 in programming, software development, modifications and
maintenance, and 32 in management, administration and finance.
The service nature of the Company's business makes its employees an
important corporate asset. While the market for qualified personnel is
competitive, the Company has not experienced difficulty in hiring or retaining
its personnel and believes its relations with its employees are good. The
Company's employees are not represented by any union.
SERVICEMARKS
CobraServ(R) is a registered servicemark of the Company. Other than
CobraServ(R), the Company does not believe that any other intellectual property
is material to its business.
INSURANCE
As a provider of COBRA compliance and administration services, the
Company is subject to excise taxes for noncompliance with certain provisions of
COBRA. In addition, the Company accepts financial responsibility for certain
liabilities incurred by its customers that are attributable to the Company's
failure to fulfill its obligations to its customers under its agreements. The
Company maintains a professional liability policy, with a deductible of $25,000
per occurrence, and an annual per aggregate limit on coverage of $5.0 million.
In addition to professional liability coverage, The Company maintains
the following policies: (i) a general commercial liability policy which has an
aggregate coverage of $2.0 million, with a $1.0 million limit per occurrence;
(ii) an automobile liability policy with a combined single coverage limit of
$1.0 million; (iii) an excess liability policy, which covers liabilities that
exceed the limits of the above policies, with an aggregate and a per occurrence
limit of $4.0 million; and (iv) a business interruption policy, which covers
three months of operations, with an aggregate limit of $2.0 million.
ITEM 2 -- PROPERTIES
The Company leases the following facilities:
<TABLE>
<CAPTION>
SQUARE EXPIRATION RENEWAL
LOCATION FOOTAGE OF LEASE OPTION
-------- ------- ---------- -------
<S> <C> <C> <C>
Clearwater, Florida 23,000 October 1997 1 year
Princeton, New Jersey 20,000 May 1999 None
Glenville, New York 7,000 December 1997 4 years
Irvine, California 5,000 March 1997 None
Fairfax, Virginia 13,000 May 2005 None
</TABLE>
The Company maintains its 54,000 square foot headquarters at its Palm
Harbor, Florida facility. The Company purchased this facility in June 1996 for
$3.5 million (including the land). In December 1995, the Company also purchased
a 110,000 square foot facility in Palm Harbor, Florida for $3.4 million in
order to consolidate its Tampa-area
9
<PAGE> 12
employees. The Company anticipates capital expenditures of approximately $5.8
million to improve the facility and expects to occupy this facility in calendar
1997. Thereafter, the Company believes that its facilities are adequate through
1999, at which time the Company believes it may need to expand its facilities.
The Company acquired real estate in February 1996, in Tarpon Springs, Florida
at a price of $2.5 million to facilitate this future expansion.
ITEM 3 -- LEGAL PROCEEDINGS
The Company is not a party to any litigation that is expected to have
a material adverse effect on the Company or its business. The Company maintains
detailed records of its services for at least seven years, including physical
return receipts of COBRA notifications to employees upon a qualifying event, to
evidence compliance with applicable rules and regulations to reduce potential
litigation and limit litigation exposure.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of July 31, 1996 there were no executive officers who are not also
directors of the Company. Executive officers are elected annually by the Board
of Directors.
PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth under the caption "Market Price Information"
on the inside back cover page of the 1996 Annual Report to Shareholders (the
"Annual Report") is incorporated herein by reference.
The total number of shareholders of record as of October 18, 1996 was
8,354.
The Company has not declared nor paid cash dividends on the Common
Stock and does not anticipate that it will pay cash dividends in 1997. Any
payment of future dividends and the amounts thereof will be dependent upon the
Company's earnings, financial requirements and other factors deemed relevant by
the Board of Directors.
On May 25, 1994, the Company completed a tax-free restructuring (the
"Reorganization") in which ABR CobraServ, Inc., formerly known as Applied
Benefits Research, Inc., (the "Subsidiary") became the sole, wholly-owned
subsidiary of ABR. A principal objective of the Reorganization was to establish
a holding company structure, thereby allowing the Company to conduct the
business of the Subsidiary independently from other business units that may be
operated by the Company in the future. Pursuant to the Reorganization, each
share of common stock of the Subsidiary outstanding immediately prior to the
Reorganization was converted into the right to receive 2.15 shares of Common
Stock.
The Company completed a three-for-two stock split, on July 13, 1995
and on February 19, 1996, to stockholders of record at the close of business on
June 22, 1995 and January 31, 1996, respectively.
ITEM 6 -- SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Financial Data"
in the Company's Annual Report on page 10 is incorporated herein by reference.
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
10
<PAGE> 13
The information set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 11
through 13 of the Annual Report is incorporated herein by reference.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Company and its independent
certified public accountant's Reports set forth on pages 14 through 27 of the
Annual Report are incorporated herein by reference:
- Report of Independent Certified Public Accountants;
- Consolidated Balance Sheets as of July 31, 1995 and 1996;
- Consolidated Statements of Income for the Years Ended July 31,
1994, 1995, and 1996;
- Consolidated Statements of Shareholders' Equity for the Years
Ended July 31, 1994, 1995 and 1996;
- Consolidated Statements of Cash Flows for the Years Ended July
31, 1994, 1995 and 1996; and
- Notes to Consolidated Financial Statements.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Item 1: Election of
Directors" in the Company's Proxy Statement dated November 8, 1996 for the
Annual Meeting of Shareholders to be held December 6, 1996 (the "Proxy
Statement"), and the information set forth in the last paragraph under the
caption "Board of Directors - General" in the Proxy Statement is incorporated
herein by reference. The information set forth under "Executive Officers of the
Registrant" in Part I hereof is also incorporated herein by reference.
ITEM 11 -- EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation"
in the Proxy Statement is incorporated herein by reference and the Company
specifically excludes from such incorporation by reference any information set
forth under the captions "Compensation Committee Report on Executive
Compensation" and "Stock Price Performance Graph" in the Proxy Statement.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of certain beneficial owners and management as set
forth under the caption "Principal Shareholders" in the Proxy Statement is
incorporated herein by reference.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
11
<PAGE> 14
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) List of documents filed as part of this report:
(1) Financial Statements.
- Report of Independent Certified Public Accountants.
- Consolidated Balance Sheets as of July 31, 1995 and 1996.
- Consolidated Statements of Income for the Years Ended July 31, 1994, 1995, and
1996.
- Consolidated Statements of Shareholders' Equity for the Years Ended July 31, 1994,
1995 and 1996.
- Consolidated Statements of Cash Flows for the Years Ended July 31, 1994, 1995 and
1996.
- Notes to Consolidated Financial Statements.
(2) Financial Statement Schedule.
- Report of Independent Certified Public Accountants on The Schedule.
Schedule
Number Description
-------- -----------
II -- Valuation and Qualifying Accounts
(3) Exhibits.
Exhibit
Number Description
------- -----------
3.1 -- Articles of Incorporation of ABR Information Services, Inc.*
3.2 -- Bylaws of ABR Information Services, Inc.*
10.1 -- Form of Employment Agreement between ABR Information Services, Inc. and each
of its executive officers.*
10.2 -- ABR Information Services, Inc. 1995 Non-Employee Director Stock Option Plan.**
10.3 -- ABR Information Services, Inc. 1996 Non-Employee Director Stock Option Plan.
10.4 -- ABR Information Services, Inc. Amended and Restated 1987 Stock Option Plan.***
10.5 -- ABR Information Services, Inc. Amended and Restated 1993 Stock Option Plan (as
amended).**
10.6 -- ABR Information Services, Inc. Incentive Bonus Plan.*
10.7 -- Agreement between ABR Information Services, Inc., Applied Benefits Research,
Inc. (now known as ABR CobraServ, Inc.) and IBJS Capital Corporation dated as
of March 23, 1994.*
10.8 -- Revolving Line of Credit/Term Loan Agreement dated January 30, 1996 by and
between NationsBank, N.A. (South) and ABR Information Services, Inc.****
</TABLE>
12
<PAGE> 15
<TABLE>
<S> <C>
10.9 -- Employment and Non-Competition Agreement dated December 15, 1995 by and
between Bullock Associates, Inc. (now known as ABR Benefits Services, Inc.)
and W. Carl Bullock.****
10.10 -- Services Agreement between Corporate Benefits Delivery of General Electric
Company and Bullock Associates, Inc. (now known as ABR Benefits Services,
Inc.) and as amended on December 15, 1995.****
10.11 -- Lease Agreement dated February 9, 1996 by and between ABR Plymouth, Ltd. and
ABR Information Services, Inc.****
10.12 -- Agreement and Plan of Reorganization dated as of February 1, 1996 by and among
ABR Information Services, Inc., Total Cobra Services and John M. Hermann.
10.13 -- Agreement and Plan of Reorganization dated as of June 28, 1996 by and among
ABR Information Services, Inc., The L.P. Baier Company and L.P. Baier's
shareholders.
10.14 -- Employment and Non-Competition Agreement dated June 28, 1996 by and between
The L.P. Baier Company and Rick Snyder.
10.15 -- Stock Purchase Agreement by and among ABR Information Services, Inc., Bullock
Associates, Inc., (now known as ABR Benefits Services, Inc.) W. Carl Bullock,
Barbara A. Biasotti and Nancy L. Clark dated as of December 15, 1995.*****
11.1 -- Statement regarding computation of per share earnings.
13.1 -- 1996 Annual Report of ABR Information Services, Inc.
21.1 -- List of subsidiaries of ABR Information Services, Inc.
23.1 -- Consent of Grant Thornton LLP.
24.1 -- Powers of Attorney (included on signature page hereto).
27.1 -- Financial Data Schedule (For SEC use only)
- --------------------
</TABLE>
* Previously filed as part of the Company's Form S-1
Registration Statement (No. 33-76922) dated May 26,
1994 and incorporated herein by reference.
** Previously filed as part of the Company's Form 10-K
for the fiscal year ended July 31, 1995.
*** Previously filed as part of the Company's Form 10-K
for the fiscal year ended July 31, 1994.
**** Previously filed as part of the Company's Form 10-Q
for the quarter ended January 31, 1996.
***** Previously filed as part of the Company's Form 8-K
dated as of December 26, 1995.
Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.9 and 10.14
represent management contracts and compensatory plans.
(b) Reports on Form 8-K.
The Company filed no Reports on Form 8-K during the quarter
ended July 31, 1996.
13
<PAGE> 16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON THE SCHEDULE
Board of Directors
ABR Information Services, Inc.
In connection with our audit of the consolidated financial statements of ABR
Information Services, Inc. referred to in our report dated September 13, 1996,
which is included on page 27 of the Annual Report to Shareholders for the year
ended July 31, 1996, that is incorporated by reference in this Form 10-K for
the year ended July 31, 1996, we have also audited Schedule II for each of the
three years in the period ended July 31, 1996. In our opinion, the schedule
presents fairly, in all material respects, the information required to be set
forth therein.
/s/ Grant Thorton LLP
Tampa, Florida
September 13, 1996
14
<PAGE> 17
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ABR INFORMATION SERVICES, INC.
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------
Additions
-----------------------------
Balance at Charge to Charged to Deductions
Beginning of Costs and Other Accounts Describe Balance at
Description Period Expenses - Describe (1) End of Period
- -------------------------------- ---------------- ------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Year Ended July 31, 1994
Deducted from asset accounts:
Allowance for doubtful
accounts $11,475 $12,006 -- $5,928 $17,553
Year Ended July 31, 1995
Deducted from asset accounts:
Allowance for doubtful
accounts 17,553 12,000 -- 3,351 26,202
Year Ended July 31, 1996
Deducted from asset accounts:
Allowance for doubtful
accounts 26,202 20,000 -- 7,308 38,894
</TABLE>
(1) Uncollectible accounts written-off, net of recoveries
15
<PAGE> 18
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
October 29, 1996 ABR INFORMATION SERVICES, INC.
By: /s/ Vincent Addonisio
----------------------------------
Vincent Addonisio,
Executive Vice President, Chief
Financial Officer and Treasurer
------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James E. MacDougald and Vincent
Addonisio, and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments to this report, and to file the same, with all exhibits thereto,
and any other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or either of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF
1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF
THE REGISTRANT AND IN THE CAPACITIES INDICATED ON OCTOBER 29, 1996.
<TABLE>
<S> <C>
/s/ James E. MacDougald /s/ Suzanne M. MacDougald
-------------------------------------------- ------------------------------------------------
James E. MacDougald, Chairman of the Board, Suzanne M. MacDougald,
President and Chief Executive Officer and Senior Vice President, Secretary and Director
Director (Principal Executive Officer)
/s/ Vincent Addonisio /s/ Thomas F. Costello
-------------------------------------------- ------------------------------------------------
Vincent Addonisio, Executive Vice President, Thomas F. Costello, Director
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
/s/ Mark M. Goldman
--------------------------------------------
Mark M. Goldman, Director
</TABLE>
16
<PAGE> 19
ABR INFORMATION SERVICES, INC.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
Exhibit Filed
Number Description Herewith
------- ---------------------------------------------------------------------------------- --------
<S> <C> <C>
3.1 Articles of Incorporation of ABR Information Services, Inc.
3.2 Bylaws of ABR Information Services, Inc.
10.1 Form of Employment Agreement between ABR Information Services, Inc. and each of
its executive officers.
10.2 ABR Information Services, Inc. 1995 Non-Employee Director Stock Option Plan.
10.3 ABR Information Services, Inc. 1996 Non-Employee Director Stock Option Plan. X
10.4 ABR Information Services, Inc. Amended and Restated 1987 Stock Option Plan.
10.5 ABR Information Services, Inc. Amended and Restated 1993 Stock Option Plan (as
amended).
10.6 ABR Information Services, Inc. Incentive Bonus Plan.
10.7 Agreement between ABR Information Services, Inc., Applied Benefits Research, Inc.
(now known as ABR CobraServ, Inc.) and IBJS Capital Corporation dated as of March
23, 1994.
10.8 Revolving Line of Credit/Term Loan Agreement dated January 30, 1996 by and between
NationsBank, N.A. (South) and ABR Information Services, Inc.
10.9 Employment and Non-Competition Agreement dated December 15, 1995 by and between
Bullock Associates, Inc. (now known as ABR Benefits Services, Inc.) and W. Carl
Bullock.
10.10 Services Agreement between Corporate Benefits Delivery of General Electric Company
and Bullock Associates, Inc. (now known as ABR Benefits Services, Inc.) 1993-1997
and as amended on December 15, 1995.
10.11 Lease Agreement dated February 9, 1996 by and between ABR Plymouth, Ltd. and ABR
Information Services, Inc.
10.12 Agreement and Plan of Reorganization dated as of February 1, 1996 by and among ABR X
Information Services, Inc., Total Cobra Services and John M. Hermann.
10.13 Agreement and Plan of Reorganization dated as of June 28, 1996 by and among ABR X
Information Services, Inc., The L.P. Baier Company and L.P. Baier's shareholders.
10.14 Employment and Non-Competition Agreement dated June 28, 1996 by and between The X
L.P. Baier Company and Rick Snyder.
10.15 Stock Purchase Agreement by and among ABR Information Services, Inc., Bullock
Associates, Inc., (now knows as ABR Benefits Services, Inc.) W. Carl Bullock,
Barbara A. Biasotti and Nancy L. Clark dated as of December 15, 1995.
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit Filed
Number Description Herewith
------- ----------------------------------------------------------------------------------- --------
<S> <C> <C>
11.1 Statement regarding computation of per share earnings. X
13.1 1996 Annual Report of ABR Information Services, Inc. X
21.1 List of subsidiaries of ABR Information Services, Inc. X
23.1 Consent of Grant Thornton LLP. X
24.1 Powers of Attorney (included on signature page hereto). X
27.1 Financial Data Schedule. (for SEC use only)
</TABLE>
19
<PAGE> 1
EXHIBIT 10.3
ABR INFORMATION SERVICES, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Purpose of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Limits on Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Granting and Terms of Options . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Effect of Changes in Capitalization . . . . . . . . . . . . . . . . . . . . . . . 3
6. Delivery and Payment for Shares . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. No Continuation as a Director and Disclaimer of Rights . . . . . . . . . . . . . . 4
8. Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9. No Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
10. Amendment of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
11. Termination of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
12. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
i
<PAGE> 3
ABR INFORMATION SERVICES, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE OF PLAN
The purpose of this Plan is to enable ABR Information Services, Inc.
(the "Company") and its Subsidiaries to compete successfully in attracting,
motivating and retaining Non-Employee Directors with outstanding abilities by
making it possible for them to purchase Shares on terms that will give them a
direct and continuing interest in the future success of the businesses of the
Company and its Subsidiaries and encourage them to remain as directors of the
Company or one or more of its Subsidiaries.
2. DEFINITIONS
For purposes of the Plan, except where the context clearly indicates
otherwise, the following terms shall have the meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the United States Internal Revenue Code of 1986,
as amended.
(c) "Effective Date" means the date the Plan is adopted by the
Board.
(d) "Fair Market Value" means, with respect to a Share, if the
Shares are then listed and traded on a registered national or regional
securities exchange, or quoted on The National Association of Securities
Dealers' Automated Quotation System (including The Nasdaq Stock Market's
National Market), the average closing price of a Share on such exchange or
quotation system for the five trading days immediately preceding the date of
grant of an Option, or, if Fair Market Value is used herein in connection with
any event other than the grant of an Option, then such average closing price
for the ten trading days immediately preceding the date of such event. If the
Shares are not traded on a registered securities exchange or quoted in such a
quotation system, the Board shall determine the Fair Market Value of a Share.
(e) "Non-Employee Director" shall mean any member of the Company's
Board of Directors who is not an employee of the Company or any Subsidiary.
(f) "Option" means an option granted under this Plan, which Option
shall not be an incentive stock option within the meaning of Section 422 of the
Code, or the corresponding provision of any subsequently enacted tax statute.
(g) "Optionee" means any person who has been granted an Option
which Option has not expired or been fully exercised or surrendered.
(h) "Plan" means the Company's 1996 Non-Employee Director Stock
Option Plan.
(i) "Rule 16b-3" means Rule 16b-3 promulgated pursuant to Section
16(b) of the Securities Exchange Act of 1934, as amended, or any successor
rule.
(j) "Share" means one share of voting common stock, par value $.01
per share, of the Company, and such other stock or securities that may be
substituted therefor pursuant to Section 5 hereof.
(k) "Subsidiary" means any "subsidiary corporation" within the
meaning of Section 424(f) of the Code.
<PAGE> 4
3. LIMITS ON OPTIONS
The total number of Shares with respect to which Options may be
granted under the Plan shall not exceed in the aggregate 200,000 Shares,
subject to adjustment as provided in Section 5 hereof. If any Option expires,
terminates or is terminated for any reason prior to its exercise in full, the
Shares that were subject to the unexercised portion of such Option shall be
available for future grants under the Plan.
4. GRANTING AND TERMS OF OPTIONS
(a) On the date on which a Non-Employee Director, other than a
Non-Employee Director who is serving as such on the Effective Date, is first
elected or appointed as a Non-Employee Director during the existence of the
Plan, such Non-Employee Director shall automatically be granted an Option to
purchase 5,000 Shares. Each Non-Employee Director as of the Effective Date
shall, on the Effective Date, automatically be granted an Option to purchase
5,000 Shares.
(b) Each Non-Employee Director (if he or she continues to serve in
such capacity) shall, on the day following the annual meeting of shareholders
in each year during the time the Plan is in effect, automatically be granted an
Option to purchase 5,000 Shares; provided, however, that a Non-Employee
Director who receives, in any year, an Option pursuant to Section 4.(a) hereof
shall not be eligible to begin to receive grants pursuant to this Section 4.(b)
until the following year.
(c) Notwithstanding the provisions of Section 4.(a) and 4.(b)
hereof, Options shall be automatically granted to Non-Employee Directors under
the Plan only for so long as the Plan remains in effect and a sufficient number
of Shares are available hereunder for the granting of such Options.
(d) The exercise price of each Share subject to an Option shall be
equal to 100% of the Fair Market Value of the Shares on the date of grant of
such Option.
(e) Options shall not be assignable or transferable by the
Optionee other than by will or by the laws of descent and distribution.
(f) Each Option shall expire and all rights thereunder shall end
at the expiration of ten (10) years after the date on which it was granted,
subject in all cases to earlier expiration as provided in subsections (g) and
(h) of this Section 4.
(g) During the life of an Optionee, an Option shall be exercisable
only by such Optionee and only within one (1) month after the date on which the
Optionee ceases to be a Non-Employee Director, other than by reason of the
Optionee's death or resignation from the Board with the consent of the Company
as provided in subsection (h) of this Section 4, but only if and to the extent
the Option was exercisable immediately prior to such date, and subject to the
provisions of the subsections (f) and (i) of this Section 4. If the Optionee
is removed as a Director for cause (as defined in the Company's Articles of
Incorporation, as amended from time to time), all Options of the Optionee shall
terminate immediately on the date of removal.
(h) If an Optionee: (i) dies while a Non-Employee Director or
within the period when an Option could have otherwise been exercised by the
Optionee; or (ii) ceases to be a Non-Employee Director as a result of such
Optionee's resignation from the Board, provided that the Company has consented
in writing to such Optionee's resignation, then, in each such case, such
Optionee, or the duly authorized representatives of such Optionee, shall have
the right, at any time within three (3) months after the death or after such
resignation of the Optionee, as the case may be, and prior to the termination
of the Option pursuant to subsections (f) and (i) of this Section 4, to
exercise any Option to the extent such Option was exercisable by the Optionee
immediately prior to such Optionee's death or resignation.
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<PAGE> 5
(i) The Optionee may exercise the Option (subject to the
limitations on exercise set forth in subsection (f) of this Section 4), in
whole or in part, as follows: (i) the Option may not be exercised to any
extent prior to one (1) year following the date of grant; and (ii) the Option
may be exercised to the extent of 25% of the Shares subject to such Option
after one year following the date of grant and may be exercised to the extent
of an additional 25% of the Shares subject to such Option after each of the
second, third and fourth years following the date of grant.
(j) An Option may be exercised in whole at one time or in part
from time to time, subject to subsection (i) of this Section 4.
5. EFFECT OF CHANGES IN CAPITALIZATION
(a) If the number of outstanding Shares is increased or decreased
or changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any recapitalization, reclassification,
stock split, combination of shares, exchange of shares, stock dividend or other
distribution payable in capital stock, or other increase or decrease in such
shares effected without receipt of consideration by the Company, a
proportionate and appropriate adjustment shall be made by the Board of
Directors in (i) the number and type of Shares subject to the Plan and which
thereafter may be made the subject of Options under the Plan, and (ii) the
number and kind of shares for which Options are outstanding, so that the
proportionate interest of the Optionee immediately following such event shall,
to the extent practicable, be the same as immediately prior to such event. Any
such adjustment in outstanding Options shall not change the aggregate option
price payable with respect to Shares subject to the unexercised portion of the
Options outstanding but shall include a corresponding proportionate adjustment
in the option price per Share.
(b) Subject to Section 5.(c) hereof, if the Company shall be the
surviving corporation in any reorganization, merger, share exchange or
consolidation of the Company with one or more other corporations or other
entities, any Option theretofore granted shall pertain to and apply to the
securities to which a holder of the number of Shares subject to such Option
would have been entitled immediately following such reorganization, merger,
share exchange or consolidation, with a corresponding proportionate adjustment
of the option price per Share so that the aggregate option price thereafter
shall be the same as the aggregate option price of the Shares remaining subject
to the Option immediately prior to such reorganization, merger, share exchange
or consolidation.
(c) In the event of: (i) the adoption of a plan of
reorganization, merger, share exchange or consolidation of the Company with one
or more other corporations or other entities as a result of which the holders
of the Shares as a group would receive less than fifty percent (50%) of the
voting power of the capital stock or other interests of the surviving or
resulting corporation or entity; (ii) the adoption of a plan of liquidation or
the approval of the dissolution of the Company; (iii) the approval by the Board
of an agreement providing for the sale or transfer of the assets of the
Company; or (iv) the acquisition of more than fifty percent (50%) of the
outstanding shares by any person within the meaning of Rule 13(d)(3) under the
Securities Exchange Act of 1934 if such acquisition is not preceded by a prior
expression of approval by the Board, then, in each such case, any Option
granted hereunder shall become immediately exercisable in full, subject to any
appropriate adjustments in the number of Shares subject to such Option and the
option price, regardless of any provision contained in the Plan with respect
thereto limiting the exercisability of the Option for any length of time.
Notwithstanding the foregoing, if a successor corporation or other entity as
contemplated in clause (i) or (iii) of the preceding sentence agrees to assume
the outstanding Options or to substitute substantially equivalent options,
then the outstanding Options issued hereunder shall not be immediately
exercisable, but shall remain exercisable in accordance with the terms of the
Plan and the applicable stock option agreements.
(d) Adjustments under this Section 5 relating to Shares or
securities of the Company shall be made by the Board, whose determination in
that respect shall be final and conclusive. Options subject to grant or
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<PAGE> 6
previously granted under the Plan at the time of any event described in this
Section 5 shall be subject to only such adjustments as shall be necessary to
maintain the proportionate interest of the Options and preserve, without
exceeding, the value of such Options. No fractional Shares or units of other
securities shall be issued pursuant to any such adjustment, and any fractions
resulting from any such adjustment shall be eliminated in each case by rounding
upward to the nearest whole Share or unit.
(e) The grant of an Option pursuant to the Plan shall not affect
or limit in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
6. DELIVERY AND PAYMENT FOR SHARES
(a) No Shares shall be delivered upon the exercise of an Option
until the option price for the Shares acquired has been paid in full. No
shares shall be issued or transferred under the Plan unless and until all legal
requirements applicable to the issuance or transfer of such Shares have been
complied with to the satisfaction of the Board. Any Shares issued by the
Company to an Optionee upon exercise of an Option may be made only in strict
compliance with and in accordance with applicable state and federal securities
laws.
(b) Payment of the option price for the Shares purchased pursuant
to the exercise of an Option shall be made: (i) in cash or by check payable to
the order of the Company; (ii) through the tender to the Company of Shares,
which Shares shall be valued, for purposes of determining the extent to which
the option price has been paid thereby, at their Fair Market Value on the date
of exercise; or (iii) by a combination of the methods described in (i) and (ii)
hereof.
7. NO CONTINUATION AS A DIRECTOR AND DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or option agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain a director of the Company or any Subsidiary.
The Plan shall in no way be interpreted to require the Company to transfer any
amounts to a third party trustee or otherwise hold any amounts in trust or
escrow for payment to any Optionee or beneficiary under the terms of the Plan.
An Optionee shall have none of the rights of a shareholder of the Company until
all or some of the Shares covered by an Option are fully paid and issued to
such Optionee.
8. ADMINISTRATION
The Plan is intended to meet the requirements of Rule 16b-3(c)(2)(ii)
adopted under the Securities Exchange Act of 1934, as amended, and accordingly
is intended to be self-governing. To this end, the Plan requires no
discretionary action by any administrative body with regard to any transaction
under the Plan. To the extent, if any, that any questions of interpretation
arise, these shall be resolved by the Board.
9. NO RESERVATION OF SHARES
The Company shall be under no obligation to reserve or to retain in
its treasury any particular number of Shares in connection with its obligations
hereunder.
10. AMENDMENT OF PLAN
The Board, without further action by the shareholders, may amend this
Plan from time to time as it deems desirable; provided, that (i) no such
amendment shall be made without shareholder approval if such approval would be
required to comply with Rule 16b-3 and (ii) the provisions of Sections 4.(a)
and 4.(b) shall not be amended more
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<PAGE> 7
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules and
regulations promulgated thereunder.
11. TERMINATION OF PLAN
This Plan shall terminate ten (10) years from the Effective Date. The
Board may, in its discretion, suspend or terminate the Plan at any time prior
to such date, but such termination or suspension shall not adversely affect any
right or obligation with respect to any outstanding Option.
12. EFFECTIVE DATE
The Plan shall become effective on the Effective Date and Options
hereunder may be granted at any time on or after that date, subject to approval
of the Plan by the Company's shareholders within one year after the Effective
Date by a majority of the votes cast at a duly held meeting of the shareholders
of the Company at which a quorum representing a majority of all outstanding
stock is present, either in person or by proxy, and in a manner that satisfies
the requirements of Rule 16b-3. Upon approval of the Plan by the shareholders
of the Company as set forth above, all Options granted under the Plan on or
after the Effective Date shall be fully effective as if the shareholders of the
Company had approved the Plan on the Effective Date.
B-5
<PAGE> 1
EXHIBIT 10.12
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 1, 1996
BY AND AMONG
ABR INFORMATION SERVICES, INC.
("BUYER"),
TOTAL COBRA SERVICES
("TCS"), AND
JOHN M. HERMANN
("SHAREHOLDER").
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. TRANSFER AND ISSUANCE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2. Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3. Floor Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. SECURITIES ACT PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1. Restrictions on Disposition of Buyer Shares . . . . . . . . . . . . . . . . 3
2.2. Evidence of Compliance with Private Offering Exemption . . . . . . . . . . . 3
2.3. Notice of Limitation Upon Disposition . . . . . . . . . . . . . . . . . . . 3
3. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF
TCS AND THE SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1. Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2. The Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6. Accounts Receivable and COBRA Payables . . . . . . . . . . . . . . . . . . . 7
3.7. Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.8. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . 9
3.9. No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.10. Compliance With Laws and Orders . . . . . . . . . . . . . . . . . . . . . . 9
3.11. Title to and Condition of Properties . . . . . . . . . . . . . . . . . . . . 11
3.12. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.13. Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.14. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.15. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.16. Employment Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.17. Trade Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.18. Major Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.19. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.20. Shareholder Affiliates' Relationships to TCS . . . . . . . . . . . . . . . . 19
3.21. No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.22. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . 19
4.1. Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.2. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.3. No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.4. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.5. Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.6. Approvals and Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5. POST-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1. Noncompetition; Confidentiality . . . . . . . . . . . . . . . . . . . . . . 20
5.2. Confidentiality of Shareholder Information . . . . . . . . . . . . . . . . . 22
5.3. Income Tax Returns and Allocation of Tax . . . . . . . . . . . . . . . . . . 22
5.4. Resale Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.5. Rule 144 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.1. By the Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.2. By Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.3. Indemnification of Third-Party Claims . . . . . . . . . . . . . . . . . . . 23
6.4. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.5. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6. Limitations on Indemnification . . . . . . . . . . . . . . . . . . . . . . . 24
6.7. Indemnification - Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . 25
7. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1. Documents Delivered by TCS and the Shareholders . . . . . . . . . . . . . . 26
7.2. Documents Delivered by Buyer . . . . . . . . . . . . . . . . . . . . . . . . 26
8. RESOLUTION OF DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.1. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.2. Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.3. Procedures; No Appeal . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5. Entry of Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.6. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.7. Continued Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.8. Tolling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.1. Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.2. Further Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.3. Disclosures and Announcements . . . . . . . . . . . . . . . . . . . . . . . 28
9.4. Assignment; Parties in Interest . . . . . . . . . . . . . . . . . . . . . . 29
9.5. Law Governing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.6. Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.7. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.8. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.9. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.11. Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.12. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.13. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
ii
<PAGE> 4
DISCLOSURE SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 3.1.(c) - Foreign Corporation Qualification
Schedule 3.1.(e) - Director/Officer List
Schedule 3.3 - Violation, Conflict, Default
Schedule 3.5.(c) - Tax Returns (Exceptions to Representations)
Schedule 3.5.(d) - Tax Audits
Schedule 3.6 - Accounts Receivable (Aged Schedule)
Schedule 3.7 - Certain Changes
Schedule 3.8 - Off-Balance Sheet Liabilities
Schedule 3.9 - Litigation Matters
Schedule 3.10.(a) - Non-Compliance with Laws
Schedule 3.10.(b) - Licenses and Permits
Schedule 3.10.(c) - Environmental Matters (Exceptions to Representations)
Schedule 3.11.(a) - Liens
Schedule 3.11.(c) - Real Property Occupied
Schedule 3.12 - Insurance
Schedule 3.13.(b) - Personal Property Leases
Schedule 3.13.(c) - Sales Commitments
Schedule 3.13.(e) - Powers of Attorney
Schedule 3.13.(f) - Collective Bargaining Agreements
Schedule 3.13.(g) - Loan Agreements, etc.
Schedule 3.13.(h) - Guarantees
Schedule 3.13.(k) - Material Contracts
Schedule 3.14 - Labor Matters
Schedule 3.15.(a) - Employee Plans/Agreements
Schedule 3.17 - Trade Rights
Schedule 3.18 - Major Customers
Schedule 3.19 - Bank Accounts
Schedule 5.1.(d) - Business of TERS
Schedule 7.1.(g) - Closing Date Balance Sheet
</TABLE>
iii
<PAGE> 5
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") dated as
of February 1, 1996, is by and among ABR INFORMATION SERVICES, INC, a Florida
corporation ("Buyer"), TOTAL COBRA SERVICES, a California corporation ("TCS"),
and JOHN M. HERMANN (the "Shareholder").
RECITALS
1. Prior to December 11, 1995, TCS was known as "Total
Employee Relations Services, Inc." and was engaged in the business of providing
COBRA compliance services, retiree billing services and automatic check
clearing services (the "COBRA Business") and employee relations consulting
services, membership services, unemployment insurance services and personnel
forms administration (the "Consulting Business").
2. On December 11, 1995, TCS amended its Articles of
Incorporation to change its name from "Total Employee Relations Services, Inc."
to "Total COBRA Services."
3. In connection with the name change, TCS formed a
wholly-owned subsidiary, Total Employee Relations Services, Inc., a California
corporation ("TERS"), and transferred all of the assets and liabilities
associated with the Consulting Business to TERS. Thereafter, TCS transferred
all of the outstanding capital stock of TERS to the Shareholder in a tax free
spin-off (the "Spin-off") within the meaning of Section 355 of the Internal
Revenue Code of 1986, as amended (the "Code").
4. Following the transfer of the Consulting Business,
TCS is engaged solely in the COBRA Business ("TCS's Business").
5. The Shareholder owns all of the issued and
outstanding shares of capital stock of TCS (the "TCS Shares").
6. Buyer desires to acquire the TCS Shares from the
Shareholder solely in exchange for shares of voting common stock, $.01 par
value per share, of Buyer (the "Common Stock"), upon the terms and conditions
herein set forth.
7. For federal income tax purposes, it is intended that
the transactions contemplated hereby will constitute a reorganization within
the meaning of Section 368(a)(1)(B) of the Code.
8. For financial accounting purposes, it is intended
that the transactions contemplated hereby be accounted for as a "purchase."
<PAGE> 6
AGREEMENT
NOW THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. TRANSFER AND ISSUANCE OF SHARES
1.1. Transfer of Shares. Subject to the terms and conditions of
this Agreement, at the Closing (as defined in Section 7), the Shareholder shall
transfer to Buyer all of the Shareholder's right, title and interest in and to
all of the TCS Shares.
1.2. Issuance of Shares. At the Closing and in exchange for the
TCS Shares, Buyer shall issue and deliver to the Shareholder a number of
validly issued, fully paid and nonassessable shares of Common Stock which, when
multiplied by the average closing per share sales price of the Common Stock for
the thirty (30) trading days prior to the day before the Closing Date (as
defined herein) (the "Issue Price"), results in an aggregate price of
$3,800,000 (the "Buyer Shares"), subject to adjustment as provided in Section
1.3. In the event that the issued and outstanding shares of Common Stock shall
have been changed into a different number of shares as a result of a stock
split, reverse stock split, stock dividend, recapitalization, reclassification,
reorganization, merger or other similar transaction with a record date within
the 30-day period described above, the average closing per share sales price to
calculate the Issue Price shall be adjusted accordingly in order for the Buyer
Shares, if delivered after such record date, to be adjusted accordingly. Any
fractional shares resulting from such computation shall be eliminated by
rounding upward to the nearest whole share.
1.3. Floor Price Adjustment. In the event the greater of (i) the
closing sales price of the Common Stock on the second anniversary date of this
Agreement or (ii) the average closing sales price of the Common Stock for the
thirty (30) trading days immediately following the second anniversary date of
this Agreement (the greater value shall be referred to as the "Anniversary
Price") is less than 75% of the Issue Price (the "Floor Price"), Buyer shall
issue to the Shareholder an aggregate number of additional validly issued,
fully paid and nonassessable shares of Common Stock equal to the product
obtained by multiplying (i) the number of Buyer Shares held by the Shareholder
at the end of the 30-day period described above by (ii) the difference between
the Floor Price and the Anniversary Price (which difference, however, shall be
offset by any gain realized upon the sale of any of the Buyer Shares prior to
such 30-day period). Buyer shall issue and deliver to the Shareholder such
additional shares, if any, within fifteen (15) days after the end of the 30-day
period. In the event that the issued and outstanding shares of Common Stock
shall have been changed into a different number of shares or into shares of a
different corporation as a result of a stock split, reverse stock split, stock
dividend, recapitalization, reclassification, reorganization, merger or other
similar transaction from the Closing Date to the date of the floor price
adjustment described in this Section 1.3, the Floor Price shall be adjusted
accordingly in order for such additional shares, if any, to be adjusted
2
<PAGE> 7
accordingly. Any fractional shares resulting from such computation shall be
eliminated by rounding upward to the nearest whole share.
2. SECURITIES ACT PROVISIONS
2.1. Restrictions on Disposition of Buyer Shares. The Shareholder
covenants and warrants that the Buyer Shares to be received pursuant to this
Agreement are acquired for his own account and not with the present view
towards the distribution thereof and he will not dispose of the Buyer Shares
except (i) pursuant to an effective registration statement under the Securities
Act of 1933, as amended, or (ii) in any other transaction which, in the opinion
of counsel acceptable to Buyer, is exempt from registration under the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder. In order to effectuate the
covenants of this subsection 2.1, an appropriate endorsement will be placed on
the certificate evidencing the Buyer Shares at the time of distribution of such
shares by Buyer pursuant to this Agreement, and stop transfer instructions
shall be placed with the transfer agent for the securities.
2.2. Evidence of Compliance with Private Offering Exemption. The
Shareholder represents to Buyer that the Shareholder has the financial
sophistication to assess the merits and risks of the transaction contemplated
hereby and agrees to supply Buyer with such other items as counsel for Buyer
may require in order to evidence the private offering character of the
distribution of the Buyer Shares made pursuant to this Agreement.
2.3. Notice of Limitation Upon Disposition. The Shareholder is
aware that the Buyer Shares distributed to him will not have been registered
pursuant to the Securities Act of 1933, as amended; and, therefore, under
current interpretations and applicable rules, he will be required to retain
such shares for a period of at least two (2) years following the Closing Date
and, at the expiration of such two (2) year period, sales of the Buyer Shares
may be confined to brokerage transactions of limited amounts requiring certain
notification filings with the Securities and Exchange Commission and such
disposition may be available only if Buyer is current in its filings with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, and the other limitations imposed thereby on the disposition of the
Buyer Shares.
3. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF TCS AND THE
SHAREHOLDER
TCS and the Shareholder make the following representations and
warranties to Buyer with respect or related to, or concerning, TCS, each of
which is true and correct on the date hereof, is or shall be unaffected by any
investigation heretofore or hereafter made by Buyer, or any of Buyer's agents
or representatives, or any knowledge of Buyer, its agents or representatives
other than as specifically disclosed in the Disclosure Schedules delivered to
Buyer at the time of the execution of this Agreement, and shall survive the
Closing of the transactions provided for herein. The representations and
warranties of TCS and the Shareholder hereunder
3
<PAGE> 8
shall be joint and several except for the representations in Section 3.2. with
respect solely to the Shareholder, and any representations to the "knowledge"
of TCS or the Shareholder, which shall be deemed made separately by TCS or the
Shareholder, as the case may be. For purposes of this Agreement and except as
specified in the following sentence, each of TCS and the Shareholder shall be
deemed to have knowledge of the subject matter of any representation or
warranty if the Shareholder has actual knowledge thereof or, after adequate
investigation, should reasonably be expected to have knowledge thereof.
3.1. Corporate.
3.1.(a) Organization. TCS is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California.
3.1.(b) Corporate Power; Validity. TCS has all requisite
corporate power and authority to own, operate and lease its properties
and to carry on TCS's Business as and where such is now being
conducted. TCS has full power, legal right and authority to enter
into, execute and deliver this Agreement and the other agreements,
instruments and documents contemplated hereby and delivered on the
date hereof (such other documents are sometimes referred to herein as
"Ancillary Instruments"), and to carry out the transactions
contemplated hereby and thereby. This Agreement and each Ancillary
Instrument that provides for its execution by TCS has been duly and
validly executed and delivered by TCS.
3.1.(c) Qualification. TCS is duly licensed or qualified to
do business as a foreign corporation, and is in good standing, in each
jurisdiction wherein the character of the properties owned or leased
by it, or the nature of TCS's Business, makes such licensing or
qualification necessary except where failure to be so qualified or
licensed would not have a material adverse effect on the financial
condition or results of operations of TCS. The states in which TCS is
licensed or qualified to do business are listed in Schedule 3.1.(c).
3.1.(d) No Subsidiaries. TCS does not own, directly or
indirectly, any capital stock or other equity securities of any
corporation or maintain any direct or indirect equity or other
ownership interest in any entity or business.
3.1.(e) Corporate Documents, etc. The copies of the articles
or certificate of incorporation and bylaws of TCS, as amended or
restated (hereinafter, "Certificate of Incorporation" and "Bylaws,"
respectively), which have been delivered by the Shareholder to Buyer
are true, correct and complete copies of such instruments as presently
in effect. The corporate minute books and stock record books of TCS
which have been furnished to Buyer for inspection are true, correct
and complete and accurately reflect all meetings held of, and
corporate action taken by, the shareholders and Board of Directors of
TCS. The duly elected and qualified directors and officers of TCS are
listed in Schedule 3.1.(e).
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3.1.(f) Capitalization. The authorized capital stock of TCS
consists entirely of 100,000 shares of Common Stock. No shares of
such capital stock are issued or outstanding except for 10,000 shares
of Common Stock which are owned of record and beneficially by the
Shareholder. All such shares of capital stock of TCS are validly
issued, fully paid and nonassessable. There are no (a) securities
convertible into or exchangeable for any of TCS's capital stock or
other securities, (b) options, warrants or other rights to purchase or
subscribe to capital stock or other securities of TCS or securities
which are convertible into or exchangeable for capital stock or other
securities of TCS, or (c) contracts, commitments, agreements,
understandings or arrangements of any kind relating to the issuance,
sale or transfer of any capital stock or other equity securities of
TCS, any such convertible or exchangeable securities or any such
options, warrants or other rights.
3.2. The Shareholder.
3.2.(a) Power. The Shareholder has full power, legal right
and authority to enter into, execute and deliver this Agreement and
the Ancillary Instruments to which the Shareholder is a party and to
carry out the transactions contemplated hereby and thereby.
3.2.(b) Validity. This Agreement and each Ancillary
Instrument that provides for its execution by the Shareholder has been
duly and validly executed and delivered by the Shareholder and is the
legal, valid and binding obligation of the Shareholder, enforceable in
accordance with its terms, subject to the limitations contained
herein, and except as such may be limited by bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights generally,
and by general equitable principles.
3.2.(c) Title. The Shareholder is transferring, good and
valid title to the TCS Shares to be transferred by the Shareholder
hereunder, free and clear of all Liens (as defined in Section 3.12),
including, without limitation, voting trusts or agreements, proxies,
marital or community property interests.
3.3. No Violation. Except as set forth on Schedule 3.3, neither
the execution and delivery of this Agreement or the Ancillary Instruments nor
the consummation by TCS and the Shareholder of the transactions contemplated
hereby and thereby (a) to the best knowledge of the Shareholder, violates any
currently existing statute, law, ordinance, rule or regulation (collectively,
"Laws") or any currently existing order, writ, injunction, judgment, plan or
decree (collectively, "Orders") of any court, arbitrator, department,
commission, board, bureau, agency, authority, instrumentality or other body,
whether federal, state, municipal, foreign or other (collectively, "Government
Entities"), (b) to the best knowledge of the Shareholder, requires any
authorization, consent, approval, exemption or other action by or notice to any
Government Entity (including, without limitation, under any "plant-closing" or
similar law assuming, for this purpose, that Buyer will cause TCS after Closing
not to take any action that would result in a violation of such law), or (c)
subject to obtaining the consents referred to in
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Schedule 3.3, violates or conflicts with, or constitutes a default (or an event
which, with notice or lapse of time, or both, would constitute a default)
under, or results in the termination of, or accelerates the performance
required by, or results in the creation of any Lien upon any of the assets of
TCS (or the TCS Shares) under, any term or provision of the Certificate of
Incorporation or Bylaws of TCS, or of any material contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character
to which TCS or the Shareholder is a party or by which TCS or the Shareholder
or any of its, his or her assets or properties may be bound or affected.
3.4. Financial Statements. True and complete copies have been
delivered to Buyer of the financial statements of TCS consisting of the balance
sheets on a modified cash basis of TCS as of December 31, 1995, 1994, 1993,
1992 and 1991, (the December 31, 1995 balance sheet is referred to herein as
the "TCS Recent Balance Sheet"), and the related statement of income on a
modified cash basis for each of the years then ended (including the notes
contained therein or annexed thereto), all of which financial statements have
been compiled by independent accountants for TCS for such years and periods.
All of such TCS financial statements (including all notes and schedules
contained therein or annexed thereto) and the Closing Balance Sheet (as
required pursuant to Section 7.1.(i) hereof), have been prepared in accordance
with statements on standards for accounting and review services issued by the
American Institute of CPA's, have been prepared in accordance with the books
and records of TCS, and fairly present, in accordance with statements on
standards for accounting and review services issued by the American Institute
of CPA's, the financial position, the results of operations and cash flows of
TCS as of the dates and for the years and periods indicated. True and correct
copies have been delivered to Buyer of all written reports submitted to TCS or
the Shareholder by TCS's accountants related to the books and records of TCS.
3.5. Tax Matters.
3.5.(a) Spin-Off. The Spin-off qualifies as a tax-free
transaction within the meaning of Section 355 of the Code.
3.5.(b) Provision For Taxes. The provision made for taxes on
the Closing Balance Sheet is sufficient for the payment of all
federal, state, foreign, county, local and other income, ad valorem,
excise, profits, franchise, occupation, property, payroll, sales, use,
gross receipts and other taxes (and any interest and penalties) and
assessments ("Taxes"), whether or not disputed, that were unpaid and
owed by TCS as of the date of the Closing Balance Sheet. Since the
date of the Closing Balance Sheet and excluding the effect of the
transactions contemplated herein, TCS has not incurred any taxes other
than taxes incurred in the ordinary course of business consistent in
type and amount with past practices.
3.5.(c) Tax Returns Filed. Except as set forth on Schedule
3.5.(c), all federal, state, foreign, county, local and other tax
returns required to be filed by or on behalf of TCS have been timely
filed and when filed were true and correct, and the taxes
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shown as due thereon were paid or adequately accrued. True and
complete copies of all tax returns or reports filed by TCS for each of
its three (3) most recent tax years have been delivered to Buyer. TCS
has duly withheld and paid all Taxes which it was required to withhold
and pay in connection with amounts heretofore paid to any employee,
independent contractor, creditor or shareholder of TCS.
3.5.(d) No Tax Audits. Except as set forth on Schedule
3.5.(d), the federal and state income tax returns of TCS have not been
audited by the Internal Revenue Service or any state taxing
authorities, and neither TCS nor the Shareholder has received from the
Internal Revenue Service or from the tax authorities of any state,
county, local or other jurisdiction any notice of underpayment of
taxes by TCS or other deficiency with respect to TCS's taxes which has
not been paid nor any objection to any return or report filed by TCS.
There are no outstanding agreements or waivers extending the statutory
period of limitations applicable to any tax return or report.
3.5.(e) No Consolidated Group. TCS has never been a member
of an affiliated group of corporations that filed a consolidated tax
return.
3.5.(f) Other. TCS has not (i) filed any consent or
agreement under Section 341(f) of the Code, (ii) applied for any tax
ruling, (iii) entered into a closing agreement with any taxing
authority, (iv) filed an election under Section 338(g) or Section
338(h)(10) of the Code (nor has a deemed election under Section 338(e)
of the Code occurred), except as contemplated hereby, or (v) been a
party to any tax allocation or tax sharing agreement. TCS is not a
"United States real property holding company" within the meaning of
Section 897 of the Code.
3.6. Accounts Receivable and COBRA Payables. All accounts
receivable of TCS reflected on the Closing Balance Sheet and as incurred in the
normal course of business since the date thereof, represent arm's length sales
actually made in the ordinary course of business. To the best knowledge of the
Shareholder, no portion of the accounts receivable is or will be subject to
counterclaim or set-off or is or will be otherwise in dispute. All of the
accounts receivable are and as of the Closing Date will be good and collectible
in full (less an allowance of 1% for doubtful accounts receivable) within 120
days following the Closing Date. Schedule 3.6 contains an estimated aged
schedule of accounts receivable included in the Closing Balance Sheet. The
cash and cash equivalents held by TCS related to insurance premiums collected
on behalf of customers as of the Closing Date are equal to or greater than any
insurance premiums payable relating to the COBRA Business.
3.7. Absence of Certain Changes. Except as and to the extent set
forth in Schedule 3.7, or as reflected in the Closing Balance Sheet and
excluding the transactions contemplated herein, since December 31, 1995 there
has not been:
3.7.(a) No Adverse Change. Any material adverse change in
the financial condition, assets, liabilities, business or operations
of TCS;
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3.7.(b) No Damage. Any material loss, damage or destruction,
whether covered by insurance or not, affecting TCS's Business or the
properties of TCS;
3.7.(c) No Increase in Compensation. Any increase in the
compensation, salaries or wages payable or to become payable to any
employee or agent of TCS (including, without limitation, any increase
or change pursuant to any bonus, pension, profit sharing, retirement
or other plan or commitment), or any bonus or other employee benefit
granted, made or accrued, other than in the ordinary course of
business;
3.7.(d) No Labor Disputes. Any labor dispute or disturbance,
other than routine individual grievances which are not material to
TCS's Business, financial condition or the results of operations of
TCS;
3.7.(e) No Commitments. Any loan commitment or related
financial transaction by TCS (including, without limitation, any
borrowing or capital expenditure) other than in the ordinary course of
business consistent with past practice;
3.7.(f) No Dividends. Any declaration, setting aside, or
payment of any dividend or any other distribution in respect of the
capital stock of TCS; any redemption, purchase or other acquisition by
TCS of any shares of its capital stock, or any security relating
thereto; or any other payment to any shareholder of TCS as such a
shareholder;
3.7.(g) No Disposition of Property. Any sale, lease or other
transfer or disposition of any properties or assets of TCS;
3.7.(h) No Indebtedness. Any indebtedness for borrowed money
incurred, assumed or guaranteed by TCS;
3.7.(i) No Liens. Any mortgage, pledge, lien or
encumbrance made on any of the properties or assets of TCS;
3.7.(j) No Amendment of Contracts. Any amendment or
termination of any contract or agreement of TCS, or any waiver of
material rights thereunder, other than in the ordinary course of
business which would have a material adverse effect on the Business,
financial condition or results of operations of TCS;
3.7.(k) Loans and Advances. Any loan or advance (other than
advances to employees in the ordinary course of business for travel
and entertainment in accordance with past practice) from TCS to any
person including, but not limited to, any Shareholder Affiliate; or
3.7.(l) Credit. Any grant of credit from TCS to any
customer on terms or in amounts more favorable than those which have
been extended to such customer in
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the past, any other change in the terms of any credit heretofore
extended, or any other change of policies or practices with respect to
the granting of credit.
3.8. Absence of Undisclosed Liabilities. Except as and to the
extent specifically disclosed in the Closing Balance Sheet, or in Schedule 3.8,
TCS has no liabilities (secured or unsecured, and whether accrued, absolute,
contingent, direct, indirect or otherwise, and whether known or unknown), other
than liabilities incurred since the date of the Closing Balance Sheet in the
ordinary course of business and consistent with past practice and liabilities
which will not have a material adverse effect on the Business, financial
condition or results of operations of TCS.
3.9. No Litigation. Except as set forth in Schedule 3.9, there is
no action, suit, arbitration, proceeding, investigation or inquiry, whether
civil, criminal or administrative ("Litigation"), pending or, to the best
knowledge of the Shareholder, threatened, against TCS, its officers and
directors (in such capacity), TCS's Business or any of its assets. Except as
set forth in Schedule 3.9, neither TCS nor the Shareholder has been notified
that TCS, TCS's Business or its assets is subject to any Order of any
Government Entity.
3.10. Compliance With Laws and Orders.
3.10.(a) Compliance. Except as set forth in Schedule
3.10.(a), to the best knowledge of the Shareholder, TCS (including its
operations, practices, properties and assets) is in compliance with
all applicable material Laws and Orders of all Government Entities,
including, without limitation, those applicable to discrimination in
employment, occupational safety and health, trade practices,
competition and pricing, zoning, building and sanitation, employment,
retirement and labor relations, product advertising and the
Environmental Laws (as hereinafter defined). Except as set forth in
Schedule 3.10.(a), TCS has not received notice of any violation or
alleged violation of, any Laws or Orders. All reports and returns
required to be filed by TCS with any Government Entity have been
filed, and were accurate and complete when filed. Without limiting
the generality of the foregoing:
(i) TCS has made all required payments to its
unemployment compensation reserve accounts with the
appropriate governmental departments of the states where it is
required to maintain such accounts; and
(ii) TCS has not received any report for the past
five (5) years required under the federal Occupational Safety
and Health Act of 1970, as amended, and under all other
applicable health and safety laws and regulations.
3.10.(b) Licenses and Permits. TCS has all material
licenses, permits, approvals, authorizations and consents of all
Government Entities and all certifications required for the conduct of
TCS's Business (as presently conducted) and operation of any of the
facilities at which TCS's Business is conducted. All such licenses,
permits,
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approvals, authorizations and consents are described in Schedule
3.10.(b), are in full force and effect and will not be affected or
made subject to loss, limitation or any obligation to reapply as a
result of the transactions contemplated hereby. Except as set forth
in Schedule 3.10.(b), TCS (including its operations, practices,
properties and assets) is and has been in compliance with all such
permits and licenses, approvals, authorizations and consents. No
governmental approval or filing with any federal, state or local
agency is required of TCS in order to consummate the transactions
contemplated hereby.
3.10.(c) Environmental Matters. The applicable Laws
relating to pollution or protection of the environment, including Laws
relating to emissions, discharges, generation, storage, releases or
threatened releases of pollutants, contaminants, chemicals or
industrial, toxic, hazardous or petroleum or petroleum-based
substances or wastes ("Waste") into the environment (including,
without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Waste including, without
limitation, the Clean Water Act, the Clean Air Act, the Resource
Conservation and Recovery Act, the Toxic Substances Control Act and
the Comprehensive Environmental Response Compensation Liability Act
("CERCLA"), as amended, and their state and local counterparts (the
"Environmental Laws"). Without limiting the generality of the
foregoing provisions of this Section 3.10, TCS is in full compliance
with all material limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws or contained in any regulations,
code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder. Except as
set forth in Schedule 3.10.(c), there is no Litigation nor any demand,
claim, hearing or notice of violation pending or threatened against
TCS relating in any way to the Environmental Laws or any Order issued,
entered, promulgated or approved thereunder. Except as set forth in
Schedule 3.10.(c), there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions, omissions or
plans which will interfere with or prevent compliance or continued
compliance with the Environmental Laws or with any Order issued,
entered, promulgated or approved thereunder, or which will give rise
to any liability, including, without limitation, liability under
CERCLA or similar state or local Laws, or otherwise form the basis of
any Litigation, hearing, notice of violation, study or investigation,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the emission,
discharge, release or threatened release into the environment, of any
Waste.
3.10.(d) COBRA Compliance. With respect to the
conduct of the COBRA Business, TCS has not received notice of, nor has
TCS (through its acts or omissions) created circumstances which would
give rise to, a claim against TCS for the failure to comply with the
provisions of any law related to the continuation of health care
coverage, including, without limitation, the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended.
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3.11. Title to and Condition of Properties.
3.11.(a) Title. TCS has good and valid title to all
of its assets and properties that it purports to own, including,
without limitation, all such properties (tangible and intangible)
reflected in the Closing Balance Sheet (except for assets held under
capitalized leases and property sold since the date of the Closing
Balance Sheet in the ordinary course of business), free and clear of
all mortgages, liens, (statutory or otherwise) security interests,
claims, pledges, licenses, equities, options, conditional sales
contracts, assessments, levies, easements, covenants, reservations,
restrictions, rights-of-way, exceptions, limitations, charges or
encumbrances of any nature whatsoever (collectively, "Liens"), except
those Liens that are described in Schedule 3.11(a). Except as
described in Schedule 3.11(a), TCS's assets or properties are not
subject to any restrictions with respect to the transferability
thereof.
3.11.(b) Condition. All tangible personal property
and assets owned or utilized by TCS are in satisfactory operating
condition, and have been maintained consistent with the standards
generally followed in the industry.
3.11.(c) Real Property. TCS does not own any real
property. Schedule 3.11.(c) sets forth all real property used or
occupied by TCS (the "Real Property"). Schedule 3.11.(c) also sets
forth, with respect to each parcel of Real Property which is leased,
the material terms of such lease. There are no oral terms or past
practice inconsistent with the written terms thereof. All such leases
are valid and binding agreements, enforceable in accordance with their
respective terms, and are in full force and effect. TCS has performed
all obligations required to be performed by it to date under each such
lease and is not in breach or default in any respect thereunder, and
there has been no event which, with the giving of notice or the lapse
of time or both, would become a breach or default thereunder. To the
best knowledge of TCS and the Shareholder, no lessor or landlord to
any of such leases is in breach or default thereunder. To the best
knowledge of the Shareholder, there are now in full force and effect
duly issued certificates of occupancy permitting the Real Property and
improvements located thereon to be legally used and occupied by TCS as
the same are now constituted.
3.12. Insurance. Set forth in Schedule 3.12 is a complete and
accurate list and description of all policies of fire, liability, professional
liability, general liability, business interruption, workers compensation,
health and other forms of insurance presently in effect with respect to TCS's
Business and the properties of TCS, true and correct copies of which have
heretofore been delivered to Buyer. Schedule 3.12 includes, without
limitation, the carrier, the description of coverage, the limits of coverage,
retention or deductible amounts, amount of annual premiums, date of expiration
and the date through which premiums have been paid with respect to each such
policy, and any pending claims in excess of $5,000, whether or not covered by
insurance. Schedule 3.12 indicates each policy as to which (a) the coverage
limit has been reached or (b) the total incurred losses to date equal 75% or
more of the coverage limit. No
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notice of cancellation or termination has been received with respect to any
such policy. Each policy is in full force and effect and all premiums with
respect thereto covering all periods up to and including the date hereof have
been paid. TCS has not been refused any insurance with respect to any aspect
of the operations of its Business nor has its coverage been limited by any
insurance carrier to which it has applied for insurance or with which it has
carried insurance during the last three (3) years. TCS has not received any
written notice from or on behalf of any insurance carrier issuing any such
policy that insurance rates therefor will hereafter be substantially increased
(except to the extent that insurance rates may be increased for all similarly
situated risks) or that there will hereafter be a cancellation or an increase
in a deductible (or an increase in premiums in order to maintain an existing
deductible) or nonrenewal of any such policy. Such policies are sufficient in
all material respects for compliance by TCS with all requirements of all
contracts to which TCS is a party. None of such policies will in any way be
affected by, or terminate or lapse by reason of, the transactions contemplated
hereby.
3.13. Contracts and Commitments.
3.13.(a) Real Property Leases. Except as set forth in
Schedule 3.11.(a), TCS has no leases of real property.
3.13.(b) Personal Property Leases. Except as set
forth in Schedule 3.13.(b), TCS has no leases of personal property
involving consideration or other expenditure in excess of $5,000.
3.13.(c) Sales Commitments. Except as set forth in
Schedule 3.13.(c), TCS has no sales or service contracts or
commitments to customers which aggregate in excess of the amounts set
forth on Schedule 3.18 to any one customer (or group of affiliated
customers). True and complete copies of all contracts or commitments
with respect to those customers set forth on Schedule 3.18 have been
delivered by TCS to Buyer. TCS has no sales contracts or commitments
except those made in the ordinary course of business, at arm's length.
3.13.(d) Contracts With Affiliates and Certain Others.
Except as set forth in Schedule 3.13.(d) and except for this Agreement
and the Ancillary Instruments, TCS has no agreement, understanding,
contract or commitment (written or oral) with any Shareholder
Affiliate (as defined herein) or any employee, agent, consultant,
dealer or franchisee that is not cancelable by TCS, on notice of not
longer than 30 days without liability, penalty or premium of any
nature or kind whatsoever. For purposes of this Agreement,
"Shareholder Affiliate" shall mean and include the Shareholder, the
Shareholder's spouse, any person who would be the heir or descendant
of any such person if he or she were not living, and any entity in
which any of the foregoing has a direct or indirect interest, except
through the ownership of less than 5% of the outstanding shares of any
entity whose securities are listed on a national securities exchange
or traded in the national over-the-counter market.
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3.13.(e) Powers of Attorney. Except as set forth on
Schedule 3.13.(e), TCS has not given a power of attorney, which is
currently in effect, to any person, firm or corporation for any
purpose whatsoever.
3.13.(f) Collective Bargaining Agreements. Except as
set forth in Schedule 3.13.(f), TCS is not a party to any collective
bargaining agreements with any unions, guilds, shop committees or
other collective bargaining groups.
3.13.(g) Loan Agreements. Except as set forth in
Schedule 3.13.(g), TCS is not obligated under any loan agreement,
promissory note, letter of credit, or other evidence of indebtedness
as a signatory, guarantor or otherwise. Copies of all such agreements
have heretofore been delivered by TCS to Buyer.
3.13.(h) Guarantees. Except as set forth in Schedule
3.13.(h) and except for indemnification undertakings set forth in
TCS's agreements with its customers, TCS has not guaranteed the
payment or performance of any person, firm or corporation, agreed to
indemnify any person or act as a surety, or otherwise agreed to be
contingently or secondarily liable for the obligations of any person.
3.13.(i) Contracts Subject to Renegotiation. TCS is
not a party to any contract with any governmental body which is
subject to renegotiation.
3.13.(j) Burdensome or Restrictive Agreements. TCS is
not a party to nor is it bound by any agreement requiring it to assign
any interest in any trade secret or proprietary information, or
prohibiting or restricting it from competing in any business or
geographical area or soliciting customers or otherwise restricting it
from carrying on TCS's Business anywhere in the world.
3.13.(k) Other Material Contracts. Except as set
forth in Schedule 3.13.(k), TCS is not a party or subject to any
lease, contract or commitment of any nature involving consideration or
other expenditure in excess of $5,000.
3.13.(l) No Default. TCS is not in default under any
lease, contract or commitment to which it is a party or is otherwise
bound, nor has any event or omission occurred which through the
passage of time or the giving of notice, or both, would constitute a
default thereunder or cause the acceleration of any of TCS's
obligations or result in the creation of any Lien on any of the assets
owned, used or occupied by TCS.
3.14. Labor Matters. Except as set forth in Schedule 3.14, within
the last five (5) years TCS has not experienced any labor disputes, union
organization attempts or any work stoppage due to labor disagreements in
connection with its Business. Except to the extent set forth in Schedule 3.14,
(a) TCS is in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practice; (b) there is no unfair labor
practice charge or complaint
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actually pending or threatened against TCS; (c) there is no labor strike,
dispute, request for representation, slowdown or stoppage actually pending or
threatened against or affecting TCS nor any secondary boycott with respect to
products of TCS; (d) no question concerning representation has been raised or
is threatened respecting the employees of TCS; (e) no grievance which might
have a material adverse effect on TCS, nor any arbitration proceeding arising
out of or under collective bargaining agreements, is pending and no such claim
therefor exists; and (f) there are no administrative charges or court
complaints against TCS concerning alleged employment discrimination or other
employment related matters pending or threatened before the U.S. Equal
Employment Opportunity Commission or any Government Entity.
3.15. Employee Benefit Plans.
3.15.(a) Disclosure. Schedule 3.15.(a) sets forth all
pension, thrift, savings, profit sharing, retirement, incentive bonus
or other bonus, medical, dental, life, accident insurance, employee
welfare, disability, group insurance, stock purchase, stock option,
stock appreciation, stock bonus, executive or deferred compensation,
hospitalization and other similar fringe or employee benefit plans,
programs and arrangements, and any employment or consulting contracts,
collective bargaining agreements, severance agreements or plans,
vacation and sick leave plans, programs, arrangements and policies,
including, without limitation, all "employee benefit plans" (as
defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), all employee manuals, and all written
statements of policies, practices or understandings relating to
employment, which are provided to, for the benefit of, or relate to,
any persons employed by TCS. The items described in the foregoing
sentence are hereinafter sometimes referred to collectively as
"Employee Plans/Agreements," and each individually as an "Employee
Plan/Agreement." True and correct copies of all the Employee
Plans/Agreements, including all amendments thereto, have heretofore
been provided by TCS to Buyer. Each of the Employee Plans/Agreements
is identified on Schedule 3.15.(a), to the extent applicable, as one
or more of the following: an "employee pension benefit plan" (as
defined in Section 3(2) of ERISA), a "defined benefit plan" (as
defined in Section 414 of the Code), an "employee welfare benefit
plan" (as defined in Section 3(1) of ERISA), and/or as a plan intended
to be qualified under Section 401 of the Code. No Employee
Plan/Agreement is a "multiemployer plan" (as defined in Section 4001
of ERISA), and TCS has never contributed nor been obligated to
contribute to any such multiemployer plan.
3.15.(b) Terminations, Proceedings, Penalties, etc.
With respect to each Employee Plan/Agreement that is subject to the
provisions of Title IV of ERISA and with respect to which TCS, or any
of its assets may, directly or indirectly, be subject to any
Liability, contingent or otherwise, or the imposition of any Lien
(whether by reason of the complete or partial termination of any such
plan, the funded status of any such plan, any "complete withdrawal"
(as defined in Section 4203 of ERISA) or "partial withdrawal" (as
defined in Section 4205 of ERISA) by any person from any such plan, or
otherwise):
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(i) no such plan has been terminated so as to
subject, directly or indirectly, any assets of TCS to any
liability, contingent or otherwise, or the imposition of any
lien under Title IV of ERISA;
(ii) no proceeding has been initiated or
threatened by any person (including the Pension Benefit
Guaranty Corporation ("PBGC")) to terminate any such plan;
(iii) no condition or event currently exists or
currently is expected to occur that could subject, directly or
indirectly, any assets of TCS to any liability, contingent or
otherwise, or the imposition of any lien under Title IV of
ERISA, whether to the PBGC or to any other person or otherwise
on account of the termination of any such plan;
(iv) if any such plan were to be terminated as of
the Closing Date, no assets of TCS would be subject, directly
or indirectly, to any liability, contingent or otherwise, or
the imposition of any lien under Title IV of ERISA;
(v) no "reportable event" (as defined in Section
4043 of ERISA) has occurred with respect to any such plan;
(vi) no such plan which is subject to Section 302
of ERISA or Section 412 of the Code has incurred any
"accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code, respectively), whether or
not waived; and
(vii) no such plan is a multiemployer plan or a
plan described in Section 4064 of ERISA.
3.15.(c) Prohibited Transactions, etc. To the best of
the knowledge of the Shareholder, there have been no "prohibited
transactions" within the meaning of Section 406 of ERISA or Section
4975 of the Code for which a statutory or administrative exemption
does not exist with respect to any Employee Plan/Agreement, and to the
best of the knowledge of the Shareholder, no event or omission has
occurred in connection with which TCS or its assets or any Employee
Plan/Agreement, directly or indirectly, could be subject to any
material liability under ERISA, the Code or any other Law or Order
applicable to any Employee Plan/Agreement, or under any agreement,
instrument, Law or Order pursuant to or under which TCS has agreed to
indemnify or is required to indemnify any person against liability
incurred under any such Law or Order.
3.15.(d) Full Funding. The funds available under each
Employee Plan/Agreement which is intended to be a funded plan equal or
exceed the amounts required to be paid, or which would be required to
be paid if such Employee Plan/Agreement were terminated, on account of
rights vested or accrued as of the
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Closing Date (using the actuarial methods and assumptions then used by
TCS in connection with the funding of such Employee Plan/Agreement).
3.15.(e) Controlled Group; Affiliated Service Group;
Leased Employees. Other than TCS and TERS, no organization is or has
been: (i) a member of a controlled group of corporations as defined in
Section 414(b) of the Code, of which TCS was a member, or (ii) under
common control, as determined under Section 414(c) of the Code, with
TCS. TCS has never been a member of an "affiliated service group"
within the meaning of Section 414(m) of the Code. There are not and
never have been any leased employees within the meaning of Section
414(n) of the Code who perform services for TCS.
3.15.(f) Payments and Compliance. With respect to
each Employee Plan/Agreement, (i) all payments due from TCS to date
have been made and all amounts properly accrued to date as liabilities
of TCS which have not been paid have been properly recorded on the
books of TCS (as appropriate) and, to the extent such liabilities were
due and payable but were not paid as of the date of the Closing
Balance Sheet, are reflected in the Closing Balance Sheet; (ii) TCS
has complied with, and each such Employee Plan/Agreement conforms in
form and operation to, all applicable laws and regulations, including
but not limited to ERISA and the Code, in all material respects and
all reports and information relating to such Employee Plan/Agreement
required to be filed with any governmental entity have been timely
filed; (iii) all reports and information relating to each such
Employee Plan/Agreement required to be disclosed or provided to
participants or their beneficiaries have been timely disclosed or
provided; (iv) each such Employee Plan/Agreement which is intended to
qualify under Section 401 of the Code has received a favorable
determination letter from the Internal Revenue Service with respect to
such qualification, its related trust has been determined to be exempt
from taxation under Section 501(a) of the Code, and nothing has
occurred since the date of such letter that has or is likely to
adversely affect such qualification or exemption; (v) there are no
actions, suits or claims pending (other than routine claims for
benefits) or threatened with respect to such Employee Plan/Agreement
or against the assets of such Employee Plan/Agreement; and (vi) no
Employee Plan/Agreement is a plan which is established and maintained
outside the United States primarily for the benefit of individuals
substantially all of whom are nonresident aliens.
3.15.(g) Post-Retirement Benefits. Other than such
continuation of benefit coverage under group health plans as is
required by applicable law, TCS does not maintain and has not
maintained retiree life or retiree health plans providing for
continuing coverage for any employee or any beneficiary of an employee
after the employee's termination of employment.
3.15.(h) No Triggering of Obligations. The
consummation of the transactions contemplated by this Agreement will
not (i) entitle any current or former employee of TCS to severance
pay, unemployment compensation or any other payment,
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except as expressly provided in this Agreement or in any of the
Ancillary Instruments, (ii) accelerate the time of payment or vesting,
or increase the amount of compensation due to any such employee or
former employee or (iii) result in any prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Code for
which an exemption is not available.
3.15.(i) Delivery of Documents. There has been
delivered to Buyer, with respect to each Employee Plan/Agreement:
(i) a copy of the annual report, if required
under ERISA, with respect to each such Employee Plan/Agreement
for the last two years;
(ii) a copy of the summary plan description,
together with each summary of material modifications, required
under ERISA with respect to such Employee Plan/Agreement, all
material employee communications relating to such Employee
Plan/Agreement, and, unless the Employee Plan/Agreement is
embodied entirely in an insurance policy to which TCS is a
party, a true and complete copy of such Employee
Plan/Agreement;
(iii) if the Employee Plan/Agreement is funded
through a trust or any third party funding vehicle (other than
an insurance policy), a copy of the trust or other funding
agreement and the latest financial statements thereof; and
(iv) the most recent determination letter received
from the Internal Revenue Service with respect to each
Employee Plan/Agreement that is intended to be a "qualified
plan" under Section 401 of the Code.
With respect to each Employee Plan/Agreement for which an annual
report has been filed and delivered to Buyer pursuant to clause (i) of
this Section 3.15.(i), no material adverse change has occurred with
respect to the matters covered by the latest such annual report since
the date thereof.
3.15.(j) Future Commitments. TCS has no announced
plan or legally binding commitment to create any additional Employee
Plans/Agreements or to amend or modify any existing Employee
Plan/Agreement except as contemplated herein or in the Employment and
Noncompetition Agreements.
3.16. Employment Compensation. A true and correct list has been
provided to Buyer of all employees to whom TCS is paying compensation, and, in
the case of salaried employees, such list identifies the current annual rate of
compensation for each employee and, in the case of hourly or commission
employees, identifies certain reasonable ranges of rates and the number of
employees falling within each such range.
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3.17. Trade Rights. Schedule 3.17 lists all Trade Rights (as
defined below) in which TCS now has any interest, specifying whether such Trade
Rights are owned, controlled, used or held (under license or otherwise) by TCS,
and also indicating which of such Trade Rights are registered. All Trade
Rights shown as registered in Schedule 3.17 have been properly registered, all
pending registrations and applications have been properly made and filed and
all annuity, maintenance, renewal and other fees relating to registrations or
applications are current. In order to conduct its Business, as such is
currently being conducted, TCS does not require any Trade Rights that it does
not already have. TCS is not infringing and has not infringed any Trade Rights
of another in the operation of its Business, nor to the best of the knowledge
of TCS or the Shareholder is any other person infringing the Trade Rights of
TCS. TCS has not granted any license or made any assignment of any Trade Right
listed on Schedule 3.17, nor does TCS pay any royalties or other consideration
for the right to use any Trade Rights of others. There is no Litigation
pending or threatened to challenge TCS's right, title and interest with respect
to its continued use and right to preclude others from using any Trade Rights
of TCS. The consummation of the transactions contemplated hereby will not
alter or impair any Trade Rights owned or used by TCS. As used herein, "Trade
Rights" shall mean and include: (i) all trademark rights, business
identifiers, trade dress, service marks, trade names and brand names, all
registrations thereof and applications therefor and all goodwill associated
with the foregoing; (ii) all copyrights, copyright registrations and copyright
applications, and all other rights associated with the foregoing and the
underlying works of authorship; (iii) all patents and patent applications, and
all international proprietary rights associated therewith; (iv) all contracts
or agreements granting any right, title, license or privilege under the
intellectual property rights of any third party; (v) all inventions, mask works
and mask work registrations, know-how, discoveries, improvements, designs,
trade secrets, shop and royalty rights, employee covenants and agreements
respecting intellectual property and non-competition and all other types of
intellectual property; and (vi) all claims for infringement or breach of any of
the foregoing.
3.18. Major Customers. Schedule 3.18 contains a list of the fifteen
(15) largest customers of TCS for each of the two (2) most recent fiscal years
(determined on the basis of the total dollar amount of net revenues
attributable thereto) showing the total dollar amount of net revenues
attributable thereto during each such year. Neither TCS nor the Shareholder
has any knowledge or information of any facts indicating, nor any other reason
to believe, that any of the customers listed on Schedule 3.18 will not continue
to be customers of TCS after the Closing at substantially the same level as
heretofore.
3.19. Bank Accounts. Schedule 3.19 sets forth the names and
locations of all banks, trust companies, savings and loan associations and
other financial institutions at which the TCS maintains a safe deposit box,
lock box or checking, savings, custodial or other account of any nature, the
type and number of each such account and the signatories therefore, a
description of any compensating balance arrangements, and the names of all
persons authorized to draw thereon, make withdrawals therefrom or have access
thereto.
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3.20. Shareholder Affiliates' Relationships to TCS. No Shareholder
Affiliate has any direct or indirect interest in (i) any entity which does
business with TCS (except for TERS) or is competitive with TCS's Business, or
(ii) any property, asset or right which is used by TCS in the conduct of its
Business.
3.21. No Brokers or Finders. Neither TCS nor any of its directors,
officers, employees, the Shareholder or agents have retained, employed or used
any broker or finder in connection with the transaction provided for herein or
in connection with the negotiation thereof.
3.22. Disclosure. No representation or warranty by TCS and/or the
Shareholder in this Agreement, nor any certificate, schedule, document or
exhibit hereto furnished or to be furnished by or on behalf of TCS or the
Shareholder pursuant to this Agreement contains any untrue statement of
material fact or omits a material fact necessary to make the statements
contained therein not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to the
Shareholder, each of which is true and correct on the date hereof, is or shall
be unaffected by any investigation heretofore or hereafter made by the
Shareholder or any notice to the Shareholder, and shall survive the Closing of
the transactions provided for herein.
4.1. Corporate.
4.1.(a) Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Florida.
4.1.(b) Corporate Power. Buyer has all requisite corporate
power to enter into this Agreement and the Ancillary Instruments and
to carry out the transactions contemplated hereby and thereby.
4.2. Authority. The execution and delivery of this Agreement and
each Ancillary Instrument that provides for its execution by Buyer and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Board of Directors of Buyer. No other corporate act or
proceeding on the part of Buyer or its shareholders is necessary to authorize
this Agreement or the Ancillary Instruments or the consummation of the
transactions contemplated hereby and thereby. This Agreement and each
Ancillary Instrument that provides for its execution by Buyer is the legal,
valid and binding obligation of Buyer, enforceable in accordance with their
respective terms, subject to the limitations contained herein, except as such
may be limited by bankruptcy, insolvency, reorganization or other laws
affecting creditors' rights generally, and by general equitable principles.
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4.3. No Brokers or Finders. Except for the engagement of Broadview
Associates, L.P. by Buyer, neither Buyer nor any of its directors, officers,
employees or agents have retained, employed or used any broker or finder in
connection with the transaction provided for herein or in connection with the
negotiation thereof. Buyer has agreed to pay all fees and expenses of
Broadview Associates, L.P. in connection with the transactions contemplated
hereby.
4.4. Disclosure. No representation or warranty by Buyer in this
Agreement, nor any statement, certificate, schedule, document or exhibit hereto
furnished or to be furnished by or on behalf of Buyer pursuant to this
Agreement or in connection with transactions contemplated hereby, contains any
untrue statement of material fact or omits a material fact necessary to make
the statements contained therein not misleading.
4.5. Investment Intent. The TCS Shares are being acquired by Buyer
for investment only and not with the view to resale or other distribution.
4.6. Approvals and Filings. No governmental approval or filing
with any federal, state or local agency is required of Buyer in order to
consummate the transactions contemplated herein; provided, however, that Buyer
shall comply with the applicable Federal securities laws and regulations of the
Securities and Exchange Commission or The Nasdaq Stock Market with respect to
the public disclosure of the consummation of these transactions and any related
filings.
5. POST-CLOSING COVENANTS
5.1. Noncompetition; Confidentiality. As an inducement to Buyer to
execute this Agreement and complete the transactions contemplated hereby, and
in order to preserve the goodwill associated with TCS's Business being acquired
pursuant to this Agreement, and in addition to and not in limitation of any
covenants contained in any agreement executed and delivered pursuant to Section
7.1.(c) hereof, the Shareholder hereby covenants and agrees as follows:
5.1.(a) Covenant Not to Compete. For a period of five (5)
years from the Closing Date, the Shareholder will not directly or
indirectly:
(i) engage in, continue in or carry on any
business which competes with, or intends to compete with, TCS
or Buyer in any aspect with respect to TCS's Business or is
substantially similar thereto, including owning or controlling
any financial interest in any person, corporation,
partnership, firm or other form of business organization which
is so engaged (a "Competing Business");
(ii) consult with, advise or assist in any way,
whether or not for consideration, any Competing Business,
including, but not limited to, advertising or otherwise
endorsing the products of any Competing Business; soliciting
customers or otherwise serving as an intermediary for any
Competing Business;
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loaning money or rendering any other form of financial
assistance to or engaging in any form of business transaction
on other than an arm's length basis with any Competing
Business;
(iii) offer employment to or solicit the employment
of an employee of TCS or Buyer, without the prior written
consent of Buyer; or
(iv) engage in any practice the purpose of which
is to evade the provisions of this covenant not to compete or
to commit any act which adversely affects TCS's Business;
provided, however, that the foregoing shall not prohibit the ownership
of securities of corporations which are listed on a national
securities exchange or traded in the national over-the-counter market
in an amount which shall not exceed 5% of the outstanding shares of
any such corporation. The parties agree that the geographic scope of
this covenant not to compete shall extend to all areas in which TCS or
Buyer conducts TCS's Business. The parties agree that Buyer may sell,
assign or otherwise transfer this covenant not to compete, in whole or
in part, to any Business that purchases all or part of TCS's Business
or Buyer.
5.1.(b) Covenant of Confidentiality. The Shareholder shall
not at any time after the Closing, except as explicitly requested by
Buyer or required by applicable Law or Order, and except in the course
of employment by TCS, (i) use for any purpose, (ii) disclose to any
person, or (iii) keep or make copies of documents, tapes, discs or
programs containing, any Confidential Information concerning TCS. For
purposes of this Agreement, "Confidential Information" shall mean and
include, without limitation, all Trade Rights in which TCS has an
interest, all customer lists and customer information, and all other
information concerning the finances, operations, processes, apparatus,
equipment, packaging, services, marketing and distribution methods of
TCS not previously disclosed to the public directly by TCS. This
covenant shall not preclude the Shareholder from disclosing to his
advisors or Government Entities financial information of TCS necessary
to prepare, file or defend any tax return or report of TCS or the
Shareholder. The parties agree that this covenant of confidentiality
shall have no geographic or temporal limitations.
5.1.(c) Equitable Relief for Violations. The Shareholder
agrees that the provisions and restrictions contained in this Section
5.1 are necessary to protect the legitimate continuing interests of
Buyer in acquiring the TCS Shares, and that any violation or breach of
these provisions will result in irreparable injury to Buyer for which
a remedy at law would be inadequate and that, in addition to any
relief at law which may be available to Buyer for such violation or
breach and regardless of any other provision contained in this
Agreement, Buyer shall be entitled to injunctive and other equitable
relief as a court may grant after considering the intent of this
Section 5.1.
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5.1.(d) Total Employee Relations Services, Inc. For purposes
of this Section 5.1, the business of Total Employee Relations
Services, Inc., as described on Schedule 5.1.(d), shall not be deemed
to be in competition with TCS, Buyer or TCS's Business.
5.2. Confidentiality of Shareholder Information. Buyer shall
promptly after Closing return to the Shareholder all originals and copies of
the personal financial statements and tax returns of the Shareholder in its
possession. Buyer has not given a copy of such statements or returns, or
disclosed the contents thereof, to any third party (other than Buyer's
independent accountants) and will continue to hold all information disclosed
thereon as strictly confidential.
5.3. Income Tax Returns and Allocation of Tax. The Shareholder
shall be responsible for the payment by TCS of all Taxes of TCS due on the cash
basis on or before the Closing Date. Buyer shall be responsible for the
payment by TCS of all Taxes of TCS accruing after the Closing Date. The
Shareholder shall cause to be prepared and timely and properly filed on behalf
of the Shareholder and TCS, all returns and filings with respect to federal,
California Taxes, or any other state with respect to which a return or filing
is required under applicable law accruing on or before the Closing Date
consistent with this Agreement. Such Taxes, returns, and filings shall be
determined by closing TCS's books and records as of and including the Closing
Date, or if the allocation of an item of income, loss, deduction, or credit
cannot be definitely allocated to an ascertainable date, such item shall be pro
rated on a daily basis. The Shareholder, TCS and Buyer shall cooperate, and
shall cause their respective affiliates, officers, employees, agents, auditors
and representatives to cooperate, in preparing and filing all returns, reports,
and forms relating to Taxes, including maintaining and making available to each
other all records necessary in connection with Taxes and in resolving all
disputes and audits with respect to all taxable periods relating to Taxes.
5.4. Resale Restriction. For a period of two (2) years after the
Closing Date, the Shareholder shall not, directly or indirectly, offer, sell,
transfer, pledge, contract to sell, transfer or pledge, or cause or in any way
permit to be sold, transferred, pledged or otherwise disposed of, any of the
Buyer Shares without the prior written consent of Buyer. In connection
herewith, the Shareholder agrees that during the two (2) year period, the Buyer
may place stop transfer instructions with the Company's transfer agent for the
securities.
5.5. Rule 144 Compliance. Buyer shall file such information,
documents and reports as shall hereafter be required by the Securities and
Exchange Commission as a condition to the availability of Rule 144 under the
Securities Act of 1933, as amended, with respect to the Buyer Shares.
6. INDEMNIFICATION
6.1. By the Shareholder. Subject to the terms and conditions of
this Article 6, the Shareholder hereby agrees to indemnify, defend and hold
harmless Buyer, its directors, officers and employees (hereinafter "Buyer's
Affiliates") and TCS, its directors, officers and employees
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from and against all Claims (as hereinafter defined) asserted against,
resulting to, imposed upon, or incurred by Buyer, Buyer's Affiliates or TCS,
directly or indirectly, by reason of, arising out of or resulting from (a) the
inaccuracy or breach of any representation or warranty of the Shareholder
contained in this Agreement, (b) the breach of any covenant by the Shareholder
contained in this Agreement, (c) any dispute involving, or Claim made by, any
current or former shareholder of TCS (other than the Shareholder), or (d) any
matter disclosed in Schedule 3.9. As used in this Article 6, "Claim" shall
mean and include (i) all debts, liabilities and obligations; (ii) all losses,
damages (but excluding consequential damages), judgments, awards, settlements,
costs and expenses (including, without limitation, interest (including
prejudgment interest in any litigated matter), penalties, court costs and
attorneys' fees and expenses); and (iii) all demands, claims, suits, actions,
costs of investigation, causes of action, proceedings and assessments, in each
case after deduction of any insurance recovery that is remitted to the
Indemnified Party (as hereinafter defined) as a result of any of the foregoing.
6.2. By Buyer. Subject to the terms and conditions of this Article
6, Buyer hereby agrees to indemnify, defend and hold harmless the Shareholder
and his heirs and personal representatives from and against all Claims asserted
against, resulting to, imposed upon or incurred by any such person, directly or
indirectly, by reason of or resulting from (a) the inaccuracy or breach of any
representation or warranty of Buyer contained in or made pursuant to this
Agreement, or (b) the breach of any covenant of Buyer contained in this
Agreement.
6.3. Indemnification of Third-Party Claims. The obligations and
liabilities of any party to indemnify any other under this Article 6 with
respect to Claims relating to third parties shall be subject to the following
terms and conditions:
6.3.(a) Notice and Defense. The party or parties to be
indemnified (whether one or more, the "Indemnified Party") will give
the party or parties from whom indemnification is sought (whether one
or more, the "Indemnifying Party") prompt written notice of any Claim,
and the Indemnifying Party will have the right to undertake the
defense thereof by representatives chosen by it. The Indemnified
Party shall make available to the Indemnifying Party or its
representatives all records and other materials required by the
Indemnifying Party in connection with such Claim and in the possession
or under the control of the Indemnified Party, for the use of the
Indemnifying Party and its representatives in prosecuting the defense
of any such Claim, and the Indemnified Party shall be entitled to
participate in the defense of such Claim. Subject to the provisions
of Sections 6.3.(b) and 6.3.(c) hereof, if the defense of such Claim
is assumed by the Indemnifying Party, and (except for a Claim based
upon any matter disclosed in Schedule 3.9 in which case no such
approval shall be necessary) upon approval by the Indemnified Party of
counsel selected by the Indemnifying Party, the Indemnifying Party
shall have no liability for any compromise or settlement of such Claim
without its written consent.
6.3.(b) Failure to Defend. If the Indemnifying Party, within
a reasonable time after notice of any such Claim, fails to assume the
defense of such Claim actively
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and in good faith, the Indemnified Party will (upon further notice)
have the right to undertake the defense, compromise or settlement of
such Claim or consent to the entry of a judgment with respect to such
Claim, on behalf of and for the account of and risk of the
Indemnifying Party, and the Indemnifying Party shall thereafter have
no right to challenge the Indemnified Party's defense, compromise,
settlement or consent to judgment therein.
6.3.(c) Indemnified Party's Rights. Anything in this Article
6 to the contrary notwithstanding, (i) except for a Claim based upon
any matter disclosed in Schedule 3.9, if there is a reasonable
probability that a Claim may materially and adversely affect the
Indemnified Party other than as a result of money damages or other
money payments, the Indemnified Party shall have the right to defend
and, with the consent of the Indemnifying Party (which shall not be
unreasonably withheld), to compromise or settle such Claim, and (ii)
the Indemnifying Party shall not, without the written consent of the
Indemnified Party, settle or compromise any Claim or consent to the
entry of any judgment which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Indemnified
Party of a release from all liability in respect of such Claim.
6.4. Payment. The Indemnifying Party shall promptly pay the
Indemnified Party any amount due under this Article 6. Upon judgment,
determination, settlement or compromise of any third party Claim, the
Indemnifying Party shall pay promptly on behalf of the Indemnified Party,
and/or to the Indemnified Party in reimbursement of any amount theretofore
required to be paid by it, the amount so determined by judgment, determination,
settlement or compromise and all other Claims of the Indemnified Party with
respect thereto, unless in the case of a judgment an appeal is made from the
judgment, provided that any such amount is required to be paid by the
Indemnifying Party under this Article 6. If the Indemnifying Party desires to
appeal from an adverse judgment, then the Indemnifying Party shall post and pay
the cost of the security or bond to stay execution of the judgment pending
appeal. Upon the payment in full by the Indemnifying Party of such amounts,
the Indemnifying Party shall succeed to the rights of such Indemnified Party,
to the extent not waived in settlement, against the third party who made such
third party Claim.
6.5. No Waiver. The closing of the transactions contemplated by
this Agreement shall not constitute a waiver by any party of its rights to
indemnification hereunder, regardless of whether the party seeking
indemnification has knowledge of the breach, violation or failure of condition
constituting the basis of the Claim at or before the Closing.
6.6. Limitations on Indemnification. Except for any willful and
knowing breach or misrepresentation, as to which a claim for indemnification
hereunder may be brought without limitation as to time or amount:
6.6.(a) Time Limitation. No claim for indemnification shall
be brought under Section 6.1 of this Article 6 for the inaccuracy or
breach of a representation or warranty,
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or the breach of any covenant, contained in or made pursuant to this
Agreement unless the nature of such claim for indemnification has been
described in reasonable detail in a written notice provided by an
Indemnified Party to an Indemnifying Party prior to the second
anniversary of the Closing Date; provided, however, that with respect
to any Claim that arises out of or is related to any dispute involving,
or Claim made by, any current or former shareholder of TCS (other than
the Shareholder), or Sections 3.1 (Corporate), 3.2 (The Shareholder),
3.5 (Tax Matters), 3.9 (Litigation), 3.15 (Employee Benefit Plans), 5.1
(Noncompetition; Confidentiality) and 5.3 (Income Tax Returns and
Allocation of Tax) hereof, such time shall extend to the expiration of
the applicable statute of limitations for any such Claim, and with
respect to any Claim that arises out of or is related to Section
3.10(c) (Environmental Matters), such Claim shall be made or described
in reasonable detail in a written notice provided by an Indemnified
Party to an Indemnifying Party prior to the fifth anniversary of the
Closing Date.
6.6.(b) Amount Limitation. An Indemnified Party shall be
entitled to indemnification under Section 6.1 of this Article 6 for the
inaccuracy or breach of a representation or warranty, or breach of a
covenant, contained in or made pursuant to this Agreement, unless the
aggregate of all of the Indemnifying Parties' indemnification
obligations to the Indemnified Party pursuant to this Article 6 (but
for this Section 6.6.(b)) exceeds $40,000; provided, that in the event
of aggregate indemnification obligations in excess of such amount, the
Indemnified Party shall be entitled to indemnification in full under
this Agreement, and provided, further, that any indemnification payment
made with respect to any dispute involving, or Claim made by, any
current or former shareholder of TCS (other than the Shareholder) or
any matter disclosed in Schedule 3.9 shall not be included in such
$40,000 threshold. Notwithstanding the preceding sentence, the
limitation on indemnification under this Section 6.6.(b) shall not
apply to any dispute involving, or Claim made by, any current or former
Shareholder of TCS (other than the Shareholder), or matter disclosed in
Schedule 3.9.
6.6.(c) Aggregate Amount Limitation for the Shareholder.
Notwithstanding any provision of this Article 6 to the contrary, the
aggregate amount of the indemnification obligations of the Shareholder
pursuant to Section 6.1 of this Article 6 shall not exceed the
lesser of (i) $3,800,000 or (ii) the Buyer Shares including, if sold,
the proceeds received from the sale of the Buyer Shares.
6.7. Indemnification - Exclusive Remedy. The provisions of this
Article 6 shall constitute the exclusive remedy for any claim based upon the
subject matter of the indemnification undertakings in Section 6.1 and 6.2.
7. CLOSING
The closing of this transaction ("the Closing") shall occur concurrent
with the execution of this Agreement effective as of 12:01 A.M. on February 1,
1996. Such date is referred to in this Agreement as the "Closing Date".
25
<PAGE> 30
7.1. Documents Delivered by TCS and the Shareholders. At the
Closing, TCS and the Shareholder shall deliver to Buyer the following
documents, in each case duly executed or otherwise in proper form:
7.1.(a) Stock Certificates. Stock certificates representing
the TCS Shares, duly endorsed for transfer or with duly executed stock
powers attached.
7.1.(b) Opinion of Counsel. A written opinion of Joy &
Associates, counsel to TCS and the Shareholder, dated as of the
Closing Date, addressed to Buyer.
7.1.(c) Certified Resolutions. Certified copies of the
resolutions of the Board of Directors and the shareholders of TCS,
authorizing and approving this Agreement and the Ancillary
Instruments, and the consummation of the transactions contemplated
hereby and thereby.
7.1.(d) Articles; Bylaws. A copy of the Bylaws of TCS
certified by its secretary, and a copy of the Certificate of
Incorporation of TCS, certified as of a recent date by the Secretary
of State of the state of incorporation of TCS, and good standing
certificates, certified as of a recent date by the Secretary of State
of such state and all other states in which TCS is qualified to do
business.
7.1.(e) Incumbency Certificate. Incumbency certificates
relating to each person executing (as a corporate officer or otherwise
on behalf of another person) any document executed and delivered to
Buyer pursuant to the terms hereof.
7.1.(f) Estoppel Certificates. An estoppel
certificate from the landlord under each lease of Real Property which
estoppel certificate certifies that: (i) the lease is valid and in
full force and effect; (ii) the amounts payable by TCS under the lease
and the date to which the same have been paid; (iii) whether there
are, to the knowledge of said landlord, any defaults thereunder, and,
if so, specifying the nature thereof; and (iv) a statement that the
transactions contemplated by this Agreement will not constitute a
default under the lease.
7.1.(g) Closing Date Balance Sheet. A balance sheet of TCS
as of the Closing Date indicating that (i) the net worth of TCS set
forth on Schedule 7.1.(g) based on the accrual method of accounting is
at least $139,400, (ii) the cash in the general checking account is at
least $4,200, (iii) the liabilities of TCS associated with COBRA
payables are equal to or less than the cash and cash equivalents of
TCS, and (iv) the Shareholder and any Shareholder Affiliate do not
have any outstanding indebtedness owed to TCS.
7.2. Documents Delivered by Buyer. At the Closing, Buyer shall
deliver to the Shareholder the following, in each case duly executed or
otherwise in proper form:
26
<PAGE> 31
7.2.(a) Stock Certificates. A letter addressed to the
Buyer's Transfer Agent authorizing the Transfer Agent to issue and
deliver the Buyer Shares to the Shareholder.
7.2.(b) Opinion of Counsel. A written opinion of Foley &
Lardner, counsel to Buyer, dated as of the Closing Date, addressed to
TCS.
7.2.(c) Certified Resolutions. A certified copy of the
resolutions of the Board of Directors of Buyer authorizing and
approving this Agreement and the consummation of the transactions
contemplated hereby.
7.2.(d) Incumbency Certificate. Incumbency certificates
relating to each person executing any document executed and delivered
to TCS or the Shareholder by Buyer pursuant to the terms hereof.
8. RESOLUTION OF DISPUTES
8.1. Arbitration. Any dispute, controversy or claim arising out of
or relating to this Agreement, any Ancillary Instrument or any contract or
agreement entered into pursuant hereto, or arising out of or relating to the
performance by the parties of its or their terms, shall be settled by binding
arbitration held in the county and state of the party defending any such action
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect, except as specifically otherwise provided in this
Article 8. Notwithstanding the foregoing, Buyer may, in its discretion, apply
to a court of competent jurisdiction for equitable relief from any violation or
threatened violation of the covenants of the Shareholder under Article 5 of
this Agreement, or any covenants not to compete contained in the Consulting and
Noncompetition Agreement.
8.2. Arbitrators. The panel to be appointed shall consist of three
neutral arbitrators.
8.3. Procedures; No Appeal. The arbitrators shall allow such
discovery as the arbitrators determine appropriate under the circumstances and
shall resolve the dispute as expeditiously as practicable, and if reasonably
practicable, within 120 days after the selection of the arbitrators. The
arbitrators shall give the parties written notice of the decision, with the
reasons therefor set out, and shall have 30 days thereafter to reconsider and
modify such decision if any party so requests within 10 days after the
decision. Thereafter, the decision of the arbitrators shall be final, binding,
and nonappealable with respect to all persons, including (without limitation)
persons who have failed or refused to participate in the arbitration process.
8.4. Authority. The arbitrators shall have authority to award
relief under legal or equitable principles, including interim or preliminary
relief. Unless the arbitrators find that exceptional circumstances require
otherwise, the arbitrators will include in the award the prevailing party's
costs of arbitration and reasonable attorneys' fees.
27
<PAGE> 32
8.5. Entry of Judgment. Judgment upon the award rendered by the
arbitrators may be entered in any court having in personam and subject matter
jurisdiction. Buyer and the Shareholder hereby submit to the in personam
jurisdiction of the Federal and State courts in California and Florida, for the
purpose of confirming any such award and entering judgment thereon.
8.6. Confidentiality. All proceedings under this Article 8, and
all evidence given or discovered pursuant hereto, shall be maintained in
confidence by all parties.
8.7. Continued Performance. The fact that the dispute resolution
procedures specified in this Article 8 shall have been or may be invoked shall
not excuse any party from performing its obligations under this Agreement and
during the pendency of any such procedure all parties shall continue to perform
their respective obligations in good faith.
8.8. Tolling. All applicable statutes of limitation shall be
tolled while the procedures specified in this Article 8 are pending. The
parties will take such action, if any, required to effectuate such tolling.
9. MISCELLANEOUS
9.1. Disclosure Schedule. The Schedules described herein have been
compiled in a bound volume (the "Disclosure Schedule"), executed by TCS and the
Shareholder and dated and delivered to Buyer on the Closing Date. The
Disclosure Schedule includes a table of contents and/or index to all of the
information and documents contained therein. The Disclosure Schedule shall not
vary, change or alter the language of the representations and warranties
contained in this Agreement and, to the extent the language in the Disclosure
Schedule does not conform in every respect to the language of such
representations and warranties, such language in the Disclosure Schedule shall
be disregarded and be of no force or effect.
9.2. Further Assurance. From time to time, at Buyer's request and
without further consideration, TCS and the Shareholder will execute and deliver
to Buyer such documents and take such other action as Buyer may reasonably
request in order to consummate more effectively the transactions contemplated
hereby.
9.3. Disclosures and Announcements. Announcements concerning the
transactions provided for in this Agreement by Buyer, TCS or the Shareholder
shall be subject to the approval of the other parties in all essential
respects, except that approval of TCS or the Shareholder shall not be required
as to any statements and other information which Buyer may submit to the
Securities and Exchange Commission, The Nasdaq Stock Market ("Nasdaq") or
Buyer's shareholders as required pursuant to any rule or regulation of the
Securities and Exchange Commission, Nasdaq or applicable law.
28
<PAGE> 33
9.4. Assignment; Parties in Interest.
9.4.(a) Assignment. Except as expressly provided herein, the
rights and obligations of a party hereunder may not be assigned,
transferred or encumbered without the prior written consent of the
other parties. Notwithstanding the foregoing, Buyer may, without
consent of any other party, cause one or more subsidiaries of Buyer to
carry out all or part of the transactions contemplated hereby;
provided, however, that Buyer shall, nevertheless, remain liable for
all of its obligations, and those of any such subsidiary, to the
Shareholder hereunder.
9.4.(b) Parties in Interest. This Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the respective
successors and permitted assigns of the parties hereto. Nothing
contained herein shall be deemed to confer upon any other person
(besides the parties hereto) any right or remedy under or by reason of
this Agreement.
9.5. Law Governing Agreement. This Agreement may not be modified
or terminated orally, and shall be construed and interpreted according to the
laws of the State of Florida, excluding its conflicts of law rules.
9.6. Amendment and Modification. Buyer and the Shareholder may
amend, modify and supplement this Agreement in such manner as may be agreed
upon in writing between Buyer and the Shareholder.
9.7. Notice. All notices, requests, demands and other
communications hereunder shall be given in writing and shall be: (a)
personally delivered; (b) sent by telecopier, facsimile transmission or other
electronic means of transmitting written documents; or (c) sent to the parties
at their respective addresses indicated herein by registered or certified U.S.
mail, return receipt requested and postage prepaid, or by private overnight
mail courier service. The respective addresses to be used for all such
notices, demands or requests are as follows:
(a) If to Buyer, to:
ABR Information Services, Inc.
34125 U.S. Highway 19, North
Palm Harbor, FL 34684-2116
Attention: Mr. Vincent Addonisio,
Senior Vice President and
Chief Financial Officer
Facsimile: (813) 789-3854
29
<PAGE> 34
(with a copy to)
Foley & Lardner
100 North Tampa Street
Suite 2700
Tampa, Florida 33602
Attn: Kenneth J. Meister, Esq.
Facsimile: (813) 221-4210
or to such other person or address as Buyer shall furnish to the Shareholder in
writing.
(b) If to the Shareholder, to:
John M. Hermann
13312 Tiburon Way
Tustin, California 92680
Facsimile: (714) 730-1509
(with a copy to)
Joy & Associates
18400 Von Karman Avenue
Suite 580
Irvine, California 92715
Attn: Jeffrey C. Joy, Esq.
Facsimile: (714) 252-8959
or to such other person or address as the Shareholder shall designate in
writing.
(c) If to TCS, to Buyer as specified above.
If personally delivered, such communication shall be deemed delivered
upon actual receipt; if electronically transmitted pursuant to this paragraph,
such communication shall be deemed delivered the next business day after
transmission (and sender shall bear the burden of proof of delivery); if sent
by overnight courier pursuant to this paragraph, such communication shall be
deemed delivered upon receipt; and if sent by U.S. mail pursuant to this
paragraph, such communication shall be deemed delivered as of the date of
delivery indicated on the receipt issued by the relevant postal service, or, if
the addressee fails or refuses to accept delivery, as of the date of such
failure or refusal. Any party to this Agreement may change its address for the
purposes of this Agreement by giving notice thereof in accordance with this
Section.
30
<PAGE> 35
9.8. Expenses.
9.8.(a) Brokerage. Except as provided in Section 4.3 hereof,
the Shareholder and Buyer each represent and warrant to each other
that there is no broker involved or in any way connected with the
transfer provided for herein on their behalf respectively (and the
Shareholder represents and warrants that there is no broker involved
on behalf of TCS) and each agrees to hold the other harmless from and
against all other claims for brokerage commissions or finder's fees in
connection with the execution of this Agreement or the transactions
provided for herein.
9.8.(b) Expenses to be Paid by the Shareholder. The
Shareholder shall pay, and shall indemnify, defend and hold Buyer and
TCS harmless from and against, each of the following:
(i) Transfer Taxes. Any sales, use, excise,
transfer or other similar tax imposed with respect to the
transactions provided for in this Agreement, and any interest
or penalties related thereto.
(ii) Professional Fees. All fees and expenses of
his own, as well as TCS's, legal, accounting, investment
banking and other professional counsel in connection with the
transactions contemplated hereby; provided, however, that TCS
and Buyer shall be obligated to pay fees incurred by the
Shareholder's professional advisors up to $9,000 in the
aggregate.
9.8.(c) Other. Except as otherwise provided herein, each of
the parties shall bear its own expenses and the expenses of its
counsel and other agents in connection with the transactions
contemplated hereby.
9.8.(d) Costs of Litigation or Arbitration. The parties
agree that (subject to the discretion, in an arbitration proceeding,
of the arbitrators as set forth in Section 8.4) the prevailing party
in any action brought with respect to or to enforce any right or
remedy under this Agreement shall be entitled to recover from the
other party or parties all reasonable costs and expenses of any nature
whatsoever incurred by the prevailing party in connection with such
action, including, without limitation, reasonable attorneys' fees and
prejudgment interest.
9.9. Entire Agreement. This instrument embodies the entire
agreement between the parties hereto with respect to the transactions
contemplated herein, and there have been and are no prior or contemporaneous
agreements, representations or warranties between the parties other than those
set forth or provided for herein.
9.10. Severability. In the event that any provision of this
Agreement shall be held to be invalid or unenforceable for any reason by a
court of competent jurisdiction, the remaining provisions of this Agreement
shall continue in full force and effect as though the invalid or
31
<PAGE> 36
unenforceable provisions had not been included herein. Notwithstanding the
foregoing, in the event that any provision relating to the duration or scope of
any covenant or restriction contained herein shall be declared by a court of
competent jurisdiction to exceed the maximum time period and/or scope of
restriction, such provision shall be deemed to become, and thereafter shall be
equal to, the maximum duration and/or scope of restriction deemed enforceable
by said court.
9.11. Gender. Whenever the context requires, words used in the
singular shall be construed to mean or include the plural and vice versa, and
pronouns of any gender shall be deemed to include and designate the masculine,
feminine or neuter gender.
9.12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.13. Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
BUYER:
ABR INFORMATION SERVICES, INC.
By: /s/ Vincent Addonisio
------------------------------------------
Vincent Addonisio,
Senior Vice President and
Chief Financial Officer
THE SHAREHOLDER:
/s/ John M. Hermann
------------------------------------------
John M. Hermann
TCS:
TOTAL COBRA SERVICES
By: /s/ John M. Hermann
------------------------------------------
John M. Hermann
President
32
<PAGE> 1
EXHIBIT 10.13
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 28, 1996
BY AND AMONG
ABR INFORMATION SERVICES, INC.
("ABR"),
LP BAIER COMPANY
("LP BAIER"), AND
LP BAIER'S SHAREHOLDERS
(THE "SHAREHOLDERS").
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. TRANSFER AND ISSUANCE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2. Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. SECURITIES ACT PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1. Restrictions on Disposition of ABR Shares . . . . . . . . . . . . . . . . . . 2
2.2. Evidence of Compliance with Private Offering Exemption . . . . . . . . . . . . 2
2.3. Notice of Limitation Upon Disposition . . . . . . . . . . . . . . . . . . . . 3
3. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF
LP BAIER AND THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1. Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2. The Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6. Accounts Receivable and COBRA Payables . . . . . . . . . . . . . . . . . . . . 7
3.7. Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.8. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . 8
3.9. No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.10. Compliance With Laws and Orders . . . . . . . . . . . . . . . . . . . . . . . 9
3.11. Title to and Condition of Properties . . . . . . . . . . . . . . . . . . . . . 10
3.12. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.13. Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.14. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.15. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.16. Employment Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.17. Trade Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.18. Major Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.19. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.20. Shareholder Affiliates' Relationships to LP Baier . . . . . . . . . . . . . . 18
3.21. No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.22. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4. REPRESENTATIONS AND WARRANTIES OF ABR . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1. Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.2. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.3. No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.4. Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.5. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.6. Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7. Approvals and Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5. POST-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1. Noncompetition; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 20
5.2. Income Tax Returns and Allocation of Tax . . . . . . . . . . . . . . . . . . . 21
5.3. Restriction on Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.4. Rule 144 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.1. By the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.2. By ABR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.3. Indemnification of Third-Party Claims . . . . . . . . . . . . . . . . . . . . 23
6.4. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.5. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6. Limitations on Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 24
6.7. Indemnification - Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . 25
7. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1. Documents Delivered by LP Baier and the Shareholders . . . . . . . . . . . . . 25
7.2. Documents Delivered by ABR . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8. RESOLUTION OF DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.1. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.2. Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.3. Procedures; No Appeal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5. Entry of Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.7. Continued Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.8. Tolling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.1. Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.2. Further Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.3. Disclosures and Announcements . . . . . . . . . . . . . . . . . . . . . . . . 28
9.4. Assignment; Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . 28
9.5. Law Governing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.6. Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.7. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.8. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.9. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.11. Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.12. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.13. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
ii
<PAGE> 4
<TABLE>
DISCLOSURE SCHEDULES
--------------------
<S> <C> <C>
Schedule 3.1.(c) - Foreign Corporation Qualification
Schedule 3.1.(e) - Director/Officer List
Schedule 3.1.(f) - Capitalization
Schedule 3.3 - Violation, Conflict, Default
Schedule 3.5.(a) - Provision for Taxes
Schedule 3.5.(b) - Tax Returns (Exceptions to Representations)
Schedule 3.5.(c) - Tax Audits
Schedule 3.6 - Accounts Receivable (Aged Schedule)
Schedule 3.7 - Certain Changes
Schedule 3.8 - Off-Balance Sheet Liabilities
Schedule 3.9 - Litigation Matters
Schedule 3.10.(a) - Non-Compliance with Laws
Schedule 3.10.(b) - Licenses and Permits
Schedule 3.10.(c) - Environmental Matters (Exceptions to Representations)
Schedule 3.11.(a) - Liens
Schedule 3.11.(c) - Real Property Occupied
Schedule 3.12 - Insurance
Schedule 3.13.(b) - Personal Property Leases
Schedule 3.13.(e) - Powers of Attorney
Schedule 3.13.(f) - Collective Bargaining Agreements
Schedule 3.13.(g) - Loan Agreements, etc.
Schedule 3.13.(h) - Guarantees
Schedule 3.13.(k) - Material Contracts
Schedule 3.14 - Labor Matters
Schedule 3.15.(a) - Employee Plans/Agreements
Schedule 3.17 - Trade Rights
Schedule 3.18 - Major Customers
Schedule 3.19 - Bank Accounts
Schedule 3.20 - Shareholder Affiliates' - Relationships to LP Baier
Schedule 7.1.(g) - Closing Date Balance Sheet
EXHIBITS
--------
Exhibit A - Employment Agreement
Exhibit B - Registration Rights Agreement
</TABLE>
iii
<PAGE> 5
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") dated as
of June 28, 1996, is by and among ABR INFORMATION SERVICES, INC, a Florida
corporation ("ABR"), THE LP BAIER COMPANY, a Virginia corporation ("LP Baier"),
and the shareholders whose signatures appear on the signature page(s) hereto
(the "Shareholders").
RECITALS
1. LP Baier is engaged in the business of providing
employee benefits administration services, including, without limitation,
administration, record-keeping and compliance of flexible spending accounts,
qualified plans, payroll processing and other employee benefit programs and
compliance with COBRA health benefits (the "Business").
2. The Shareholders other than Rick Snyder have been
granted rights to acquire capital stock of LP Baier upon the sale of LP Baier,
which capital stock shall be issued to such Shareholders in connection with and
immediately prior to the transaction contemplated hereby and shall be deemed to
be issued and outstanding for the purposes of this Agreement.
3. The Shareholders own all of the issued and
outstanding shares of capital stock of LP Baier (the "Shares").
4. ABR desires to acquire all of the Shares from the
Shareholders solely in exchange for shares of voting common stock, $.01 par
value per share, of ABR (the "Common Stock"), upon the terms and conditions
herein set forth.
5. For federal income tax purposes, it is intended that
the transaction contemplated hereby will constitute a reorganization within the
meaning of Section 368(a)(1)(B) (a "B Reorganization") of the Internal Revenue
Code of 1986, as amended (the "Code").
6. For financial accounting purposes, it is intended
that the transaction contemplated hereby be accounted for as a "pooling."
AGREEMENT
NOW THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
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1. TRANSFER AND ISSUANCE OF SHARES
1.1. Transfer of Shares. Subject to the terms and conditions of
this Agreement, at the Closing (as defined in Section 7), the Shareholders
shall transfer to ABR all of the Shareholders' right, title and interest in and
to all of the Shares.
1.2. Issuance of Shares. At the Closing and in exchange for the
Shares, ABR shall issue and deliver to the Shareholders a number of validly
issued, fully paid and nonassessable shares of Common Stock which, when
multiplied by the average closing per share sales price of the Common Stock on
The Nasdaq Stock Market for the thirty (30) trading days prior to the day
before the Closing Date (as defined herein) (the "Issue Price"), results in an
aggregate value of $8.0 million (the "ABR Shares"). In the event that the
issued and outstanding shares of Common Stock shall have been changed into a
different number of shares as a result of a stock split, reverse stock split,
stock dividend, recapitalization, reclassification, reorganization, merger or
other similar transaction with a record date within the 30 trading day period
described above, the average closing per share sales price to calculate the
Issue Price shall be adjusted accordingly in order for the ABR Shares, if
delivered after such record date, to be adjusted accordingly. Any fractional
shares resulting from such computation shall be eliminated by rounding upward
to the nearest whole share.
2. SECURITIES ACT PROVISIONS
2.1. Restrictions on Disposition of ABR Shares. Each of the
Shareholders covenants and warrants that the ABR Shares to be received pursuant
to this Agreement are acquired for each of their own account and not with the
present view towards the distribution thereof and he or she will not dispose of
the ABR Shares except (i) pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "Act"), or (ii) in any other
transaction which, in the reasonable opinion of counsel acceptable to ABR, is
exempt from registration under the Act or the rules and regulations of the
Securities and Exchange Commission thereunder, including, without limitation,
Rule 144 under the Act. In order to effectuate the covenants of this
subsection 2.1, an appropriate endorsement will be placed on the certificate
evidencing the ABR Shares at the time of distribution of such shares by ABR
pursuant to this Agreement, and stop transfer instructions shall be placed with
the transfer agent for the securities. A substitute certificate shall be
promptly delivered to the Shareholders removing such endorsement from those ABR
Shares which have been registered pursuant to an effective registration
statement under the Act and ABR shall remove any stop transfer instructions
with the transfer agent regarding such ABR Shares.
2.2. Evidence of Compliance with Private Offering Exemption. Each
of the Shareholders represents to ABR that he or she or his or her
representative has the financial sophistication to assess the merits and risks
of the transaction contemplated hereby and agrees to supply ABR with such items
as counsel for ABR may require in order to evidence the private offering
character of the distribution of the ABR Shares made pursuant to this
Agreement.
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2.3. Notice of Limitation Upon Disposition. The Shareholders are
aware that the ABR Shares distributed to them will not have been registered
pursuant to the Securities Act of 1933, as amended; therefore, under current
interpretations and applicable rules, except as provided in the Registration
Rights Agreement (as defined in Section 7.2(e) hereof), the Shareholders will
be required to retain such shares for a period of at least two (2) years
following the Closing Date and, at the expiration of such two (2) year period,
sales of the ABR Shares may be confined to brokerage transactions of limited
amounts requiring certain notification filings with the Securities and Exchange
Commission and such disposition may be available only if ABR is current in its
filings with the Securities and Exchange Commission under the Act, and the
other limitations imposed by the rules of the Securities and Exchange
Commission on the disposition of the ABR Shares.
3. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF LP BAIER AND THE
SHAREHOLDERS
LP Baier and the Shareholders make the following representations and
warranties to ABR with respect or related to, or concerning, LP Baier, each of
which is true and correct on the date hereof, is or shall be unaffected by any
investigation heretofore or hereafter made by ABR, or any of ABR's agents or
representatives, or any knowledge of ABR, its agents or representatives other
than as specifically disclosed in the Disclosure Schedules delivered to ABR at
the time of the execution of this Agreement, and shall survive the Closing of
the transactions provided for herein. The representations and warranties of LP
Baier and the Shareholders hereunder shall be joint and several except for the
representations in Section 3.2. with respect solely to each of the
Shareholders, and any representations to the "knowledge" of LP Baier or the
Shareholders, which shall be deemed made separately by LP Baier or the
Shareholders, as the case may be. For purposes of this Agreement including
without limitation Section 4, each of LP Baier, the Shareholders and ABR shall
be deemed to have knowledge of the subject matter of any representation or
warranty if the Shareholders has actual knowledge thereof.
3.1. Corporate.
3.1.(a) Organization. LP Baier is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Virginia.
3.1.(b) Corporate Power; Validity. LP Baier has all
requisite corporate power and authority to own, operate and lease its
properties and to carry on the Business as and where such is now being
conducted. LP Baier has full power, legal right and authority to
enter into, execute and deliver this Agreement and the other
agreements, instruments and documents contemplated hereby and
delivered on the date hereof (such other documents are sometimes
referred to herein as "Ancillary Instruments"), and to carry out the
transactions contemplated hereby and thereby. This Agreement and each
Ancillary Instrument that provides for its execution by LP Baier has
been duly and validly executed and delivered by LP Baier.
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3.1.(c) Qualification. LP Baier is duly licensed or
qualified to do business as a foreign corporation, and is in good
standing, in each jurisdiction wherein the character of the properties
owned or leased by it, or the nature of the Business, makes such
licensing or qualification necessary except where failure to be so
qualified or licensed would not have a material adverse effect on the
financial condition or results of operations of LP Baier. The states
in which LP Baier is licensed or qualified to do business are listed
in Schedule 3.1.(c).
3.1.(d) No Subsidiaries. LP Baier does not own, directly or
indirectly, any capital stock or other equity securities of any
corporation or maintain any direct or indirect equity or other
ownership interest in any entity or business.
3.1.(e) Corporate Documents, etc. The copies of the articles
or certificate of incorporation and bylaws of LP Baier, as amended or
restated (hereinafter, "Certificate of Incorporation" and "Bylaws,"
respectively), which have been delivered to ABR are true, correct and
complete copies of such instruments as presently in effect. The
corporate minute books and stock record books of LP Baier which have
been furnished to ABR for inspection are true, correct and complete
and accurately reflect all meetings held of, and corporate action
taken by, the shareholders and Board of Directors of LP Baier. The
duly elected and qualified directors and officers of LP Baier are
listed in Schedule 3.1.(e).
3.1.(f) Capitalization. The authorized capital stock of LP
Baier consists entirely of 5,000 shares of Common Stock. No shares of
such capital stock are issued or outstanding except for 1,851.85
shares of voting Common Stock which are owned of record and
beneficially by the Shareholders as set forth on Schedule 3.1.(f).
All such shares of capital stock of LP Baier are validly issued, fully
paid and nonassessable. There are no (a) securities convertible into
or exchangeable for any of LP Baier's capital stock or other
securities, (b) options, warrants or other rights to purchase or
subscribe to capital stock or other securities of LP Baier or
securities which are convertible into or exchangeable for capital
stock or other securities of LP Baier, or (c) contracts, commitments,
agreements, understandings or arrangements of any kind relating to the
issuance, sale or transfer of any capital stock or other equity
securities of LP Baier, any such convertible or exchangeable
securities or any such options, warrants or other rights.
3.2. The Shareholders.
3.2.(a) Power. Each of the Shareholders has full power,
legal right and authority to enter into, execute and deliver this
Agreement and the Ancillary Instruments to which the Shareholders are
a party and to carry out the transactions contemplated hereby and
thereby.
3.2.(b) Validity. This Agreement and each Ancillary
Instrument that provides for its execution by the Shareholders have
been duly and validly executed and
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delivered by the Shareholders and is the legal, valid and binding
obligation of the Shareholders, enforceable in accordance with their
terms, subject to the limitations contained herein, and except as such
may be limited by bankruptcy, insolvency, reorganization or other laws
affecting creditors' rights generally, and by general equitable
principles.
3.2.(c) Title. The Shareholders are transferring good and
valid title to the Shares to be transferred by the Shareholders
hereunder, free and clear of all Liens (as defined in Section 3.12),
including, without limitation, voting trusts or agreements, proxies,
marital or community property interests.
3.3. No Violation. Except as set forth on Schedule 3.3, neither
the execution and delivery of this Agreement or the Ancillary Instruments nor
the consummation by LP Baier and the Shareholders of the transactions
contemplated hereby and thereby (a) violates in any material respect any
currently existing statute, law, ordinance, rule or regulation (collectively,
"Laws") or any currently existing order, writ, injunction, judgment, plan or
decree (collectively, "Orders") of any court, arbitrator, department,
commission, board, bureau, agency, authority, instrumentality or other body,
whether federal, state, municipal, foreign or other (collectively, "Government
Entities"), (b) requires any authorization, consent, approval, exemption or
other action by or notice to any Government Entity (including, without
limitation, under any "plant-closing" or similar law assuming, for this
purpose, that ABR will cause LP Baier after the Closing not to take any action
that would result in a violation of such law), or (c) subject to obtaining the
consents referred to in Schedule 3.3, violates or conflicts with, or
constitutes a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, or results in the termination of, or
accelerates the performance required by, or results in the creation of any Lien
upon any of the assets of LP Baier (or the Shares) under, any term or provision
of the Certificate of Incorporation or Bylaws of LP Baier, or of any material
contract, commitment, understanding, arrangement, agreement or restriction of
any kind or character to which LP Baier or the Shareholders is a party or by
which LP Baier or the Shareholders or any of its, his or her assets or
properties may be bound or affected.
3.4. Financial Statements. True and complete copies have been
delivered to ABR of the financial statements of LP Baier consisting of the
balance sheets of LP Baier as of December 31, 1995, 1994, 1993, 1992 and 1991,
(the December 31, 1995 balance sheet is referred to herein as the "Recent
Balance Sheet"), and the related statement of income for each of the years then
ended (including the notes contained therein or annexed thereto), all of which
financial statements have been audited by independent accountants for LP Baier
for such years and periods. All of such LP Baier financial statements
(including all notes and schedules contained therein or annexed thereto) and
the Closing Balance Sheet (as required pursuant to Section 7.1.(g) hereof),
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis, have been prepared in accordance with the books
and records of LP Baier, and fairly present, in accordance with generally
accepted accounting principles, the financial position, the results of
operations and cash flows of LP Baier as of the dates and for the years and
periods indicated. True and correct copies have been delivered to ABR of all
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written reports submitted to LP Baier or the Shareholders by LP Baier's
accountants related to the books and records of LP Baier.
3.5. Tax Matters.
3.5.(a) Provision For Taxes. Except as set forth on Schedule
3.5.(a), the provision made for taxes on the Closing Balance Sheet is
sufficient for the payment of all federal, state, foreign, county,
local and other income, ad valorem, excise, profits, franchise,
occupation, property, payroll, sales, use, gross receipts and other
taxes (and any interest and penalties) and assessments ("Taxes"),
whether or not disputed, that were unpaid and owed by LP Baier as of
the date of the Closing Balance Sheet. Since the date of the Recent
Balance Sheet and excluding the effect of the transactions
contemplated herein, LP Baier has not incurred any taxes other than
taxes incurred in the ordinary course of business consistent in type
and amount with past practices.
3.5.(b) Tax Returns Filed. Except as set forth on Schedule
3.5.(b), all federal, state, foreign, county, local and other tax
returns required to be filed by or on behalf of LP Baier have been
timely filed and when filed were true and correct, and the taxes shown
as due thereon were paid or adequately accrued. True and complete
copies of all tax returns or reports filed by LP Baier for each of its
three (3) most recent tax years have been delivered to ABR. LP Baier
has duly withheld and paid all Taxes which it was required to withhold
and pay in connection with amounts heretofore paid to any employee,
independent contractor, creditor or shareholder of LP Baier.
3.5.(c) No Tax Audits. Except as set forth on Schedule
3.5.(c), the federal and state income tax returns of LP Baier have not
been audited by the Internal Revenue Service or any state taxing
authorities, and neither LP Baier nor the Shareholders has received
from the Internal Revenue Service or from the income tax authorities
of any state, county, local or other jurisdiction any notice of
underpayment of income taxes by LP Baier or other deficiency with
respect to LP Baier's taxes which has not been paid nor any objection
to any return or report filed by LP Baier. There are no outstanding
agreements or waivers extending the statutory period of limitations
applicable to any tax return or report.
3.5.(d) No Consolidated Group. LP Baier has never been a
member of an affiliated group of corporations that filed a
consolidated tax return.
3.5.(e) Other. LP Baier has not (i) filed any consent or
agreement under Section 341(f) of the Internal Revenue Code of 1986,
as amended (the "Code"), (ii) applied for any tax ruling, (iii)
entered into a closing agreement with any taxing authority, (iv) filed
an election under Section 338(g) or Section 338(h)(10) of the Code
(nor has a deemed election under Section 338(e) of the Code occurred),
or (v) been a party to any tax allocation or tax sharing agreement.
LP Baier is not a "United States real property holding company" within
the meaning of Section 897 of the Code.
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3.6. Accounts Receivable and COBRA Payables. All accounts
receivable of LP Baier reflected on the Recent Balance Sheet and as incurred in
the normal course of business since the date thereof, represent arm's length
sales actually made in the ordinary course of business. To the best knowledge
of the Shareholders, no portion of the accounts receivable is or will be (i)
subject to counterclaim or set-off, or (ii) otherwise in dispute, in an
aggregate amount which exceeds $10,000. To the best knowledge of the
Shareholders, all of the accounts receivable are and as of the Closing Date
will be good and collectible in full within 120 days following the Closing
Date. Schedule 3.6 contains an aged schedule of accounts receivable included
in the Closing Balance Sheet. The cash and cash equivalents held by LP Baier
related to insurance premiums collected on behalf of customers as of the
Closing Date are equal to or greater than any insurance premiums payable
relating to providing COBRA compliance services (the "COBRA Business").
3.7. Absence of Certain Changes. Except as and to the extent set
forth in Schedule 3.7, or as reflected in the Recent Balance Sheet and
excluding the transactions contemplated herein, since December 31, 1995 there
has not been:
3.7.(a) No Adverse Change. Any material adverse change in
the financial condition, assets, liabilities, business or operations
of LP Baier;
3.7.(b) No Damage. Any material loss, damage or destruction,
whether covered by insurance or not, affecting the Business or the
properties of LP Baier;
3.7.(c) No Increase in Compensation. Any increase in the
compensation, salaries or wages payable or to become payable to any
employee or agent of LP Baier (including, without limitation, any
increase or change pursuant to any bonus, pension, profit sharing,
retirement or other plan or commitment), or any bonus or other
employee benefit granted, made or accrued, other than in the ordinary
course of business;
3.7.(d) No Labor Disputes. Any labor disputes, union
organization attempts or any work stoppage due to labor disagreements
, other than routine individual grievances which are not material to
the Business, financial condition or the results of operations of LP
Baier;
3.7.(e) No Commitments. Any loan commitment or related
financial transaction by LP Baier (including, without limitation, any
borrowing or capital expenditure) other than in the ordinary course of
business consistent with past practice;
3.7.(f) No Dividends. Any declaration, setting aside, or
payment of any dividend or any other distribution in respect of the
capital stock of LP Baier; any redemption, purchase or other
acquisition by LP Baier of any shares of its capital stock, or any
security relating thereto; or any other payment to any shareholder of
LP Baier as such a shareholder;
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3.7.(g) No Disposition of Property. Any sale, lease or other
transfer or disposition of any properties or assets of LP Baier;
3.7.(h) No Indebtedness. Any indebtedness for borrowed money
incurred, assumed or guaranteed by LP Baier;
3.7.(i) No Liens. Any mortgage, pledge, lien or
encumbrance made on any of the properties or assets of LP Baier;
3.7.(j) No Amendment of Contracts. Any amendment or
termination of any contract or agreement of LP Baier, or any waiver of
material rights thereunder, other than in the ordinary course of
business, which would have a material adverse effect on the Business,
financial condition or results of operations of LP Baier;
3.7.(k) Loans and Advances. Any loan or advance (other than
advances to employees in the ordinary course of business for travel
and entertainment in accordance with past practice) from LP Baier to
any person including, but not limited to, any Shareholder Affiliate
(as defined in Section 3.13(d)); or
3.7.(l) Credit. Any grant of credit from LP Baier to
any customer on terms or in amounts more favorable than those which
have been extended to such customer in the past, any other change in
the terms of any credit heretofore extended, or any other change of
policies or practices with respect to the granting of credit.
3.8. Absence of Undisclosed Liabilities. Except as and to the
extent specifically disclosed in the Recent Balance Sheet or in Schedule 3.8,
LP Baier has no liabilities (secured or unsecured, and whether accrued,
absolute, contingent, direct, indirect or otherwise, and whether known or
unknown), other than liabilities incurred since the date of the Recent Balance
Sheet in the ordinary course of business and consistent with past practice and
liabilities which will not have an adverse effect on the Business, financial
condition or results of operations of LP Baier.
3.9. No Litigation. Except as set forth in Schedule 3.9, there is
no action, suit, arbitration, proceeding, investigation or inquiry, whether
civil, criminal or administrative ("Litigation"), pending or, to the best
knowledge of the Shareholders, threatened, against LP Baier, its officers and
directors (in such capacity), the Business or any of its assets. Except as set
forth in Schedule 3.9, neither LP Baier, the Business or its assets is subject
to any Order of any Government Entity.
3.10. Compliance With Laws and Orders.
3.10.(a) Compliance. Except as set forth in Schedule
3.10.(a), LP Baier has not received notice that it (including its
operations, practices, properties and assets) is not in compliance
with all applicable material Laws and Orders of all Government
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Entities, including, without limitation, those applicable to
discrimination in employment, occupational safety and health, trade
practices, competition and pricing, zoning, building and sanitation,
employment, retirement and labor relations, product advertising and
the Environmental Laws (as hereinafter defined). All reports and
returns required to be filed by LP Baier with any Government Entity
have been filed, and were accurate and complete when filed. Without
limiting the generality of the foregoing:
(i) LP Baier has made all required payments
pursuant to the required percentage to its unemployment
compensation reserve accounts with the appropriate
governmental departments of the states where it is required to
maintain such accounts; and
(ii) LP Baier has not received any report for the
past five (5) years required under the federal Occupational
Safety and Health Act of 1970, as amended, and under all other
applicable health and safety laws and regulations.
3.10.(b) Licenses and Permits. LP Baier has all
material licenses, permits, approvals, authorizations and consents of
all Government Entities and all certifications required for the
conduct of the Business (as presently conducted) and operation of any
of the facilities at which the Business is conducted. All such
licenses, permits, approvals, authorizations and consents are
described in Schedule 3.10.(b), are in full force and effect and will
not be affected or made subject to loss, limitation or any obligation
to reapply as a result of the transactions contemplated hereby.
Except as set forth in Schedule 3.10.(b), to the best knowledge of the
Shareholders, LP Baier (including its operations, practices,
properties and assets) is and has been in compliance with all such
permits and licenses, approvals, authorizations and consents.
3.10.(c) Environmental Matters. The applicable Laws
relating to pollution or protection of the environment, including Laws
relating to emissions, discharges, generation, storage, releases or
threatened releases of pollutants, contaminants, chemicals or
industrial, toxic, hazardous or petroleum or petroleum-based
substances or wastes ("Waste") into the environment (including,
without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Waste including, without
limitation, the Clean Water Act, the Clean Air Act, the Resource
Conservation and Recovery Act, the Toxic Substances Control Act and
the Comprehensive Environmental Response Compensation Liability Act
("CERCLA"), as amended, and their state and local counterparts are
herein collectively referred to as the "Environmental Laws." Without
limiting the generality of the foregoing provisions of this Section
3.10, to the best knowledge of the Shareholders, LP Baier is in full
compliance with all material limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws or contained in any
regulations, code, plan, order, decree, judgment, injunction, notice
or demand letter issued, entered, promulgated or approved thereunder.
Except as set
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forth in Schedule 3.10.(c), there is no Litigation nor any demand,
claim, hearing or notice of violation pending or threatened against LP
Baier relating in any way to the Environmental Laws or any Order
issued, entered, promulgated or approved thereunder. Except as set
forth in Schedule 3.10.(c), to the best knowledge of the Shareholders,
there are no past or present events, conditions, circumstances,
activities, practices, incidents, actions, omissions or plans which
will interfere with or prevent compliance or continued compliance with
the Environmental Laws or with any Order issued, entered, promulgated
or approved thereunder, or which will give rise to any liability,
including, without limitation, liability under CERCLA or similar state
or local Laws, or otherwise form the basis of any Litigation, hearing,
notice of violation, study or investigation, based on or related to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release
or threatened release into the environment, of any Waste.
3.10.(d) COBRA Compliance. With respect to the
conduct of the COBRA Business, LP Baier has not received notice of,
nor has LP Baier (through its acts or omissions) created circumstances
which would give of any law related to the continuation of health care
coverage, including, without limitation, the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA").
3.11. Title to and Condition of Properties.
3.11.(a) Title. LP Baier has good and valid title to
all of its assets and properties that it purports to own, including,
without limitation, all such properties (tangible and intangible)
reflected in the Recent Balance Sheet (except for assets held under
capitalized leases and property sold since the date of the Recent
Balance Sheet in the ordinary course of business), free and clear of
all mortgages, liens, (statutory or otherwise) security interests,
claims, pledges, licenses, equities, options, conditional sales
contracts, assessments, levies, easements, covenants, reservations,
restrictions, rights-of-way, exceptions, limitations, charges or
encumbrances of any nature whatsoever (collectively, "Liens"), except
those Liens that are described in Schedule 3.11(a). Except as
described in Schedule 3.11(a), LP Baier's assets or properties are not
subject to any restrictions with respect to the transferability
thereof.
3.11.(b) Condition. All tangible personal property
and assets owned or utilized by LP Baier are in good operating
condition, and have been maintained consistent with the standards
generally followed in the industry.
3.11.(c) Real Property. LP Baier does not own any
real property. Schedule 3.11.(c) sets forth all real property used or
occupied by LP Baier (the "Real Property"), true and correct copies of
leases for the Real Property have heretofore been delivered to ABR.
There are no oral terms or past practice inconsistent with the written
terms thereof. All such leases are valid and binding agreements,
enforceable in accordance
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with their respective terms, and are in full force and effect. LP
Baier has performed all obligations required to be performed by it to
date under each such lease and is not in breach or default in any
respect thereunder, and there has been no event which, with the giving
of notice or the lapse of time or both, would become a breach or
default thereunder. To the best knowledge of LP Baier and the
Shareholders, no lessor or landlord to any of such leases is in breach
or default thereunder. There are now in full force and effect duly
issued certificates of occupancy permitting the Real Property and
improvements located thereon to be legally used and occupied by LP
Baier as the same are now constituted.
3.12. Insurance. Set forth in Schedule 3.12 is a complete and
accurate list and description of all policies of fire, liability, professional
liability, general liability, business interruption, workers compensation,
health and other forms of insurance presently in effect with respect to the
Business and the properties of LP Baier, true and correct copies of which have
heretofore been delivered to ABR. Schedule 3.12 includes, without limitation,
the carrier, the description of coverage, the limits of coverage, retention or
deductible amounts, amount of annual premiums, date of expiration and the date
through which premiums have been paid with respect to each such policy, and any
pending claims in excess of $5,000, whether or not covered by insurance.
Schedule 3.12 indicates each policy as to which (a) the coverage limit has been
reached or (b) the total incurred losses to date equal 75% or more of the
coverage limit. No notice of cancellation or termination has been received
with respect to any such policy. Each policy is in full force and effect and
all premiums with respect thereto covering all periods up to and including the
date hereof have been paid. LP Baier has not been refused any insurance with
respect to any aspect of the operations of the Business nor has its coverage
been limited by any insurance carrier to which it has applied for insurance or
with which it has carried insurance during the last three (3) years. LP Baier
has not received any written notice from or on behalf of any insurance carrier
issuing any such policy that insurance rates therefor will hereafter be
substantially increased (except to the extent that insurance rates may be
increased for all similarly situated risks) or that there will hereafter be a
cancellation or an increase in a deductible (or an increase in premiums in
order to maintain an existing deductible) or nonrenewal of any such policy.
Such policies are sufficient in all material respects for compliance by LP
Baier with all requirements of all contracts to which LP Baier is a party.
None of such policies will in any way be affected by, or terminate or lapse by
reason of, the transactions contemplated hereby, unless terminated by ABR
subsequent hereto.
3.13. Contracts and Commitments.
3.13.(a) Real Property Leases. Except as set forth in
Schedule 3.13.(a), LP Baier has no leases of real property.
3.13.(b) Personal Property Leases. Except as set
forth in Schedule 3.13.(b), LP Baier has no leases of personal
property involving consideration or other expenditure in excess of
$5,000.
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3.13.(c) Sales Commitments. True and complete copies
of all contracts or commitments with respect to those customers set
forth on Schedule 3.18 have been delivered by LP Baier to ABR. LP
Baier has no sales contracts or commitments except those made in the
ordinary course of business, at arm's length.
3.13.(d) Contracts With Affiliates and Certain Others.
Except as set forth in Schedule 3.13.(d) and except for this Agreement
and the Ancillary Instruments, LP Baier has no agreement,
understanding, contract or commitment (written or oral) with any
Shareholder Affiliate (as defined herein) or any employee, agent,
consultant, dealer or franchisee that is not cancelable by LP Baier,
on notice of not longer than 30 days without liability, penalty or
premium of any nature or kind whatsoever. For purposes of this
Agreement, "Shareholder Affiliate" shall mean and include the
Shareholders, the Shareholders' spouse, any person who would be the
heir or descendant of any such person if he or she were not living,
and any entity in which any of the foregoing has a direct or indirect
interest, except through the ownership of less than 5% of the
outstanding shares of any entity whose securities are listed on a
national securities exchange or traded in the national
over-the-counter market.
3.13.(e) Powers of Attorney. Except as set forth on
Schedule 3.13.(e), LP Baier has not given a power of attorney, which
is currently in effect, to any person, firm or corporation for any
purpose whatsoever.
3.13.(f) Collective Bargaining Agreements. Except as
set forth in Schedule 3.13.(f), LP Baier is not a party to any
collective bargaining agreements with any unions, guilds, shop
committees or other collective bargaining groups.
3.13.(g) Loan Agreements. Except as set forth in
Schedule 3.13.(g), LP Baier is not obligated under any loan agreement,
promissory note, letter of credit, or other evidence of indebtedness
as a signatory, guarantor or otherwise. Copies of all such agreements
have heretofore been delivered by LP Baier to ABR.
3.13.(h) Guarantees. Except as set forth in Schedule
3.13.(h) and except for indemnification undertakings set forth in LP
Baier's agreements with its customers, LP Baier has not guaranteed the
payment or performance of any person, firm or corporation, agreed to
indemnify any person or act as a surety, or otherwise agreed to be
contingently or secondarily liable for the obligations of any person.
3.13.(i) Contracts Subject to Renegotiation. LP Baier
is not a party to any contract with any governmental body which by its
terms allows any governmental body to reduce the rate of fees payable
to LP Baier thereunder.
3.13.(j) Burdensome or Restrictive Agreements. LP
Baier is not a party to nor is it bound by any agreement requiring it
to assign any interest in any trade secret or proprietary information,
or prohibiting or restricting it from competing in any business
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or geographical area or soliciting customers or otherwise restricting
it from carrying on the Business anywhere in the world.
3.13.(k) Other Material Contracts. Except as set
forth in Schedule 3.13.(k), LP Baier is not a party or subject to any
lease, contract or commitment of any nature involving consideration or
other expenditure in excess of $5,000.
3.13.(l) No Default. LP Baier is not in default under
any lease, contract or commitment to which it is a party or is
otherwise bound, nor has any event or omission occurred which through
the passage of time or the giving of notice, or both, would constitute
a default thereunder or cause the acceleration of any of LP Baier's
obligations or result in the creation of any Lien on any of the assets
owned, used or occupied by LP Baier.
3.14. Labor Matters. Except as set forth in Schedule 3.14, within
the last five (5) years LP Baier has not experienced any labor disputes, union
organization attempts or any work stoppage due to labor disagreements in
connection with the Business. Except to the extent set forth in Schedule 3.14,
to the knowledge of the Shareholders, (a) LP Baier is in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice; (b) there is no unfair labor practice charge or complaint
actually pending or threatened against LP Baier; (c) there is no labor strike,
dispute, request for representation, slowdown or stoppage actually pending or
threatened against or affecting LP Baier nor any secondary boycott with respect
to products of LP Baier; (d) no question concerning representation has been
raised or is threatened respecting the employees of LP Baier; (e) no grievance
which might have a material adverse effect on LP Baier, nor any arbitration
proceeding arising out of or under collective bargaining agreements, is pending
and no such claim therefor exists; and (f) there are no administrative charges
or court complaints against LP Baier concerning alleged employment
discrimination or other employment related matters pending or threatened before
the U.S. Equal Employment Opportunity Commission or any Government Entity.
3.15. Employee Benefit Plans.
3.15.(a) Disclosure. Schedule 3.15.(a) sets forth all
pension, thrift, savings, profit sharing, retirement, incentive bonus
or other bonus, medical, dental, life, accident insurance, employee
welfare, disability, group insurance, stock purchase, stock option,
stock appreciation, stock bonus, executive or deferred compensation,
hospitalization and other similar fringe or employee benefit plans,
programs and arrangements, and any employment or consulting contracts,
collective bargaining agreements, severance agreements or plans,
vacation and sick leave plans, programs, arrangements and policies,
including, without limitation, all "employee benefit plans" (as
defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), all employee manuals, and all written
statements of policies, practices or understandings relating to
employment, which are provided to, for the benefit of, or relate to,
any
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persons employed by LP Baier. The items described in the foregoing
sentence are hereinafter sometimes referred to collectively as
"Employee Plans/Agreements," and each individually as an "Employee
Plan/Agreement." True and correct copies of all the Employee
Plans/Agreements, including all amendments thereto, have heretofore
been provided by LP Baier to ABR. Each of the Employee
Plans/Agreements is identified on Schedule 3.15.(a), to the extent
applicable, as one or more of the following: an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA), a "defined
benefit plan" (as defined in Section 414 of the Code), an "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA), and/or as
a plan intended to be qualified under Section 401 of the Code. No
Employee Plan/Agreement is a "multiemployer plan" (as defined in
Section 4001 of ERISA), and LP Baier has never contributed nor been
obligated to contribute to any such multiemployer plan.
3.15.(b) Terminations, Proceedings, Penalties, etc.
With respect to each Employee Plan/Agreement that is subject to the
provisions of Title IV of ERISA and with respect to which LP Baier, or
any of its assets may, directly or indirectly, be subject to any
Liability, contingent or otherwise, or the imposition of any Lien
(whether by reason of the complete or partial termination of any such
plan, the funded status of any such plan, any "complete withdrawal"
(as defined in Section 4203 of ERISA) or "partial withdrawal" (as
defined in Section 4205 of ERISA) by any person from any such plan, or
otherwise):
(i) no such plan has been terminated so as to
subject, directly or indirectly, any assets of LP Baier to any
liability, contingent or otherwise, or the imposition of any
lien under Title IV of ERISA;
(ii) no proceeding has been initiated or
threatened by any person (including the Pension Benefit
Guaranty Corporation ("PBGC")) to terminate any such plan;
(iii) no condition or event currently exists or
currently is expected to occur that could subject, directly or
indirectly, any assets of LP Baier to any liability,
contingent or otherwise, or the imposition of any lien under
Title IV of ERISA, whether to the PBGC or to any other person
or otherwise on account of the termination of any such plan;
(iv) if any such plan were to be terminated as of
the Closing Date, no assets of LP Baier would be subject,
directly or indirectly, to any liability, contingent or
otherwise, or the imposition of any lien under Title IV of
ERISA;
(v) no "reportable event" (as defined in Section
4043 of ERISA) has occurred with respect to any such plan;
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<PAGE> 19
(vi) no such plan which is subject to Section 302
of ERISA or Section 412 of the Code has incurred any
"accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code, respectively), whether or
not waived; and
(vii) no such plan is a multiemployer plan or a
plan described in Section 4064 of ERISA.
3.15.(c) Prohibited Transactions, etc. To the best of
the knowledge of the Shareholders, there have been no "prohibited
transactions" within the meaning of Section 406 of ERISA or Section
4975 of the Code for which a statutory or administrative exemption
does not exist with respect to any Employee Plan/Agreement, and to the
best of the knowledge of the Shareholders, no event or omission has
occurred in connection with which LP Baier or its assets or any
Employee Plan/Agreement, directly or indirectly, could be subject to
any material liability under ERISA, the Code or any other Law or Order
applicable to any Employee Plan/Agreement, or under any agreement,
instrument, Law or Order pursuant to or under which LP Baier has
agreed to indemnify or is required to indemnify any person against
liability incurred under any such Law or Order.
3.15.(d) Full Funding. The funds available under each
Employee Plan/Agreement which is intended to be a funded plan equal or
exceed the amounts required to be paid, or which would be required to
be paid if such Employee Plan/Agreement were terminated, on account of
rights vested or accrued as of the Closing Date (using the actuarial
methods and assumptions then used by LP Baier in connection with the
funding of such Employee Plan/Agreement).
3.15.(e) Controlled Group; Affiliated Service Group;
Leased Employees. No organization is or has been: (i) a member of a
controlled group of corporations as defined in Section 414(b) of the
Code, of which LP Baier was a member, or (ii) under common control, as
determined under Section 414(c) of the Code, with LP Baier. LP Baier
has never been a member of an "affiliated service group" within the
meaning of Section 414(m) of the Code. There are not and never have
been any leased employees within the meaning of Section 414(n) of the
Code who perform services for LP Baier.
3.15.(f) Payments and Compliance. With respect to
each Employee Plan/Agreement, (i) all payments due from LP Baier to
date have been made and all amounts properly accrued to date as
liabilities of LP Baier which have not been paid have been properly
recorded on the books of LP Baier (as appropriate) and, to the extent
such liabilities were due and payable but were not paid as of the date
of the Closing Balance Sheet, are reflected in the Closing Balance
Sheet; (ii) LP Baier has complied with, and each such Employee
Plan/Agreement conforms in form and operation to, all applicable laws
and regulations, including but not limited to ERISA and the Code, in
all material respects and all reports and information relating to such
Employee
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Plan/Agreement required to be filed with any governmental entity have
been timely filed; (iii) all reports and information relating to each
such Employee Plan/Agreement required to be disclosed or provided to
participants or their beneficiaries have been timely disclosed or
provided; (iv) each such Employee Plan/Agreement which is intended to
qualify under Section 401 of the Code has received a favorable
determination letter from the Internal Revenue Service with respect to
such qualification, its related trust has been determined to be exempt
from taxation under Section 501(a) of the Code, and nothing has
occurred since the date of such letter that has or is likely to
adversely affect such qualification or exemption; (v) there are no
actions, suits or claims pending (other than routine claims for
benefits) or threatened with respect to such Employee Plan/Agreement
or against the assets of such Employee Plan/Agreement; and (vi) no
Employee Plan/Agreement is a plan which is established and maintained
outside the United States primarily for the benefit of individuals
substantially all of whom are nonresident aliens.
3.15.(g) Post-Retirement Benefits. Other than such
continuation of benefit coverage under group health plans as is
required by applicable law, LP Baier does not maintain and has not
maintained retiree life or retiree health plans providing for
continuing coverage for any employee or any beneficiary of an employee
after the employee's termination of employment.
3.15.(h) No Triggering of Obligations. The
consummation of the transactions contemplated by this Agreement will
not (i) entitle any current or former employee of LP Baier to
severance pay, unemployment compensation or any other payment, except
as expressly provided in this Agreement or in any of the Ancillary
Instruments, (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due to any such employee or former
employee or (iii) result in any prohibited transaction described in
Section 406 of ERISA or Section 4975 of the Code for which an
exemption is not available.
3.15.(i) Delivery of Documents. There has been
delivered to ABR, with respect to each Employee Plan/Agreement:
(i) a copy of the annual report, if required
under ERISA, with respect to each such Employee Plan/Agreement
for the last two years;
(ii) a copy of the summary plan description,
together with each summary of material modifications, required
under ERISA with respect to such Employee Plan/Agreement, all
material employee communications relating to such Employee
Plan/Agreement, and, unless the Employee Plan/Agreement is
embodied entirely in an insurance policy to which LP Baier is
a party, a true and complete copy of such Employee
Plan/Agreement;
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(iii) if the Employee Plan/Agreement is funded
through a trust or any third party funding vehicle (other than
an insurance policy), a copy of the trust or other funding
agreement and the latest financial statements thereof; and
(iv) the most recent determination letter received
from the Internal Revenue Service with respect to each
Employee Plan/Agreement that is intended to be a "qualified
plan" under Section 401 of the Code.
With respect to each Employee Plan/Agreement for which an annual
report has been filed and delivered to ABR pursuant to clause (i) of
this Section 3.15.(i), no material adverse change has occurred with
respect to the matters covered by the latest such annual report since
the date thereof.
3.15.(j) Future Commitments. LP Baier has no
announced plan or legally binding commitment to create any additional
Employee Plans/Agreements or to amend or modify any existing Employee
Plan/Agreement except as contemplated herein or in the Employment
Agreement (as defined in Section 7.1(h) hereof).
3.16. Employment Compensation. A true and correct list has been
provided to ABR of all employees to whom LP Baier is paying compensation, and,
in the case of salaried employees, such list identifies the current annual rate
of compensation for each employee and, in the case of hourly or commission
employees, identifies certain reasonable ranges of rates and the number of
employees falling within each such range.
3.17. Trade Rights. Schedule 3.17 lists all Trade Rights (as
defined below) in which LP Baier now has any interest, specifying whether such
Trade Rights are owned, controlled, used or held (under license or otherwise)
by LP Baier, and also indicating which of such Trade Rights are registered.
All Trade Rights shown as registered in Schedule 3.17 have been properly
registered, all pending registrations and applications have been properly made
and filed and all annuity, maintenance, renewal and other fees relating to
registrations or applications are current. In order to conduct the Business,
as such is currently being conducted, LP Baier does not require any Trade
Rights that it does not already have. LP Baier is not infringing and has not
infringed any Trade Rights of another in the operation of the Business, nor to
the best of the knowledge of LP Baier or the Shareholders, is any other person
infringing the Trade Rights of LP Baier. LP Baier has not granted any license
or made any assignment of any Trade Right listed on Schedule 3.17, nor does LP
Baier pay any royalties or other consideration for the right to use any Trade
Rights of others. Except as set forth on Schedule 3.9, there is no Litigation
pending or threatened to challenge LP Baier's right, title and interest with
respect to its continued use and right to preclude others from using any Trade
Rights of LP Baier. The consummation of the transactions contemplated hereby
will not alter or impair any Trade Rights owned or used by LP Baier. As used
herein, "Trade Rights" shall mean and include: (i) all trademark rights,
business identifiers, trade dress, service marks, trade names and brand names,
all registrations thereof and applications therefor and all goodwill associated
with the foregoing; (ii) all copyrights, copyright registrations and copyright
applications, and all other rights
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associated with the foregoing and the underlying works of authorship; (iii) all
patents and patent applications, and all international proprietary rights
associated therewith; (iv) all contracts or agreements granting any right,
title, license or privilege under the intellectual property rights of any third
party; (v) all inventions, mask works and mask work registrations, know-how,
discoveries, improvements, designs, trade secrets, shop and royalty rights,
employee covenants and agreements respecting intellectual property and
non-competition and all other types of intellectual property; and (vi) all
claims for infringement or breach of any of the foregoing.
3.18. Major Customers. Schedule 3.18 contains a list of the ten
(10) largest customers of LP Baier for each of the two (2) most recent fiscal
years (determined on the basis of the total dollar amount of net revenues
attributable thereto) showing the total dollar amount of net revenues
attributable thereto during each such year. Neither LP Baier nor the
Shareholders have any knowledge or information of any facts indicating, nor any
other reason to believe, that any of the customers listed on Schedule 3.18 will
not continue to be customers of LP Baier after the Closing at substantially the
same level as heretofore.
3.19. Bank Accounts. Schedule 3.19 sets forth the names and
locations of all banks, trust companies, savings and loan associations and
other financial institutions at which the LP Baier maintains a safe deposit
box, lock box or checking, savings, custodial or other account of any nature,
the type and number of each such account and the signatories therefore, a
description of any compensating balance arrangements, and the names of all
persons authorized to draw thereon, make withdrawals therefrom or have access
thereto.
3.20. Shareholder Affiliates' Relationships to LP Baier. Except as
set forth on Schedule 3.20, no Shareholder Affiliate has any direct or indirect
interest in (i) any entity which does business with LP Baier or is competitive
with the Business, or (ii) any property, asset or right which is used by LP
Baier in the conduct of the Business.
3.21. No Brokers or Finders. Neither LP Baier nor any of its
directors, officers, employees, shareholders or agents have retained, employed
or used any broker or finder in connection with the transaction provided for
herein or in connection with the negotiation thereof.
3.22. Disclosure. No representation or warranty by LP Baier and/or
the Shareholders in this Agreement, nor any certificate, schedule, document or
exhibit hereto furnished or to be furnished by or on behalf of LP Baier or the
Shareholders pursuant to this Agreement contains any untrue statement of
material fact or omits a material fact necessary to make the statements
contained therein not misleading.
4. REPRESENTATIONS AND WARRANTIES OF ABR
ABR makes the following representations and warranties to the
Shareholders, each of which is true and correct on the date hereof, is or shall
be unaffected by any investigation heretofore or hereafter made by the
Shareholders, or any of the Shareholders' agents or
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<PAGE> 23
representatives, or any knowledge to the Shareholders, their agents or
representatives, and shall survive the Closing of the transactions provided for
herein.
4.1. Corporate.
4.1.(a) Organization. ABR is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Florida.
4.1.(b) Corporate Power. ABR has all requisite corporate
power to enter into this Agreement and the Ancillary Instruments and
to carry out the transactions contemplated hereby and thereby.
4.2. Authority. The execution and delivery of this Agreement and
each Ancillary Instrument that provides for its execution by ABR and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Board of Directors of ABR. No other corporate act or
proceeding on the part of ABR or its shareholders is necessary to authorize
this Agreement or the Ancillary Instruments or the consummation of the
transactions contemplated hereby and thereby. This Agreement and each
Ancillary Instrument that provides for its execution by ABR is the legal, valid
and binding obligation of ABR, enforceable in accordance with their respective
terms, subject to the limitations contained herein, except as such may be
limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally, and by general equitable principles.
4.3. No Brokers or Finders. Except for the engagement of Broadview
Associates, L.P. by ABR, neither ABR nor any of its directors, officers,
employees or agents have retained, employed or used any broker or finder in
connection with the transaction provided for herein or in connection with the
negotiation thereof. ABR has agreed to pay all fees and expenses of Broadview
Associates, L.P. in connection with the transactions contemplated hereby.
4.4. Prospectus. The Prospectus dated March 21, 1996 relating to
the public offering by ABR of 3,452,500 shares of Common Stock does not contain
any untrue statement of material fact or omits a material fact necessary to
make the statements contained therein not misleading as of the date hereof
(except for certain market information relating to the Common Stock).
4.5. Disclosure. No representation or warranty by ABR in this
Agreement, nor any statement, certificate, schedule, document or exhibit hereto
furnished or to be furnished by or on behalf of ABR pursuant to this Agreement
or in connection with transactions contemplated hereby, contains any untrue
statement of material fact or omits a material fact necessary to make the
statements contained therein not misleading.
4.6. Investment Intent. The Shares are being acquired by ABR for
investment only and not with the view to resale or other distribution.
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4.7. Non-Taxable Event. To the best knowledge and belief of ABR,
the consummation of the transactions contemplated herein shall constitute a B
Reorganization.
4.8. Approvals and Filings. No governmental approval or filing
with any federal, state or local agency is required of ABR in order to
consummate the transactions contemplated herein; provided, however, that ABR
shall comply with the applicable Federal securities laws and regulations of the
Securities and Exchange Commission or The Nasdaq Stock Market with respect to
the public disclosure of the consummation of these transactions and any related
filings.
5. POST-CLOSING COVENANTS
5.1. Noncompetition; Confidentiality. As an inducement to ABR to
execute this Agreement and complete the transactions contemplated hereby, and
in order to preserve the goodwill associated with Business being acquired
pursuant to this Agreement, and in addition to and not in limitation of any
covenants contained in any agreement executed and delivered pursuant to Section
7.1.(c) hereof, the Shareholders hereby covenant and agree as follows:
5.1.(a) Covenant Not to Compete. For a period of five (5)
years from the Closing Date, the Shareholders will not directly or
indirectly:
(i) engage in, continue in or carry on any
business which competes with, or intends to compete with, LP
Baier or ABR in any aspect with respect to the Business or is
substantially similar thereto, including owning or controlling
any financial interest in any person, corporation,
partnership, firm or other form of business organization which
is so engaged (a "Competing Business");
(ii) consult with, advise or assist in any way,
whether or not for consideration, any Competing Business,
including, but not limited to, advertising or otherwise
endorsing the products of any Competing Business; soliciting
customers or otherwise serving as an intermediary for any
Competing Business; loaning money or rendering any other form
of financial assistance to or engaging in any form of business
transaction on other than an arm's length basis with any
Competing Business;
(iii) offer employment to or solicit the employment
of an employee of LP Baier or ABR, without the prior written
consent of ABR; or
(iv) engage in any practice the purpose of which
is to evade the provisions of this covenant not to compete or
to commit any act which adversely affects the Business;
provided, however, that the foregoing shall not prohibit the ownership
of securities of corporations which are listed on a national
securities exchange or traded in the national
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over-the-counter market in an amount which shall not exceed 5% of the
outstanding shares of any such corporation. The parties agree that
the geographic scope of this covenant not to compete shall extend to
all areas in which LP Baier or ABR conducts the Business. The parties
agree that ABR may sell, assign or otherwise transfer this covenant
not to compete, in whole or in part, to any entity that purchases all
or part of the Business or ABR as long as the Employment Agreement is
assumed by such entity.
5.1.(b) Covenant of Confidentiality. The Shareholders shall
not at any time after the Closing, except as explicitly requested by
ABR or required by applicable Law or Order, and except in the course
of employment by LP Baier, (i) use for any purpose, (ii) disclose to
any person, or (iii) keep or make copies of documents, tapes, discs or
programs containing, any Confidential Information concerning LP Baier.
For purposes of this Agreement, "Confidential Information" shall mean
and include, without limitation, all Trade Rights in which LP Baier
has an interest, all customer lists and customer information, and all
other information concerning the finances, customer lists, operations,
processes, apparatus, equipment, packaging, services, marketing and
distribution methods of LP Baier not previously disclosed to the
public directly by LP Baier or otherwise available to the public.
This covenant shall not preclude the Shareholders from disclosing to
their advisors or Government Entities financial information of LP
Baier necessary to prepare, file or defend any tax return or report of
LP Baier or the Shareholders. The parties agree that this covenant of
confidentiality shall have no geographic or temporal limitations.
5.1.(c) Equitable Relief for Violations. Each of the
Shareholders agrees that the provisions and restrictions contained in
this Section 5.1 are necessary to protect the legitimate continuing
interests of ABR in acquiring the Shares, and that any violation or
breach of these provisions will result in irreparable injury to ABR
for which a remedy at law would be inadequate and that, in addition to
any relief at law which may be available to ABR for such violation or
breach and regardless of any other provision contained in this
Agreement, ABR shall be entitled to injunctive and other equitable
relief as a court may grant after considering the intent of this
Section 5.1.
5.1.(d) Breach by ABR. The covenants of the Shareholders
contained in this Section 5.1 shall be suspended during any period in
which ABR is in material breach of this Agreement, the Employment
Agreement or the Registration Rights Agreement.
5.2. Income Tax Returns and Allocation of Tax. The Shareholders
shall be responsible for the payment by LP Baier of all Taxes of LP Baier due
on the accrual basis on or before the Closing Date and the Shareholders shall
not be responsible for any liability arising from the transactions described in
the Recitals occurring on the Closing Date. ABR shall be responsible for the
payment by LP Baier of all Taxes of LP Baier accruing on and after the Closing
Date including any liability arising from the transaction described in the
Recitals occurring on the Closing Date. The Shareholders shall cause to be
prepared and timely and properly filed on behalf of the Shareholders and LP
Baier, all returns and filings with respect to federal, Virginia
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Taxes, or any other state with respect to which a return or filing is required
under applicable law accruing on or before the Closing Date consistent with
this Agreement. Such Taxes, returns, and filings shall be determined by
closing LP Baier's books and records as of and including the Closing Date, or
if the allocation of an item of income, loss, deduction, or credit cannot be
definitely allocated to an ascertainable date, such item shall be pro rated on
a daily basis. The Shareholders, LP Baier and ABR shall cooperate, and shall
cause their respective affiliates, officers, employees, agents, auditors and
representatives to cooperate, in preparing and filing all returns, reports, and
forms relating to Taxes, including maintaining and making available to each
other all records necessary in connection with Taxes and in resolving all
disputes and audits with respect to all taxable periods relating to Taxes.
5.3. Restriction on Sales. The Shareholders shall not dispose of
the ABR shares in any manner until ninety (90) days after ABR has first
reported thirty (30) days of combined operations of ABR and LP Baier and only
pursuant to the Registration Rights Agreement or pursuant to Rule 144 under the
Act.
5.4. Rule 144 Compliance. ABR shall file such information,
documents and reports and take such other action as shall hereafter be required
by the Securities and Exchange Commission as a condition to the availability of
Rule 144 under the Act with respect to the ABR Shares.
6. INDEMNIFICATION
6.1. By the Shareholders. Subject to the terms and conditions of
this Article 6, the Shareholders, severally (in proportion to each such
Shareholder's percentage ownership of the Shares) and not jointly, hereby agree
to indemnify, defend and hold harmless ABR, its directors, officers and
employees (hereinafter "ABR's Affiliates") and LP Baier, its directors,
officers and employees from and against all Claims (as hereinafter defined)
asserted against, resulting to, imposed upon, or incurred by ABR, ABR's
Affiliates or LP Baier, directly or indirectly, by reason of, arising out of or
resulting from (a) the inaccuracy or breach of any representation or warranty
of the Shareholders contained in this Agreement, (b) the breach of any covenant
by the Shareholders contained in this Agreement, (c) any dispute involving, or
Claim made by, any current or former shareholder of LP Baier (other than the
Shareholders), or (d) any matter disclosed in Schedule 3.9. As used in this
Article 6, "Claim" shall mean and include (i) all debts, liabilities and
obligations; (ii) all losses, damages (but excluding consequential damages),
judgments, awards, settlements, costs and expenses (including, without
limitation, interest (including prejudgment interest in any litigated matter),
penalties, court costs and reasonable attorneys' fees and expenses); and (iii)
all demands, claims, suits, actions, costs of investigation, causes of action,
proceedings and assessments, in each case after deduction of any insurance
recovery that is remitted to the Indemnified Party (as hereinafter defined) as
a result of any of the foregoing. Notwithstanding anything contained in this
Section 6.1 to the contrary, with respect to those matters susceptible to cure
by the Shareholders, the liability of the Shareholders under this Section 6.1
shall be subject to notice of the breach, default or dispute at issue and an
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<PAGE> 27
opportunity to cure the matters addressed in the notice within thirty (30) days
after such notice is given.
6.2. By ABR. Subject to the terms and conditions of this Article
6, ABR hereby agrees to indemnify, defend and hold harmless the Shareholders
and their heirs and personal representatives from and against all Claims
asserted against, resulting to, imposed upon or incurred by any such person,
directly or indirectly, by reason of or resulting from (a) the inaccuracy or
breach of any representation or warranty of ABR contained in or made pursuant
to this Agreement, or (b) the breach of any covenant of ABR contained in this
Agreement.
6.3. Indemnification of Third-Party Claims. The obligations and
liabilities of any party to indemnify any other under this Article 6 with
respect to Claims relating to third parties shall be subject to the following
terms and conditions:
6.3.(a) Notice and Defense. The party or parties to be
indemnified (whether one or more, the "Indemnified Party") will give
the party or parties from whom indemnification is sought (whether one
or more, the "Indemnifying Party") prompt written notice of any Claim,
and the Indemnifying Party will have the right to undertake the
defense thereof by representatives chosen by it. The Indemnified
Party shall make available to the Indemnifying Party or its
representatives all records and other materials required by the
Indemnifying Party in connection with such Claim and in the possession
or under the control of the Indemnified Party, for the use of the
Indemnifying Party and its representatives in prosecuting the defense
of any such Claim, and the Indemnified Party shall be entitled to
participate in the defense of such Claim. Subject to the provisions
of Sections 6.3.(b) and 6.3.(c) hereof, if the Indemnifying Party has
acknowledged its liability for indemnification hereunder and the
defense of such Claim is assumed by the Indemnifying Party, and
(except for a Claim based upon any matter disclosed in Schedule 3.9 in
which case no such approval shall be necessary) upon approval by the
Indemnified Party of counsel selected by the Indemnifying Party, the
Indemnifying Party shall be free to compromise or settle such Claim
without the consent of the Indemnified Party and shall have no
liability for any compromise or settlement of such Claim without its
written consent.
6.3.(b) Failure to Defend. If the Indemnifying Party, within
a reasonable time after notice of any such Claim, fails to assume the
defense of such Claim actively and in good faith, the Indemnified
Party will (upon further notice) have the right to undertake the
defense, compromise or settlement of such Claim or consent to the
entry of a judgment with respect to such Claim, on behalf of and for
the account of and risk of the Indemnifying Party, and the
Indemnifying Party shall thereafter have no right to challenge the
Indemnified Party's defense, compromise, settlement or consent to
judgment therein.
6.3.(c) Indemnified Party's Rights. Anything in this Article
6 to the contrary notwithstanding, (i) except for a Claim based upon
any matter disclosed in
23
<PAGE> 28
Schedule 3.9, if there is a reasonable probability that a Claim may
materially and adversely affect the Indemnified Party other than as a
result of money damages or other money payments, the Indemnified Party
shall have the right to defend and, with the consent of the
Indemnifying Party (which shall not be unreasonably withheld), to
compromise or settle such Claim as to the non-monetary component of
such compromise or settlement, and (ii) the Indemnifying Party shall
not, without the written consent of the Indemnified Party, settle or
compromise any Claim or consent to the entry of any judgment which
does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Indemnified Party of a release from
all liability in respect of such Claim.
6.4. Payment. The Indemnifying Party shall promptly pay the
Indemnified Party any amount due under this Article 6. Upon judgment,
determination, settlement or compromise of any third party Claim, the
Indemnifying Party shall pay promptly on behalf of the Indemnified Party,
and/or to the Indemnified Party in reimbursement of any amount theretofore
required to be paid by it, the amount so determined by judgment, determination,
settlement or compromise and all other Claims of the Indemnified Party with
respect thereto. If the Indemnifying Party desires to appeal from an adverse
judgment, then the Indemnifying Party shall post and pay the cost of the
security or bond to stay execution of the judgment pending appeal. Upon the
payment in full by the Indemnifying Party of such amounts, the Indemnifying
Party shall succeed to the rights of such Indemnified Party, to the extent not
waived in settlement, against the third party who made such third party Claim.
6.5. No Waiver. The closing of the transactions contemplated by
this Agreement shall not constitute a waiver by any party of its rights to
indemnification hereunder, regardless of whether the party seeking
indemnification has knowledge of the breach, violation or failure of condition
constituting the basis of the Claim at or before the Closing.
6.6. Limitations on Indemnification. Except for any willful and
knowing breach or misrepresentation and except for any action brought by any
former employees and shareholders of LP Baier, as to which a claim for
indemnification hereunder may be brought without limitation as to time or
amount:
6.6.(a) Time Limitation. No claim for indemnification shall
be brought under Section 6.1 of this Article 6 for the inaccuracy or
breach of a representation or warranty, or the breach of any covenant,
contained in or made pursuant to this Agreement unless the nature of
such claim for indemnification has been described in reasonable detail
and with identification to this Section 6 in a written notice provided
by an Indemnified Party to an Indemnifying Party and which are
determined during the period which ends on the date of issuance to ABR
of the first independent audit report on the combined results of ABR
and LP Baier.
6.6.(b) Aggregate Amount Limitation for the Shareholders.
Notwithstanding any provision of this Article 6 to the contrary, the
aggregate amount of the
24
<PAGE> 29
indemnification obligations of the Shareholders pursuant to Section
6.1 of this Article 6 shall not exceed for the purposes of these
indemnification provisions 10% of the value of the consideration
received. Furthermore, each of the Shareholders may (but shall not be
required to) elect to satisfy any liability for indemnification
hereunder by transferring a number of ABR Shares which, when
multiplied by the Issue Price, result in an aggregate value which
equals or exceeds the dollar amount of such Shareholder's
indemnification liability.
6.6.(c) Threshold Limitation. Notwithstanding any provision
of this Article 6 to the contrary, no claim for indemnification may be
brought by an Indemnified Party unless and until such party has become
subject to, or incurred liability for, Claims totaling no less than
Eighty Thousand Dollars ($80,000) in the aggregate (the
"Indemnification Threshold"). Once an Indemnified Party has satisfied
the Indemnification Threshold, such party shall be eligible to receive
indemnification for all Claims in accordance with the terms and
conditions of this Article 6.
6.7. Indemnification - Exclusive Remedy. The provisions of this
Article 6 shall constitute the exclusive remedy for any claim based upon the
subject matter of the indemnification undertakings in Section 6.1 and 6.2.
7. CLOSING
The closing of this transaction ("the Closing") shall occur concurrent
with the execution of this Agreement effective as of 12:01 A.M. on June 28,
1996. Such date is referred to in this Agreement as the "Closing Date." In
the event that the ABR Shares cannot be issued and delivered to the
Shareholders by 5:00 p.m. EST on the Closing Date, the Shares shall be
delivered to Foley & Lardner to be held in escrow with instructions to release
the Shares to ABR immediately upon the issuance and delivery of the ABR Shares
hereunder.
7.1. Documents Delivered by LP Baier and the Shareholders. At the
Closing, LP Baier and the Shareholders shall deliver to ABR the following
documents, in each case duly executed or otherwise in proper form:
7.1.(a) Stock Certificates. Stock certificates representing
the Shares, duly endorsed for transfer or with duly executed stock
powers attached.
7.1.(b) Opinion of Counsel. A written opinion of Arter &
Hadden, counsel to LP Baier and the Shareholders, dated as of the
Closing Date, addressed to ABR.
7.1.(c) Certified Resolutions. Certified copies of the
resolutions of the Board of Directors and the shareholders of LP
Baier, authorizing and approving this Agreement and the Ancillary
Instruments, and the consummation of the transactions contemplated
hereby and thereby.
25
<PAGE> 30
7.1.(d) Articles; Bylaws. A copy of the Bylaws of LP Baier
certified by its secretary, and a copy of the Certificate of
Incorporation of LP Baier, certified as of a recent date by the
Secretary of State of the state of incorporation of LP Baier, and good
standing certificates, certified as of a recent date by the Secretary
of State of such state and all other states in which LP Baier is
qualified to do business.
7.1.(e) Incumbency Certificate. Incumbency certificates
relating to each person executing (as a corporate officer or otherwise
on behalf of another person) any document executed and delivered to
ABR pursuant to the terms hereof.
7.1.(f) [Intentionally Omitted.]
7.1.(g) [Intentionally Omitted.]
7.1.(h) Employment Agreement. An employment agreement
between LP Baier and Rick Snyder, one of the Shareholders, dated as of
the Closing Date, substantially in the form of Exhibit A attached
hereto and incorporated herein (the "Employment Agreement").
7.2. Documents Delivered by ABR. At the Closing, ABR shall deliver
to the Shareholders the following, in each case duly executed or otherwise in
proper form:
7.2.(a) Stock Certificates. A letter addressed to ABR's
Transfer Agent authorizing the Transfer Agent to issue and deliver the
ABR Shares to the Shareholders.
7.2.(b) Opinion of Counsel. A written opinion of Foley &
Lardner, counsel to ABR, dated as of the Closing Date, addressed to LP
Baier.
7.2.(c) Certified Resolutions. A certified copy of the
resolutions of the Board of Directors of (i) ABR authorizing and
approving this Agreement and the consummation of the transactions
contemplated hereby and (ii) LP Baier ratifying the Employment
Agreement (subsequent to the newly appointed Board of Directors of LP
Baier).
7.2.(d) Incumbency Certificate. Incumbency certificates
relating to each person executing any document executed and delivered
to LP Baier or the Shareholders by ABR pursuant to the terms hereof.
26
<PAGE> 31
7.2.(e) Registration Rights Agreement. A registration rights
agreement between ABR and the Shareholders, dated as of the Closing
Date, substantially in the form of Exhibit B attached hereto and
incorporated herein.
7.2.(f) Employment Agreement. The Employment Agreement,
dated as of the Closing Date.
8. RESOLUTION OF DISPUTES
8.1. Arbitration. Any dispute, controversy or claim arising out of
or relating to this Agreement, any Ancillary Instrument (except the Employment
Agreement and Registration Rights Agreement) or any contract or agreement
entered into pursuant hereto, or arising out of or relating to the performance
by the parties of its or their terms, shall be settled by binding arbitration
held in the county and state of the party defending any such action in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect, except as specifically otherwise provided in this
Article 8. Notwithstanding the foregoing, ABR may, in its discretion, apply to
a court of competent jurisdiction for equitable relief from any violation or
threatened violation of the covenants under Article 5 of this Agreement.
8.2. Arbitrators. The panel to be appointed shall consist of three
neutral arbitrators.
8.3. Procedures; No Appeal. The arbitrators shall allow such
discovery as the arbitrators determine appropriate under the circumstances and
shall resolve the dispute as expeditiously as practicable, and if reasonably
practicable, within 120 days after the selection of the arbitrators. The
arbitrators shall give the parties written notice of the decision, with the
reasons therefor set out, and shall have 30 days thereafter to reconsider and
modify such decision if any party so requests within 10 days after the
decision. Thereafter, the decision of the arbitrators shall be final, binding,
and nonappealable with respect to all persons, including (without limitation)
persons who have failed or refused to participate in the arbitration process.
8.4. Authority. The arbitrators shall have authority to award
relief under legal or equitable principles, including interim or preliminary
relief. Unless the arbitrators find that exceptional circumstances require
otherwise, the arbitrators will include in the award the prevailing party's
costs of arbitration and reasonable attorneys' fees.
8.5. Entry of Judgment. Judgment upon the award rendered by the
arbitrators may be entered in any court having in personam and subject matter
jurisdiction. ABR and the Shareholders hereby submit to the in personam
jurisdiction of the Federal and State courts in Virginia and Florida, for the
purpose of confirming any such award and entering judgment thereon.
8.6. Confidentiality. All proceedings under this Article 8, and
all evidence given or discovered pursuant hereto, shall be maintained in
confidence by all parties.
27
<PAGE> 32
8.7. Continued Performance. The fact that the dispute resolution
procedures specified in this Article 8 shall have been or may be invoked shall
not excuse any party from performing its obligations under this Agreement and
during the pendency of any such procedure all parties shall continue to perform
their respective obligations in good faith.
8.8. Tolling. All applicable statutes of limitation shall be
tolled while the procedures specified in this Article 8 are pending. The
parties will take such action, if any, required to effectuate such tolling.
9. MISCELLANEOUS
9.1. Disclosure Schedule. The Schedules described herein have been
compiled in a bound volume (the "Disclosure Schedule"), executed by LP Baier
and the Shareholders and dated and delivered to ABR on the Closing Date. The
Disclosure Schedule includes a table of contents and/or index to all of the
information and documents contained therein. The Disclosure Schedule shall not
vary, change or alter the language of the representations and warranties
contained in this Agreement and, to the extent the language in the Disclosure
Schedule does not conform in every respect to the language of such
representations and warranties, such language in the Disclosure Schedule shall
be disregarded and be of no force or effect.
9.2. Further Assurance. From time to time, each of the parties
hereto will execute and deliver such documents and take such other action as
any one of the other parties hereto may reasonably request in order to
consummate more effectively the transactions contemplated hereby.
9.3. Disclosures and Announcements. Announcements concerning the
transactions provided for in this Agreement by ABR, LP Baier or the
Shareholders shall be subject to the approval of the other parties in all
essential respects, except that approval of LP Baier or the Shareholders shall
not be required as to any statements and other information which ABR may submit
to the Securities and Exchange Commission, The Nasdaq Stock Market ("Nasdaq")
or ABR's shareholders as required pursuant to any rule or regulation of the
Securities and Exchange Commission, Nasdaq or applicable law.
9.4. Assignment; Parties in Interest.
9.4.(a) Assignment. Except as expressly provided herein, the
rights and obligations of a party hereunder may not be assigned,
transferred or encumbered without the prior written consent of the
other parties. Notwithstanding the foregoing, ABR may, without
consent of any other party, cause one or more controlled subsidiaries
of ABR to carry out all or part of the transactions contemplated
hereby; provided, however, that ABR shall, nevertheless, remain liable
for all of its obligations, and those of any such subsidiary, to the
Shareholders hereunder.
28
<PAGE> 33
9.4.(b) Parties in Interest. This Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the respective
successors and permitted assigns of the parties hereto. Nothing
contained herein shall be deemed to confer upon any other person
(besides the parties hereto) any right or remedy under or by reason of
this Agreement.
9.5. Law Governing Agreement. This Agreement may not be modified
or terminated orally, and shall be construed and interpreted according to the
laws of the State of Florida, excluding its conflicts of law rules.
9.6. Amendment and Modification. ABR and the Shareholders may
amend, modify and supplement this Agreement in such manner as may be agreed
upon in writing signed by ABR and the Shareholders.
9.7. Notice. All notices, requests, demands and other
communications hereunder shall be given in writing and shall be: (a)
personally delivered; or (b) sent to the parties at their respective addresses
indicated herein by registered or certified U.S. mail, return receipt requested
and postage prepaid, or by private overnight mail courier service. The
respective addresses to be used for all such notices, demands or requests are
as follows:
(a) If to ABR, to:
ABR Information Services, Inc.
34125 U.S. Highway 19, North
Palm Harbor, FL 34684-2116
Attention: Mr. Vincent Addonisio,
Senior Vice President and
Chief Financial Officer
(with a copy to)
Foley & Lardner
100 North Tampa Street
Suite 2700
Tampa, Florida 33602
Attn: Kenneth J. Meister, Esq.
or to such other person or address as ABR shall furnish to the Shareholders in
writing.
29
<PAGE> 34
(b) If to the Shareholders, to:
[to each Shareholder individually]
c/o The L.P. Baier Company
3966 Pender Drive
Fairfax, VA 22030
(with a copy to)
Arter & Hadden
1801 K Street NW
4th Floor
Washington, DC 20006
Attn: Larry Bensignor
or to such other person or address as the Shareholders shall designate in
writing.
(c) If to LP Baier, to ABR as specified above.
If personally delivered, such communication shall be deemed delivered
upon actual receipt; if sent by overnight courier pursuant to this paragraph,
such communication shall be deemed delivered upon receipt; and if sent by U.S.
mail pursuant to this paragraph, such communication shall be deemed delivered
as of the date of delivery indicated on the receipt issued by the relevant
postal service, or, if the addressee fails or refuses to accept delivery, as of
the date of such failure or refusal. Any party to this Agreement may change
its address for the purposes of this Agreement by giving notice thereof in
accordance with this Section and any such notice of change of address shall be
effective only upon receipt.
9.8. Expenses.
9.8.(a) Brokerage. Except as provided in Section 4.3 hereof,
the Shareholders and ABR each represent and warrant to each other that
there is no broker involved or in any way connected with the transfer
provided for herein on their behalf respectively (and the Shareholders
represents and warrants that there is no broker involved on behalf of
LP Baier) and each agrees to hold the other harmless from and against
all other claims for brokerage commissions or finder's fees in
connection with the execution of this Agreement or the transactions
provided for herein.
9.8.(b) Expenses to be Paid by the Shareholders. The
Shareholders shall pay, and shall indemnify, defend and hold ABR and
LP Baier harmless from and against, each of the following:
30
<PAGE> 35
(i) Transfer Taxes. Any sales, use, excise,
transfer or other similar tax imposed with respect to the
transactions provided for in this Agreement, and any interest
or penalties related thereto.
(ii) Professional Fees. All fees and expenses of
their own, as well as LP Baier's, legal, accounting (except
fees and expenses related to an audit of LP Baier's financial
statements as requested by ABR), investment banking and other
professional counsel in connection with the transactions
contemplated hereby.
9.8.(c) Other. Except as otherwise provided herein, each of
the parties shall bear its own expenses and the expenses of its
counsel and other agents in connection with the transactions
contemplated hereby.
9.8.(d) Costs of Litigation or Arbitration. The parties
agree that (subject to Section 6.6 and to the discretion, in an
arbitration proceeding, of the arbitrators as set forth in Section
8.4) the prevailing party in any action brought with respect to or to
enforce any right or remedy under this Agreement shall be entitled to
recover from the other party or parties all reasonable costs and
expenses of any nature whatsoever incurred by the prevailing party in
connection with such action, including, without limitation, reasonable
attorneys' fees and prejudgment interest.
9.9. Entire Agreement. This Agreement, the Employment Agreement
and the Registration Rights Agreement embody the entire agreement between the
parties hereto with respect to the transactions contemplated herein, and there
have been and are no prior or contemporaneous agreements, representations or
warranties between the parties other than those set forth or provided for
herein or therein.
9.10. Severability. In the event that any provision of this
Agreement shall be held to be invalid or unenforceable for any reason by the
arbitrators or a court of competent jurisdiction (as the case may be), the
remaining provisions of this Agreement shall continue in full force and effect
as though the invalid or unenforceable provisions had not been included herein.
Notwithstanding the foregoing, in the event that any provision relating to the
duration or scope of any covenant or restriction contained herein shall be
declared by a court of competent jurisdiction to exceed the maximum time period
and/or scope of restriction, such provision shall be deemed to become, and
thereafter shall be equal to, the maximum duration and/or scope of restriction
deemed enforceable by said court.
9.11. Gender. Whenever the context requires, words used in the
singular shall be construed to mean or include the plural and vice versa, and
pronouns of any gender shall be deemed to include and designate the masculine,
feminine or neuter gender.
9.12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
31
<PAGE> 36
9.13. Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
ABR:
ABR INFORMATION SERVICES, INC.
By: /s/ Vincent Addonisio
-----------------------------------------
Vincent Addonisio,
Senior Vice President
and Chief Financial Officer
THE SHAREHOLDERS:
/s/ Rick Snyder
--------------------------------------------
Rick Snyder
/s/ Tina McIntosh
--------------------------------------------
Tina McIntosh
/s/ Rhonda E. Reeves
--------------------------------------------
Rhonda E. Reeves
/s/ Christine Erickson
--------------------------------------------
Christine Erickson
/s/ Michael McRoberts
--------------------------------------------
Michael McRoberts
/s/ Victoria J. Baldwin
--------------------------------------------
Victoria J. Baldwin
32
<PAGE> 37
[Continuation of Signature Page of
Agreement and Plan of Reorganization
with ABR Information Services, Inc.]
LP BAIER:
LP BAIER COMPANY
By: /s/ Rick Snyder
------------------------------------------
President
33
<PAGE> 38
EXHIBIT A
EMPLOYMENT AND NONCOMPETITION AGREEMENT
[Note: Exhibit A was filed separately as Exhibit 10.14 to the
Company's Form 10-K for the fiscal year ended 7/31/96]
<PAGE> 39
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
the 28th day of June, 1996, by and between ABR Information Services, Inc., a
Florida corporation ("ABR"), and the shareholders listed on the signature page
(collectively referred to as the "Holders").
RECITALS
WHEREAS, ABR, The L.P. Baier Company, a Virginia corporation ("LP
Baier"), and the Holders are parties to that certain Agreement and Plan of
Reorganization dated as of June 28, 1996 (the "Agreement") pursuant to which
ABR will acquire all of the capital stock of LP Baier from the Holders;
WHEREAS, the closing of the transactions contemplated by the Agreement
(the "Closing") is occurring on the date hereof and, in connection therewith,
ABR has issued to the Holders that number of its shares (the "Shares") of
Common Stock, $.01 par value per share (the "Common Stock"), with a fair market
value of $8.0 million based on the average closing price of the Common Stock
for the thirty (30) trading days prior to the day before the Closing;
WHEREAS, the parties hereto have agreed to certain registration rights
with respect to the Shares in accordance with the terms and conditions
hereinafter set forth. Capitalized terms used but not defined herein shall
have the meanings given to such terms in the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Purchase Agreement, the
parties hereto agree as follows:
1. DEMAND REGISTRATION RIGHTS.
(a) Subject to the other terms and conditions contained
herein, commencing three (3) months after the Closing and continuing for a
period of two (2) years after the Closing, if the Holders have not registered
for sale fifty percent (50%) of the Shares pursuant to Section 2, the Holders
collectively holding more than fifty-percent (50%) of the Shares may demand in
writing (a "demand registration request") that ABR file a registration
statement (a "demand registration statement") under the Securities Act of 1933,
as amended (the "Act"), covering the proposed sale to the public of up to 50%
of the Shares as specified therein. If the demand registration request is made
on behalf of the Holders holding less than 100% of the Shares then still held
by all Holders, then ABR shall send written notice of such demand registration
request to the remaining Holders within ten (10) days of receipt thereof.
Unless a remaining Holder shall deliver a written request for inclusion in the
demand registration statement of a specified
<PAGE> 40
number of his or her Shares to ABR within twenty (20) days of the date of such
notice by ABR, all rights of such remaining Holder to participate in such
demand registration statement shall be automatically terminated.
(b) Subject to Section 3, upon receipt of a demand
registration request in compliance with Section 1(a) from the of Holders (or,
if such request is initially made on behalf of Holder less than 100% of the
Shares as described above, upon expiration of the 20-day period in which the
remaining Holders must request registration), ABR will, as promptly as
practicable and in any event within thirty (30) days, prepare and file with the
Securities and Exchange Commission ("Commission") (and all applicable state
securities authorities) a registration statement, on such form as it may
determine in its discretionary judgment to be appropriate, covering such
proposed sale of the Shares requested to be registered pursuant to the demand
registration request. ABR shall only be required to register 50% of the Shares
pursuant to this Section 1 and, in the event Holders desire to register in the
aggregate more than 50% of the Shares, the excess number of Shares requested to
be registered shall be reduced on a pro rata basis based on the number of
Shares owned by each Holder requesting registration. The public offering of
the Shares to be covered by the demand registration statement shall be effected
through a "shelf offering" under Rule 415 of the Act on a Form S-1, Form S-2 or
Form S-3 (or successor or similar forms) registration statement, with sales of
all the Shares registered thereunder to be effected through normal brokers'
transactions or in transactions in the over-the-counter market or on any other
national securities exchange or market on which the Common Stock is listed or
traded or in a privately negotiated transaction.
(c) Subject to Section 3, ABR will use its continuing
best efforts to have the demand registration statement declared effective under
the Act by the Commission (and under applicable state securities laws by all
applicable state securities authorities) as soon as practicable after the
filing thereof and to maintain the effectiveness thereof for a period of no
longer than six months (or until all of the Shares covered thereby have been
sold if such sales are completed before the end of such 6-month period);
provided, however, ABR shall only be required to have the demand registration
statement be declared effective and maintain the effectiveness thereof
commencing three (3) months after the Closing and no later than two (2) years
after the Closing. ABR shall obtain customary opinions of legal counsel,
comfort letters from ABR's independent public accountants and take such other
action as is necessary and customary to have the demand registration statement
declared effective under the Act by the Commission and to maintain the
effectiveness for the period described above.
(d) ABR shall only be required to file one demand
registration statement for the benefit of the Holders pursuant to this Section
1; provided, however, a demand registration statement filed by ABR pursuant to
this Section 1 shall not count as the one allowed demand registration statement
until it has become effective under the Act and has been maintained effective
for a period of six months (or until all shares covered thereby have been sold
if such sales are completed before the end of such 6-month period).
-2-
<PAGE> 41
(e) ABR shall be entitled to include, as part of the
demand registration statement filed pursuant to a demand registration request,
additional shares of Common Stock proposed to be sold by ABR and/or other
shareholders of ABR; provided, however, the rights of ABR and/or such other
shareholders to include Common Stock under such demand registration statement
shall be subordinate in all respects to the prior rights of Holders to include
the Shares thereunder if a conflict of interests thereunder shall occur among
such parties.
2. PIGGYBACK REGISTRATION RIGHTS.
(a) If, at any time and from time to time, ABR and/or
other shareholders of ABR shall determine to register shares of Common Stock
under the Act for the purpose of effecting a firmly underwritten public
offering thereof for cash, ABR shall give prompt written notice thereof to all
Holders who then hold Shares describing the material terms of the proposed
public offering; provided, however, that ABR shall not be required to give such
notice to the Holders if: (i) the proposed registration is not to be made on
Commission Form S-1, S-2 or S-3 (or the successors to such forms); or (ii) is
(A) a registration of securities other than Common Stock, (B) a registration of
a stock option, incentive compensation, profit sharing or other employee
benefit plan or securities issued or issuable pursuant to any such plan, or (C)
a registration of securities proposed to be issued in exchange for securities
or assets of, or in connection with a merger, share exchange, consolidation or
other business combination involving, another corporation or entity.
(b) Subject to subsection (c) of this Section 2, upon
receiving any notice required under subsection (a) of Section 2, any Holder
desiring to participate in such a registration statement (a "piggyback
registration") shall provide written notice of such intent to ABR (a "piggyback
registration request") within twenty (20) days after the date of ABR's notice.
Such piggyback registration request shall be accompanied by: (i) a Power of
Attorney in form reasonably satisfactory to ABR, duly executed by such Holder;
(ii) a Letter of Transmittal and Custody Agreement in form reasonably
satisfactory to ABR, duly executed by such Holder; (iii) the stock certificates
representing the Shares to be registered by such Holder (or a letter from the
pledgee of any Shares agreeing to deliver the stock certificates upon payment
of the amount specified therein) accompanied by stock powers' duly executed in
blank by or on behalf of such Holder; and (iv) any other documents necessary in
ABR's reasonable opinion to facilitate the Holder's participation in such
registration (collectively, the "Registration Documents"). ABR shall use its
best efforts to register all of the Shares requested to be registered by each
Holder on his or her piggyback registration request concurrently with the
registration of the Common Stock by ABR on its own behalf and on the same terms
and conditions of the offering and sale as contemplated and agreed to by ABR.
Holders requesting to participate in any piggyback registration must sell their
Shares subject thereto on the same terms and conditions of the offering and
sale (including, without limitation, purchase price and underwriting discount
per share, but excluding any differing allocation agreed to by ABR with respect
to any over-allotment option granted) as agreed to by ABR in connection with
its sale of Common Stock thereunder. ABR shall promptly deliver to all Holders
requesting to participate in any piggyback registration copies of any
preliminary and final prospectuses relating to the public offering.
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<PAGE> 42
(c) ABR shall not be required to include any Shares which
have been requested to be registered by a Holder in any piggyback registration
under this Section 2 if ABR or the underwriters believe that, in their opinion,
the inclusion of the Shares proposed to be included by the Holders would
interfere with the timing, pricing or marketing of the Common Stock being
offered by ABR; provided, however, any reduction in the number of Shares
requested to be included by Holders in any such piggyback registration will be
made on a pro rata basis (based on the number of Shares requested to be
included therein) among the Holders (with any reduction in the number of Shares
requested to be included by Holders made on a pro rata basis based on the
number of Shares owned by each Holder requesting registration) and any other
holders of Common Stock also requesting participation in such piggyback
registration. ABR may, in its sole discretion, withdraw any such registration
statement and abandon any proposed piggyback registration in which the Holders
have requested to participate, in which case the Holders shall retain their
rights under Sections 1 and 2 hereof.
3. DENIAL, POSTPONEMENT OR SUSPENSION OF DEMAND REGISTRATION.
(a) If ABR receives a demand registration request in
compliance with Section l(a) and is then contemplating filing with the
Commission within the next thirty (30) days a registration statement which
would otherwise trigger the application of piggyback registration rights of
Holders under Section 2 hereof, then ABR may deny the demand registration
request. ABR agrees that it shall not be permitted to deny any request for the
demand registration statement until nine (9) months after the Closing. ABR
shall give prompt written notice to the Holders of any such denial and permit
the Holders the opportunity to register for sale the Shares in a piggyback
registration.
(b) ABR shall be entitled, in its sole discretion, to
postpone one-time for up to 150 days, including, without limitation, ABR's
determination that the demand registration statement would have an adverse
effect on any proposal or plan by ABR to engage in any acquisition of assets or
any merger, consolidation, tender offer or similar transaction (or, if longer,
180 days from the effective date with the Commission of any ABR registration
statement relating to a public offering or distribution of Common Stock or
other securities in which the Holders were granted piggyback registration
rights), the filing with the Commission of the demand registration statement,
and to suspend sales under the demand registration statement for up to 150 days
(or, if longer, 180 days from the effective date with the Commission of any
then pending ABR registration statement relating to a public offering or
distribution of Common Stock or other securities); provided, however, that in
computing the 6-month period for which ABR is required to maintain
effectiveness of the demand registration statement, the period of any such
suspension shall not be included. ABR shall give prompt written notice to the
Holders of any such postponement or suspension and shall likewise give prompt
written notice to the Holders of termination of such postponement or
suspension. Each Holder thereby agrees to postpone the sale of any Shares
registered pursuant to the demand registration statement during any
postponement or suspension of sales of Common Stock thereunder by ABR.
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<PAGE> 43
4. EXPENSES. Holders participating in the demand registration
statement or any piggyback registration shall pay (a) the expenses of any
attorneys, accountants or other advisors or professionals which any of them
engage in connection with their sale of Shares pursuant to the demand
registration statement or any piggyback registration, (b) all underwriting or
brokers' commission and discounts, if any, associated with the Shares being
sold by them pursuant to the demand registration statement or any piggyback
registration, and (c) all additional registration and qualification fees and
expenses related to the Shares being sold by them pursuant to the demand
registration statement or any piggyback registration. ABR shall pay all other
expenses involved in registering the Shares, including, without limitation,
attorneys' fees and accounting fees for ABR.
5. HOLDBACK AGREEMENT: FURTHER COOPERATION: CONFIDENTIALITY.
(a) By execution of this Agreement, each Holder hereby
agrees that he or she will not for a period commencing nine 99) months and
ending two (2) years after the Closing offer, sell or otherwise dispose of any
Shares owned by such Holder, in the open market or otherwise, during the period
when he or she has knowledge that an ABR registration statement (other than
those, such as Form S-8, as to which notice need not be given to Holders by ABR
under Section 1(a) hereof) is contemplated or pending or within 180 days after
the effective date with the Commission of any such registration statement
relating to a public offering or distribution of Common Stock, other than as
permitted hereunder.
(b) In connection with the demand registration statement
or any piggyback registration, Holders will furnish or cause to be furnished
such other information with respect thereto and render such further cooperation
to ABR, any underwriter and any broker/dealer as ABR, such underwriter or
broker/dealer may reasonably request. Holders participating in any such
registration statement hereby agree to execute and enter into customary
underwriting documents in connection therewith as are requested by the managing
underwriter of such offering or ABR; provided, however, that the Holders'
obligation to indemnify any persons in connection with such registration
statement shall be limited to the matters set forth in Section 6 hereof and
that such documents shall include the indemnification of the Holders by ABR
provided for in Section 6 hereof.
(c) Upon receiving any notice from ABR hereunder
respecting any contemplated or pending registration statement of ABR, each
Holder shall strictly maintain the confidentiality of such contemplated or
pending registration statement and shall make no public disclosures or comments
with respect thereto, and shall not otherwise trade in any securities of ABR
during such period.
6. INDEMNIFICATION. In the event that any Shares are included in
a registration referred to herein:
(a) Each Holder participating in a registration hereunder
will severally indemnify, defend and hold harmless ABR and the underwriter (and
their affiliates, and their
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<PAGE> 44
respective directors, officers, stockholders, representatives and employees),
from and against all loss, claim, damage and expense whatsoever reasonably
incurred (including attorneys' fees and expenses) (collectively, "Losses"),
based upon, incurred in connection with, arising out of or otherwise in respect
of any such Holder's (i) untrue statement or alleged untrue statement of any
material fact contained in the registration statement relating thereto,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or (ii) omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement in
reliance upon and in conformity with written information furnished to ABR by
such Holder and stated to be specifically for use therein.
(b) ABR agrees to indemnify, defend and hold harmless
each Holder participating in a registration hereunder (and their affiliates,
and their directors, officers, stockholders, representatives and employees)
from and against all Losses based upon, incurred in connection with, arising
out of or otherwise in respect of ABR's (i) untrue statement or alleged untrue
statement of any material fact contained in the registration statement relating
thereto, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or (iii) omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(c) The obligations and liabilities of any party to
indemnify any other under this Article 6 with respect to claims shall be
subject to the following terms and conditions:
(i) Notice and Defense. The party or parties to be
indemnified (whether one or more, the "Indemnified Party") will give
the party or parties from whom indemnification is sought (whether one
or more, the "Indemnifying Party") prompt written notice of any claim,
and the Indemnifying Party will have the right to undertake the
defense thereof by representatives chosen by it. The Indemnified
Party shall make available to the Indemnifying Party or its
representatives all records and other materials required by the
Indemnifying Party in connection with such claim and in the possession
or under the control of the Indemnified Party, for the use of the
Indemnifying Party and its representatives in prosecuting the defense
of any such claim, and the Indemnified Party shall be entitled to
participate in the defense of such claim. Subject to the provisions
of Sections 6(c)(ii) and 6(c)(iii) hereof, if the Indemnifying Party
has acknowledged its liability for indemnification hereunder and the
defense of such claim is assumed by the Indemnifying Party, and upon
approval by the Indemnified Party of counsel selected by the
Indemnifying Party, the Indemnifying Party shall be free to compromise
or settle such claim without the consent of the Indemnified Party and
shall have no liability for any compromise or settlement of such claim
without its written consent.
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<PAGE> 45
(ii) Failure to Defend. If the Indemnifying Party, within
a reasonable time after notice of any such claim, fails to assume the
defense of such claim actively and in good faith, the Indemnified
Party will (upon further notice) have the right to undertake the
defense, compromise or settlement of such claim or consent to the
entry of a judgment with respect to such claim, on behalf of and for
the account of and risk of the Indemnifying Party, and the
Indemnifying Party shall thereafter have no right to challenge the
Indemnified Party's defense, compromise, settlement or consent to
judgment therein.
(iii) Indemnified Party's Rights. Anything in this Section
6(c) to the contrary notwithstanding, (i) if there is a reasonable
probability that a claim may materially and adversely affect the
Indemnified Party other than as a result of money damages or other
money payments, the Indemnified Party shall have the right to defend
and, with the consent of the Indemnifying Party (which shall not be
unreasonably withheld), to compromise or settle such claim as to the
non-monetary component of such compromise or settlement, and (ii) the
Indemnifying Party shall not, without the written consent of the
Indemnified Party, settle or compromise any claim or consent to the
entry of any judgment which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Indemnified
Party of a release from all liability in respect of such claim.
7. DAMAGES. No Holder shall have any right to take any action to
restrain, enjoin or other delay any registration statement as the result of any
controversy that might arise with respect to the interpretation or
implementation of the registration rights afforded in this Agreement; provided,
however, that such Holder shall not be prohibited from exercising any other
remedies available to such Holder.
8. NOTICES. All notices, requests, demands and other
communications hereunder shall be given in writing and shall be: (a) personally
delivered; or (b) sent to the parties at their respective addresses indicated
herein by registered or certified U.S. mail, return receipt requested and
postage prepaid, or by private overnight mail courier service. The respective
addresses to be used for all such notices, demands or request are as follows:
(i) If to ABR: ABR Information Services, Inc.
34125 U.S. Highway 19 North
Palm Harbor, FL 34684 Attn:
Vincent Addonisio
with a required copy to: Foley & Lardner
100 N. Tampa Street
Suite 2700
P.O. Box 3391
Tampa, FL 33601-3391
Attn: Kenneth J. Meister, Esq.
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<PAGE> 46
(ii) If to Holders: [Each Holder Individually]
c/o The L.P. Baier Company
3955 Pender Drive
Fairfax, VA 22030
with a required copy to: Arter & Hadden
1801 K Street NW
4th Floor
Washington, DC 2006
Attn: Laurence E. Bensignor, Esq.
If personally delivered, such communication shall be delivered upon
actual receipt; if sent by overnight courier pursuant to this Section, such
communication shall be deemed delivered upon receipt; and if sent by U.S. mail
pursuant to this Section, such communication shall be deemed delivered as of
the date of delivery indicated on the receipt issued by the relevant postage
service or if the addressee fails or refuses to accept deliver, as of the date
of such failure or refusal. Any party to this Agreement may change its address
for the purposes of this Agreement by giving notice thereof in accordance with
this Section, with any notice of change of address effective only upon receipt.
9. ENTIRE AGREEMENT. This instrument embodies the entire
agreement between the parties hereto with respect to the transactions
contemplated herein, and there has been and are no agreements, representations
and warranties between the parties other than those set forth or provided for
herein.
10. FURTHER ASSURANCES. Each of the parties shall execute such
agreements and documents and take such further actions as may be reasonable
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby.
11. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Florida without regard to
principles of conflicts of law or any rule of interpretation or construction as
to which party drafted this Agreement.
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of ABR, its successors and assigns, and each of the
Holders and his or her heirs, executors, administrators and legal
representatives.
14. NO WAIVER. No waiver by any party hereto of any breach of, or
compliance with, any condition or provision of this Agreement by the other
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
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<PAGE> 47
No such waiver shall be enforceable unless expressed in a written instrument
executed by the party against whom enforcement is sought.
15. SEVERABILITY. If a court of competent jurisdiction should
decide that any of the provisions of this Agreement are not enforceable, in
whole or in part, the parties declare it is their intention that such
unenforceable provisions be deemed reformed so that they apply only to the
maximum extent to which they can be enforced.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
ABR INFORMATION SERVICES, INC.
By: /s/ Vincent Addonisio
-----------------------------------
HOLDERS
/s/ Rick Snyder
--------------------------------------------
Rick Snyder
/s/ Tina McIntosh
--------------------------------------------
Tina McIntosh
/s/ Rhonda E. Reeves
--------------------------------------------
Rhonda E. Reeves
/s/ Christine Erickson
--------------------------------------------
Christine Erickson
/s/ Michael McRoberts
--------------------------------------------
Michael McRobets
/s/ Victoria J. Baldwin
--------------------------------------------
Victoria J. Baldwin
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<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (this "Agreement") is
made as of this 28th day of June, 1996 by and between The L.P. Baier Company, a
Virginia corporation ("Employer"), and Rick Snyder ("Executive").
RECITALS
WHEREAS, ABR Information Services, Inc., a Florida corporation
("ABR"), is this day acquiring all of the outstanding common stock of Employer
for substantial consideration (the "Stock Exchange") pursuant to the terms and
conditions of an Agreement and Plan of Reorganization by and among ABR,
Employer, Executive and certain other parties (the "Acquisition Agreement");
WHEREAS, Executive is participating in the Stock Exchange by
exchanging all of Executive's shares of Employer's common stock to ABR for a
certain number of shares of ABR common stock;
WHEREAS, ABR intends to maintain Employer as a wholly-owned subsidiary
corporation;
WHEREAS, the Executive has been employed by Employer as an executive
officer, most recently as the President of Employer, and possesses an intimate
knowledge of the business and affairs of Employer, its policies, operations,
methods, procedures, personnel and customers (collectively, "Employer's
Business");
WHEREAS, ABR and Employer recognize that Executive's contribution as
an executive of Employer has been substantial and desire to assure Executive's
continued employment with Employer;
WHEREAS, because of, among other matters, Executive's intimate
knowledge of Employer's Business and Executive's reputation and relationships
with, among others, customers, suppliers, employees and other agents of
Employer, Employer recognizes the detrimental effect on Employer's Business
which will result if Executive were to enter into competition with Employer
within a reasonable period after the date hereof;
WHEREAS, it is a condition to ABR's obligation to acquire all of the
outstanding common stock of Employer, and to Executive's obligation to transfer
all of such common stock owned by Executive, under the Acquisition Agreement
that Executive enter into this Agreement;
WHEREAS, the parties acknowledge that each other is reasonably relying
upon the execution of this Agreement and intend that each other so rely in
connection with the Stock Exchange; and
<PAGE> 2
WHEREAS, Employer desires to hire Executive on an exclusive basis, and
Executive desires to be so hired by Employer, all in accordance with the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants and agreements of
the parties herein contained, and as an inducement to ABR the acquire the
outstanding common stock of Employer (including those shares owned by
Executive), the parties hereto, intending to be legally bound hereby, agree as
follows:
1. EMPLOYMENT AND DUTIES. Employer hereby agrees to employ
Executive as the President of Employer on the terms and conditions set forth
herein, and Executive hereby agrees to remain in the employ of Employer on such
terms and conditions. Executive shall serve as a director or in such
additional offices of Employer or any of its affiliates to which Executive may
be duly appointed or elected. Executive shall perform such duties as shall be
assigned to him from time to time by, and Executive shall report directly to,
the Board of Directors of Employer or by the Chairman of the Board of Directors
of Employer, who is intended to be Mr. James MacDougald after the consummation
of the Stock Exchange. Executive agrees to devote his full business time and
effort on an exclusive basis to the diligent and faithful performance of such
duties. Notwithstanding the foregoing, Executive shall not violate the
provisions of this Section 1 by serving as a member of the board of directors
of Electronic Transmission Corporation. Executive shall perform his duties for
Employer from Employer's offices located within 30 miles of Employer's current
location except for periodic travel that may be necessary in connection with
the performance of Executive's duties hereunder. Executive acknowledges that
under the applicable federal securities laws and regulations of the Securities
and Exchange Commission ("SEC"), the Executive may be deemed to be an
"executive officer" of ABR. During the Executive's employment by Employer,
Executive agrees to comply with the SEC regulations applicable to executive
officers of ABR, and to cooperate with ABR with respect to any disclosure or
other requirements of such laws and SEC regulations.
2. TERM. The term of Executive's employment hereunder shall
commence on the date hereof and shall continue until the third anniversary of
the date hereof, unless earlier terminated in accordance with the terms hereof
(the "Term"). After the expiration of the Term, the Executive's employment by
Employer shall continue and be subject to termination pursuant to the terms of
this Agreement.
3. COMPENSATION. As compensation for his performance of services
as an employee and executive officer of Employer hereunder, Executive shall
during the Term receive an annual salary at the rate of One Hundred Ten
Thousand Dollars ($110,000) payable, as nearly as practicable, in equal
semimonthly installments (less applicable taxes, deductions and withholding)
payable by Employer. In addition to annual salary compensation, Executive
shall be entitled to receive bonus compensation to the extent (i) bonus
compensation is made generally available by Employer to its officers and (ii)
Executive meets any performance criteria established as a prerequisite to the
payment of bonus compensation. After the Term, Executive's compensation
2
<PAGE> 3
shall be as agreed between Employer and Executive. Executive shall not be
entitled to receive any compensation or other benefits in addition to those
expressly provided for in this Agreement.
4. OTHER BENEFITS AND EXPENSES. Executive shall be entitled to
paid vacation in accordance with the existing vacation policies and practices
of Employer with respect to Executive. Executive shall be eligible to
participate in such employee benefits plans, if any, which Employer may from
time to time make generally available to its officers, and such employee
benefits plans and other benefits which ABR makes generally available to the
executive officers of its subsidiaries. Employer shall reimburse Executive for
all expenses reasonably incurred by Executive on behalf of Employer or in
fulfilling his obligations hereunder, subject to the receipt of verifying
documentation acceptable to Employer in accordance with Employer's policies
regarding the reimbursement of employee business expenses.
5. CONFIDENTIAL INFORMATION--INVENTIONS.
(a) Executive has acquired and will acquire
information and knowledge respecting the intimate and confidential
affairs of Employer in the various phases of Employer's Business,
including, without limitation, confidential information with respect
to finances, customer lists, operations, processes, apparatus,
equipment, packaging, services, marketing and distribution methods.
Accordingly, and provided that a material breach of the terms and
conditions of this Agreement by Employer is not continuing, Executive
agrees that he shall not, during the period of his employment with
Employer or thereafter, use for his own benefit any such confidential
information acquired during the term of his employment with Employer
(whether or not such employment is or was pursuant to this Agreement).
Further, during the period of his employment and thereafter, Executive
shall not, without the written consent of the Board of Directors of
Employer or a person duly authorized thereby, disclose to any person,
other than an employee of Employer or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance
by the Executive of his duties hereunder, any confidential information
obtained by him while in the employ of Employer (whether or not such
employment is or was pursuant to this Agreement).
(b) Executive agrees that all memoranda, notes,
records, papers or other documents and all copies thereof relating to
Employer's Business (some of which may be prepared by him) and all
objects associated therewith (such as models and samples) in any way
obtained by him shall at all times be and remain the property of
Employer. Executive shall not, except for Employer's use, copy or
duplicate any of the aforementioned documents or objects, nor remove
them from Employer's facilities, nor use any information concerning
them except for Employer's benefit, either during his employment or
thereafter. Executive agrees that he will deliver the original and all
copies of all of the aforementioned documents and objects, if any,
that may be in his possession to Employer on termination of his
employment, or at any other time on Employer's request.
3
<PAGE> 4
(c) Executive agrees to disclose to Employer and
to assign to Employer all of Executive's rights in any designs,
discoveries, improvements and ideas, whether or not patentable,
including, without limitation, novel or improved products, processes,
promotional and advertising materials, business data processing
programs and systems, and other marketing and sales techniques, which
relate or result from (i) Employer's Business, (ii) Executive's actual
or demonstrably anticipated research or development, or (iii) any work
performed by Executive for Employer (hereinafter collectively
"Inventions"), conceived or reduced to practice at any time during
Executive's employment by Employer (whether or not such employment is
or was pursuant to this Agreement) either solely or jointly with
others and whether or not developed on Executive's own time or with
the resources of Employer. Executive agrees that Inventions first
reduced to practice within six (6) months after termination of
Executive's employment by Employer (whether or not such employment is
or was pursuant to this Agreement) shall be presumed to have been
conceived during such employment. Further, Executive disclaims and
will not assert any rights in Inventions as having been made,
conceived or acquired prior to employment by Employer.
(d) As used in this Section 5, Employer shall be
deemed to include each and every corporation or other entity which is
or may become a parent, subsidiary or otherwise an affiliate of
Employer during the term hereof, including ABR.
6. NO COMPETITION.
(a) Provided that a material breach of the terms
and conditions of this Agreement by Employer is not continuing,
Executive agrees that during his employment by Employer, the
provisions regarding noncompetition set forth in Section 5 of the
Acquisition Agreement (the "Noncompetition Provisions") are hereby
incorporated herein by reference; provided, however, that for this
purpose all references therein to the "Shareholders" shall be
construed to mean Executive (it being understood that the intent of
this provision is that the Noncompetition Provisions shall be
incorporated herein only insofar as such provisions apply to
Executive).
(b) Executive acknowledges and agrees that the
Noncompetition Provisions may require Executive to comply with such
provisions for a period of time that is greater than the requirement
set forth in this Section 6, and Executive hereby reaffirms his
obligations to Employer and ABR under the Acquisition Agreement.
(c) Executive further covenants and agrees that
during his employment with Employer he shall not make preparations to
engage in any activity which would be prohibited by the covenants
contained in this Section 6.
4
<PAGE> 5
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION DURING THE TERM. Executive's
employment shall terminate, or be subject to termination, prior to the
expiration of the Term specified in Section 2 hereof, as follows:
(i) DEATH. Executive's employment hereunder
shall terminate upon his death.
(ii) DISABILITY. In the event Executive becomes
ill or injured so as to become unable, for a period of more
than four (4) consecutive months or for more than 120 days
within any six (6) month period, to perform his duties
hereunder on substantially a full-time basis, Employer may, at
its option, terminate Executive's employment hereunder upon
not less than ten (10) days prior written notice.
(iii) CAUSE. Employer may, at any time, terminate
Executive's employment hereunder for cause. For the purposes
of this Agreement, Employer shall have "cause" to terminate
Executive's employment hereunder upon:
(A) theft or embezzlement of Employer's
funds;
(B) conviction of (or guilty or no
contest plea with respect to) any felony;
(C) intentional violation of any express
written direction or any written rule or regulation
established by the Board and provided to Executive
that is consistent with the terms of this Agreement
and is otherwise reasonable, provided such violation
is likely to adversely affect Employer and has not
been substantially cured by Executive within thirty
(30) days of receiving written notice of such
violation by Employer; or
(D) abuse of alcohol or other drugs that
materially interferes with the performance by
Executive of his duties.
(b) TERMINATION AFTER THE TERM. Executive's
employment shall terminate, or be subject to termination, after the
expiration of the Term specified in Section 2 hereof, as follows: (i)
upon the occurrence of any of the events specified in Section 7(a)
above; or (ii) at the discretion of Employer or Executive, without
cause and without the requirement of any reason or justification, upon
not less than ninety (90) days prior written notice to the other party.
(c) CESSATION OF SALARY AND BENEFITS AFTER
TERMINATION. In the event of the termination of Executive's employment
as provided in Section 7(a) or (b), all payments of salary and benefits
under Section 3 hereof, and the reimbursement of expenses under
Section 4
5
<PAGE> 6
hereof, shall cease at the time of termination, and Executive shall not
be entitled to receive any compensation or payment on account of such
termination.
(d) TERMINATION BY EXECUTIVE FOR GOOD REASON.
Executive may terminate Executive's employment hereunder for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean,
without Executive's written consent, the occurrence of any of the
following circumstances: (i) any material diminution in Executive's
position, duties, responsibilities or authority (except during periods
when Executive is unable to perform all or substantially all of
Executive's duties or responsibilities on account of Executive's
illness (either physical or mental) or other incapacity), or (ii) any
other material breach by Employer or ABR of this Agreement, the
Acquisition Agreement or that certain Registration Rights Agreement
dated as of the date hereof between the former shareholders of LP Baier
and ABR (the "Registration Rights Agreement"). A termination of
Executive's employment pursuant to this Section 7(d) shall be effective
on the date specified in the notice from Executive to Employer
exercising Executive's right to terminate his employment hereunder for
Good Reason, but in no event less than ten (10) days nor more than
sixty (60) days from the date such notice is given. Within five (5)
business days following any such termination, Employer shall make a
lump sum payment to Executive in an amount equal to the amount of
salary and benefits under Section 3 hereof that would otherwise be
payable to Executive through the expiration of the Term, less
applicable taxes, deductions and withholding.
8. NOTICES. All notices, requests, demands and other
communications hereunder shall be given in writing and shall be: (a)
personally delivered; or (b) sent to the parties at their respective addresses
indicated herein by registered or certified U.S. mail, return receipt requested
and postage prepaid, or by private overnight mail courier service. The
respective addresses to be used for all such notices, demands or requests are
as follows:
If to Employer: The L.P. Baier
3955 Pender Drive
Fairfax, VA 22030
Attn: Board of Directors
and
ABR Information Services, Inc.
34125 U.S. Highway 19, North
Palm Harbor, FL 34684-2116
Attention: Mr. Vincent Addonisio,
Senior Vice President and
Chief Financial Officer
6
<PAGE> 7
With a copy to: Foley & Lardner
100 North Tampa Street
Suite 2700
Tampa, Florida 33602
Attn: Kenneth J. Meister, Esq.
If to Executive: Rick Snyder
13225 Coral Berry Drive
Fairfax, VA 22033
With a copy to: Arter & Hadden
1801 K Street NW
4th Floor
Washington, DC 2006
Attn: Laurence E. Bensignor, Esq.
or to such other address as either party may have furnished to the other in
writing in accordance herewith, with any notice of change of address effective
only upon receipt.
9. MISCELLANEOUS.
(a) No provisions of this Agreement may be
amended unless such amendment, modification or discharge is agreed to
in writing signed by the parties hereto.
(b) No waiver by any party hereto of any breach
of, or compliance with, any condition or provision of this Agreement
by the other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time. No such waiver shall be enforceable unless expressed in a
written instrument executed by the party against whom enforcement is
sought.
(c) This Agreement, the Acquisition Agreement and
the Registration Rights Agreement constitute the only agreements of
the parties on the subject matter hereof and no agreements or
representations, oral or otherwise, expressed or implied, with respect
to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement, the Acquisition Agreement
or the Registration Rights Agreement.
(d) If a court of competent jurisdiction should
decide that any of the provisions of this Agreement are not
enforceable, in whole or in part, the parties declare it is their
intention that such unenforceable provisions be deemed reformed so
that they apply only to the maximum extent to which they can be
enforced. Executive acknowledges that his violation, or threatened
violation, of the provisions of Section 5 or 6 would cause Employer
irreparable injury and, in addition to any other remedies to which
Employer may be entitled, Employer shall be entitled to injunctive
relief.
7
<PAGE> 8
(e) This Agreement shall be binding upon and
inure to the benefit of Employer, its successors and assigns, and
Executive and his heirs, executors, administrators and legal
representatives.
(f) The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the
State of Virginia, notwithstanding its conflicts of law principles.
(g) This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
Employer:
LP BAIER COMPANY
By: /s/ Vincent Addonisio
---------------------------------
Name: Vincent Addonisio
Title: Senior Vice President and
Chief Financial Officer
Executive:
/s/ Rick Snyder
------------------------------------
Rick Snyder
8
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
ABR INFORMATION SERVICES, INC.
<TABLE>
<CAPTION>
Year ended July 31,
------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Primary:
Average shares outstanding 6,846,523 9,798,447 11,135,280
1993 stock options issued (1) 41,714 41,714 41,714
Net effect of dilutive stock options -
based on the modified treasury stock
method using average market price 594,224 160,584 356,533
TOTAL 7,482,461 10,000,745 11,533,527
$ 2,793,678
Net income per financial statements $1,610,495 $ 5,673,784
Deduct preferred stock dividends (10,073) -- --
Adjusted net income $1,600,422 $ 2,793,678 $ 5,673,784
========== =========== ===========
Per share amount $ .21 $ .28 $ .49
========== =========== ===========
Fully Diluted:
Average shares outstanding 6,846,523 9,798,447 11,135,280
1993 stock options issued (1) 41,714 41,714 41,714
Net effect of dilutive stock options - based
on the modified treasury stock method
using the year period end price, higher
than average market price 721,718 217,960 402,430
TOTAL 7,609,955 10,058,121 11,579,424
Net income per financial statements $1,610,495 $ 2,793,678 $ 5,673,784
Deduct preferred stock dividends (10,073) -- --
Adjusted net income $1,600,422 $ 2,793,678 $ 5,673,784
========== =========== ===========
Per share amount $ .21 $ .28 $ .49
========== =========== ===========
</TABLE>
(1) Stock options issued under the ISO Plans twelve months prior to January 31,
1994 assumed outstanding for all periods presented using the treasury stock
method.
<PAGE> 1
EXHIBIT 13.1
- -------------------------------------------------------------1996 ANNUAL REPORT
[PHOTOGRAPH
ABR COMMONS BUILDING]
[ABR LOGO]
<PAGE> 2
ABR INFORMATION SERVICES, INC.--------------------------------------------------
A Brief History
ABR has undergone a dramatic evolution since beginning 1987. Having
proven itself in the most difficult area of benefits administration, ABR has
leveraged its reputation, systems and procedures to provide a complete
outsourcing solution for many health and welfare benefits.
Initially, ABR defined itself as a COBRA compliance company through
the operations of what is now ABR CobraServ (COBRA is a portable healthcare
benefit mandated by a federal regulation known as COBRA -- the Consolidat-ed
Omnibus Budget Reconciliation Act of 1985.) CobraServ has grown since then to
become the nation's largest COBRA compliance administrator.
ABR developed a long term strategy to add services and leverage its
systems expertise in benefits and its large customer base. Coincidentally, our
growing list of large clients began requesting our help in other areas of
benefits administration. We introduced services related to healthcare benefits
for inactive employees, retirees and open enrollment administration.
In 1993, ABR began to explore the larger universe of services related
to active employees. While COBRA participants represent 2% of the work force,
active employees represent the other 98%, a significantly larger market. We
found an extremely strong trend on the part of employers seeking to "outsource"
such active employee administration functions. We also found that our systems
and methodologies were ideal for performing such tasks. Much stronger, in fact,
than other capabilities available in the marketplace. In May of 1994, ABR
completed its Initial Public Offering (IPO) and raised $11 million to further
expand its systems and capabilities.
Through internal development and the acquisition of specialized
benefits administrators, ABR has significantly expanded its capabilities to
include a full range of services focusing on active and retired employees as
well as COBRA services. In 1996 we completed a secondary offering raising over
$151 million that significantly strengthens our financial position. We have
successfully implemented "Total Benefits Outsourcing" services for active
employees with one of the nation's most prestigious companies--and have taken
on broad-based administration for other companies, including one with more than
200,000 employees.
Today, ABR is the nation's leading administrator of employee health
and welfare benefits. Over 21,000 companies, encompassing more than 10 million
employees, dependents and retirees, rely on ABR's specialized services to
administer their benefit programs. With the most enviable client list and
service offerings in the industry, ABR is the leader in this unique but large
emerging market.
[GRAPHIC IMAGE OF ABR'S
SERVICES AND CLIENTS TYPES]
CONTENTS------------------------------------------------------------------------
1 Financial Highlights
2 Letter to Shareholders
4 Company Overview
10 Selected Financial Data
11 Management's Discussion/Analysis
14 Statements of Income
15 Balance Sheets
16 Statements of Shareholders' Equity
17 Statements of Cash Flows
18 Notes to Financial Statements
27 Report of Independent CPA
28 Corporate and Shareholder Information
29 Directors and Officers
<PAGE> 3
- -----------------------------------------------------------*FINANCIAL HIGHLIGHTS
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
RESULTS OF OPERATIONS- YEAR ENDED JULY 31, 1995 1996 CHANGE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 18,835 $ 31,162 66%
Net income $ 2,794 $ 5,674 103%
Net income per share $ .28 $ .49 75%
Weighted average shares outstanding, primary 10,001 11,534 15%
<CAPTION>
- ---------------------------------------------------------------------------------
FINANCIAL POSITION - JULY 31, 1995 1996 CHANGE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and investments $ 24,377 $ 161,199 561%
Total assets $ 33,191 $ 202,574 510%
Working capital $ 14,192 $ 145,825 928%
Long term debt $ -- $ -- $--
Total shareholders' equity $ 19,213 $ 181,150 843%
</TABLE>
Revenues Net Income Net Income Total
Per Share Shareholders' Equity
(in millions) (in millions) (in dollars) (in millions)
[GRAPH [GRAPH [GRAPH [GRAPH
1993 - 1996] 1993 - 1996] 1993 - 1996] 1993 - 1996]
*Restated for the three-for-two stock splits completed on July 13, 1995 and
February 19, 1996 and an acquisition by a pooling of interest.
1
<PAGE> 4
[PHOTOGRAPH]
James E. MacDougald
Chairman of the Board
President and Chief Executive Officer
TO OUR SHAREHOLDERS-------------------------------------------------------------
ABR's second full year as a public company was a truly remarkable one,
as we exceeded all of our goals. For the year ended July 31, 1996, revenues
increased 66% to $31.2 million compared with $18.8 million last year. Net
income increased 103% to $5.7 million compared to $2.8 million last year. Net
income per share increased to $.49 compared to $.28, despite an increase in the
weighted average number of shares outstanding due to the Company's secondary
offering in March, 1996. In that offer-ing, ABR attracted some of America's
best-known growth investors, raising over $151 million (net). Our balance sheet
continues to strengthen, with assets increasing six-fold to over $200 million.
With cash and investments of over $160 million and no debt, we have the
flexibility and resources to fuel our continued growth -- both internal and
through acquisition opportunities.
During the year, ABR continued to expand its infrastructure, client
base and service offerings. We added more than 3,000 clients, boosting our
client base to over 21,000, including many "Fortune/Forbes 500" employers
across all industries. Even as our core business grew tremendously, we began
transforming ABR into a multi-dimensional company through internal development
and acquisitions. ABR broadened its reach in benefits administration
outsourcing during the year, increasing its non-COBRA revenue from 8% of the
total to 36%. We added a number of services including FSA (Flexible Spending
Account) administration, QDRO (Qualified Domestic Relations Order)
administration, Educational Benefits administration, and Total Benefits
administration.
Through the acquisitions of Bullock Associates (renamed ABR Benefits
Services, Inc.) and Total Cobra Services, Inc., we added several new service
offerings, increased our COBRA and Retiree Service market share, and
established a presence on the West Coast. The acquisition of The L.P. Baier
Company gave us an immediate entry into the fast-growing area of FSA
administration.
Late in fiscal 1996, ABR implemented "Total Benefits Outsourcing"
services for a "Fortune/Forbes 100" company, performing central eligibility
administration functions for all of their health and welfare benefit plans. To
capitalize on these capabilities, which we believe are unmatched in the nation,
we are marketing them to other large prospects through broad-based advertising
and direct marketing efforts.
Subsequent to year end ABR added Vincent Addonisio, Executive Vice
President and Chief Financial Officer, to the Board of Directors to replace the
retiring Stephen R. Hood. Steve, who has served ABR in various capacities
during the last ten years, continues to be a friend to ABR, and we wish him
continued good health and future success.
With all of this year's accomplishments, we firmly believe that ABR's
best is yet to come and look forward to another great year in '97. Thank you
for your continued support. Cordially,
[SIGNATURE]
[PHOTOGRAPH
OVERHEAD
CONFERENCE]
2
<PAGE> 5
1996: A YEAR OF ACCOMPLISHMENTS-------------------------------------------------
- - Twelve consecutive record quarters of over 30% growth in revenues
and earnings reported.
- - Stock price up 263%.
- - Stock split three-for-two on February 19, 1996.
- - Completed a secondary public offering, raising over $151 million.
- - Customer base increased from 18,000 to 21,000, involving more than 10
million covered employees, retirees and dependents.
- - Acquired Bullock Associates, Inc. of Princeton, NJ (now called ABR
Benefits Services, Inc.) to broaden our service offerings.
- - Acquired Total Cobra Services, Inc. of Irvine, CA to increase COBRA
and Retiree Services market share while establishing a geographic
presence on the West Coast.
- - Implemented "Total Benefits Outsourcing" operations for a high-profile
Fortune 100 company.
- - Extensive computer system upgrade and expansion
proceeded on schedule.
- - Cutting edge technologies implemented, including OCR (Optical
Character Recognition), IVR (Interactive Voice Response) and EDI
(Electronic Data Interchange).
- - Acquired The L.P. Baier Company of Fairfax, VA and gained immediate
entrance into the FSA administration market.
- - Forbes Magazine named ABR one of the "200 Best Small Companies in
America" for the second year in a row.
TOTAL ASSETS
[GRAPH
1992 - 1996]
BOOK VALUE PER SHARE
[GRAPH
1992 - 1996]
MARKET CAP
[GRAPH
1994 - 1996]
[PHOTOGRAPH
MAN AT CAPITAL
BUILDING]
3
<PAGE> 6
ABR INFORMATION SERVICES, INC.
COMPANY PROFILE-----------------------------------------------------------------
Created as a holding company in 1994, ABR Information Services, Inc.
is recognized as the leader in the employee benefits administration field. The
company provides benefits administration services on an "outsourcing" basis to
employers of all sizes--offering them an "a la carte" menu of services from
which to choose. They may also have ABR provide a "Total Benefits Outsourcing"
solution. The company derives its revenue in 3 main areas of operation:
[PRO FORMA
WITH
ACQUISITIONS
PIE CHART]
COBRA SERVICES--PORTABLE HEALTHCARE---------------------------------------------
ABR delivers employee health benefits "portability" administration
services primarily through its ABR CobraServ subsidiary, the nation's largest
independent "COBRA" compliance service bureau, as well as through other
subsidiaries. With more than 21,000 clients, ABR helps employers adhere to
strict and complex federal mandates that require employers to offer continuing
healthcare coverage to employees and dependents who would otherwise lose their
group health coverage due to termination of employment or other factors. 2
- - 21,000+ customers
- - Prospective universe of more than 650,000 employers plus public sector
- - ABR leads market with 3%
market share
- - Most employers, approximately 94%, administer
in-house
RETIREE AND INACTIVE EMPLOYEE SERVICES------------------------------------------
A natural extension of its COBRA operations, Retiree and Inactive
Employee benefits administration assists employers with ex-employees and their
dependents. This is a special subset of the employers' benefits administration
activities. Employers desire to fulfill their promises and obligations to these
individuals, but realize that their primary focus must be on their active
operations -- and their active employees. ABR provides services such as retiree
billing, vestee servicing, retiree services, open enrollment administration,
FMLA (Family Medical Leave Act) services and general billing services for
non-employees.
- - 60 large clients
- - Prospective universe of 12,000 employers
- - Opportunity to cross-market to existing COBRA client base
- - Government and accounting regulations make employer administration for
retirees more difficult
ACTIVE EMPLOYEE ADMINISTRATION--------------------------------------------------
Benefits administration for Active Employees and their dependents
represents the most recent--and by far the largest--market opportunity for ABR.
With the significant development and expansion of services such as "Total
Benefits Outsourcing," and with our recent acquisitions of companies
specializing in various aspects of active employee administration. ABR has
something to offer virtually every employer-with services ranging from
educational benefits administration to FSA administration, group health
insurance plan open enrollments and maintaining, updating and servicing
clients' central benefits eligibility data bases.
- - 1000+ customers, including some of the nation's largest outsourcing
arrangements
- - Opportunity to cross-sell
- - State of the art technology in place provides competitive advantage
- - ABR positioned at the forefront of major outsourcing trend
4
<PAGE> 7
[PHOTOGRAPH
ABR COMMONS
BUILDING]
ABRCommons
Current Headquarters
[PHOTOGRAPH]
ABRPlaza Available mid 1999
[PHOTOGRAPHIC
RENDERING]
ABRCenter
Available mid 1997
[PHOTOGRAPHIC
RENDERING]
THE EXPANDING SCOPE OF
ABR INFORMATION SERVICES, INC.
ABR takes pride in its growth to date, both in terms of its business activities
and its infrastructure. We continue to pave the way for future growth -- in a
literal sense. In addition to our facilities in California, New Jersey,
Virginia and Florida, we are developing expanded facilities (shown above) to
supplement our headquarters location, and have secured land for our future
expansion. Such planning is necessary to accommodate our projected rate of
expansion over the coming five-year period, and illustrates the depth of our
industry commitment.
[PHOTOGRAPH
ABR COMMONS
BUILDING]
5
<PAGE> 8
BENEFITS ADMINISTRATION OUTSOURCING -- AN EXPLODING TREND-----------------------
Downsizing, streamlining and refocusing on core competencies are key
elements of today's business trends. Such efforts promise to strengthen and
continue into the foreseeable future. As a result, companies from the largest
to the smallest are striving to outsource activities that are not crucial to
their core business.
The growing trend toward the outsourcing of employee benefits
administration is a direct result of this overall business climate.
It is estimated that the current market opportunity for benefits
administration exceeds $10 billion annually. This figure is expected to grow
as larger companies implement outsourcing arrangements and pave the way for
others to follow. It has been our experience that the level of interest in
outsourcing benefits administration services expressed by employers has
increased over the past year.
The explosive growth of the outsourcing trend creates tremendous
opportunities for companies able to service outsourcing needs in a professional
way. Only a limited number of companies can be considered potential providers
of such services. Many of those who are attempting to provide such services
are doing so in a "catch-up" or "follow the leader" mode--developing systems to
match administrative needs they have not encountered in their previous business
relationships. We feel that this is a significant handicap to such companies.
ABR has been dedicated to benefits administration for 10 years. Our experience
tells us that the systems required to deal with full-range benefits
administration services are extremely complex, and would be very difficult to
develop on an ad hoc basis.
ABR's systems have undergone evolutionary development over many years
of live application. As a result, they can anticipate and accommodate all of
the permutations that comprehensive benefits administration entails--because
such situations have already been encountered and dealt with.
A full service benefits administrator must make significant capital
investments, as well. In addition to being systems-intensive, benefits
administration is also labor-intensive. A major commitment to staffing,
rigorous training and proper facilities are prerequisites to being able to
provide comprehensive, efficient services. ABR has made these commitments.
ABR'S UNIQUE ROLE
WITHIN THE
OUTSOURCING INDUSTRY-----------------------------------------------------------
ABR brings a number of unique characteristics to the benefits
outsourcing industry and, in so doing, places itself in a position of
considerable strength.
As a service bureau, we are able to offer our clients the greatest
possible return on their investment. We provide economies of scale,
[PHOTOGRAPHIC
COLLAGE
OPERATORS/
CUSTOMER
SERVICE]
[PHOTOGRAPH
MEETING IN
OFFICE]
6
<PAGE> 9
location and technology that cannot be found elsewhere. The size of our
benefits administration client list establishes us as the true industry leader,
by a wide margin. With more than 21,000 clients, we are able to invest in
systems and technologies that are absolute state-of-the-art--and then spread
out the cost and benefit across our entire client base. The result is an
unparalleled level of service to our clients at minimum cost.
With more than 600 employees dedicated entirely to benefits
administration, we provide a level of expertise through specialization that is
second to none. At this staffing level, we also reinforce our status as the
industry leader. No other provider of benefits outsourcing services has an
equivalent level of staff dedicated to this purpose.
Benefits administration is our core business. It is not a sideline or
a value-added service subjugated to other interests. This level of
specialization and commitment is a tremendous client benefit not to be found
elsewhere in our industry.
OUR INDUSTRY
- -----------------------------------------------------------------------APPROACH
Armed with the advantage of a public company and resources of more
than $160 million in cash, ABR is in the process of consolidating its position
within the benefits outsourcing industry. We have invested in, and continue to
invest in, cutting-edge technologies such as IVR (Interactive Voice Response),
OCR (Optical Character Recognition), EDI (Electronic Data Interchange) and
automated FAX technologies. We have also invested in computer systems which
offer greater processing power and practically unlimited expandability.
Investing in such capabilities enhances the level of service we can offer our
clients and their employees and dependents. This distances us from our
competition and creates significant barriers to entry into the industry.
We have identified more than 30 categories of benefits outsourcing
services that comprise the mix of benefits administration services that our
customers require, and we are systematically expanding our capabilities in key
areas. Among these areas are Central Eligibility Maintenance, Open Enrollment
administration, FSA (Flexible Spending Account) administration, HMO
administration, Tuition Reimbursement administration, QDRO administration, and
others.
We have expanded our capabilities in some of these areas through
internal development and through acquisitions of specialized companies such as
The L.P. Baier Company and Bullock Associates, Inc. We continue to evaluate
acquisition opportunities which would enhance the depth of our service
offerings and expand our market position. Being the best- capitalized company
in our industry segment aids us in consolidating our industry position and
provides the flexibility to fuel our growth.
[PHOTOGRAPHIC
COLLAGE
COMPUTER
EQUIPMENT]
[PHOTOGRAPH
PRESENTATION
MEETING]
7
<PAGE> 10
ABR'S BUSINESS
STRATEGY------------------------------------------------------------------------
We are very conscious of the benefits of obtaining business that
generates recurring revenue, and such an approach has played a critical role in
ABR's growth to date. Our typical service, whether it is COBRA compliance
administration, retiree benefits administration or general benefits
administration, becomes an essential, ongoing element of our clients'
day-to-day operations. We don't sell one-time solutions, but price our services
based upon events that occur frequently and are common to all employers. The
result is an ongoing revenue stream after the initial sales effort. We intend
to structure our future new business efforts in a similar manner.
We are also conscious of the benefits of expanding our capabilities
through continued internal development and the acquisition of complementary
businesses. We have the resources and expertise to develop additional services
internally, as well. By acquiring complementary businesses, we are able to
immediately expand our service offerings and our level of expertise in key
benefits administration areas. At the same time, we expand our administrative
capacity and our client base. It is our intent to continue with this dual
approach in the future, as well.
Our strategy for continued healthy growth is to aggressively
capitalize on our financial strength, our capabilities and our role as an
industry leader to maximize our share of the benefits administration
outsourcing business while the trend is in its initial rapid growth phase. We
will accomplish this objective by increasing market share in three key areas of
operation--COBRAservices, Retiree and Inactive Employee benefits
administration, and Active Employee benefits administration.
COBRA SERVICES------------------------------------------------------------------
PROFILE: Although ABR possesses a share of the COBRA administration
market equal to that of all of our competitors combined, we still have just
over 3% of the total potential market of 650,000 employers who are required to
comply with COBRA regulations. Our intention is to increase market share
through intensified direct marketing efforts, an expanded sales force and
increased sales through allied third parties such as insurance agents and
brokers.
SERVICES: The most comprehensive turnkey COBRA compliance service
available.
KEY ACCOMPLISHMENTS 1996:
- Attained level of 21,000 clients;
- Processed 600,000+ COBRA events;
- Collected over $150,000,000 in COBRA premiums;
- Acquired COBRA business of Bullock Associates, Total Cobra Services and
[PHOTOGRAPH
OVERHEAD
DESK]
[PHOTOGRAPH
EXECUTIVE
MEETING]
8
<PAGE> 11
The L.P. Baier Company.
GROWTH OPPORTUNITIES: From a current client base of 21,000 to a
prospective universe of 650,000 employers required to comply with COBRA
regulations, as well as public sector organizations.
RETIREE AND INACTIVE
EMPLOYEE BENEFITS
- -----------------------------------------------------------------ADMINISTRATION
PROFILE: Provider of benefits administration services for retirees,
dependents, and others who are not considered "active" employees. ABR has most
often been selected by existing clients to perform such services as an
extension of services currently provided through other operations. Our
intention is to increase market share by aggressively marketing inactive
employee-related services to our existing client base and by targeting large
non-client prospects.
SERVICES: Retiree billing services, dependent billing,
FMLA and other non-employee administration services.
KEY ACCOMPLISHMENTS 1996:
- Increased client base from 38 to 60;
- Converted operations to new computer hardware/software platform to
facilitate rapid growth;
- Acquired retiree business of Bullock Associates and Total Cobra
Services.
GROWTH OPPORTUNITIES: More than 12,000 employers with over 1,000
employees are considered prime prospects for Retiree/Inactive Employee
administration.
ACTIVE EMPLOYEE
BENEFITS
- ------------------------------------------------------------------ADMINISTRATION
PROFILE: Provider of wide-ranging general employee benefits
administration services encompassing all aspects of Active Employee benefits.
ABR offers such services either "a la carte" or on a "Total Benefits
Outsourcing" basis. ABR's intention is to aggressively market its services to
its largest clients and to Fortune 1000 level employers through direct and
indirect marketing channels.
SERVICES: Ranging from central eligibility maintenance to open
enrollment administration, FSA (Flexible Spending Account) administration,
HMOadministration, Educational Benefits administration, QDRO (Qualified
Domestic Relations Order) administration, and others.
KEY ACCOMPLISHMENTS 1996:
- Increased client base from 1 to 1,000;
- Developed "Total Benefits Outsourcing" services internally and expanded
services such as QDRO and FSA through acquisition of Bullock Associates
and The L.P. Baier Company;
- "Total Benefits Outsourcing" services for a 100,000-employee client were
fully implemented.
GROWTH OPPORTUNITIES: More than 650,000 employers are
considered prospects for various Active Employee benefits administration
services. "Total Benefits Administration" is primarily targeted at employers
with more than 5,000 employees.
[PHOTOGRAPH
OVERHEAD
DESK]
9
<PAGE> 12
SELECTED FINANCIAL DATA---------------------------------------------------------
<TABLE>
<CAPTION>
Years ended July 31,
----------------------------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
(in thousands except per share data)
Statement of Income Data (1):
Revenue $7,334 $ 9,028 $13,465 $18,835 $ 31,162
Cost of services 4,348 5,232 7,320 10,035 17,645
Selling, general and administrative expenses 1,520 1,878 3,250 4,448 6,575
Other operating expenses 270 400 369 375 219
Acquisition costs -- -- -- -- 361
------ ------- ------- ------- --------
Operating income 1,196 1,518 2,526 3,977 6,362
Interest income (expense), net (18) 4 65 572 2,872
------ ------- ------- ------- --------
Income before extraordinary item and
income taxes 1,178 1,522 2,591 4,549 9,234
Income taxes 435 570 981 1,755 3,560
------ ------- ------- ------- --------
Income before extraordinary item 743 952 1,610 2,794 5,674
Extraordinary item (2) 273 -- -- -- --
------ ------- ------- ------- --------
Net income $1,016 $ 952 $ 1,610 $ 2,794 $ 5,674
====== ======= ======= ======= ========
Per share data: (3)
Income before extraordinary item $ .11 $ .14 $ .22 $ .28 $ .49
Extraordinary item .04 -- -- -- --
------ ------- ------- ------- --------
Net income $ .15 $ .14 $ .22 $ .28 $ .49
====== ======= ======= ======= ========
Weighted average shares outstanding (4) 6,614 6,701 7,482 10,001 11,534
<CAPTION>
July 31,
----------------------------------------------------------------------
1992 1993 1994 1995 1996
------ -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
(in thousands)
Balance Sheet Data (1):
Working capital 1,238 $ 1,781 $13,676 $14,192 $ 145,825
Total assets 8,925 11,947 27,186 33,191 202,574
Total long term debt, excluding current portion 230 476 -- -- --
Redeemable preferred stock, excluding current portion 237 127 -- -- --
Total shareholders' equity 1,819 2,753 16,113 19,213 181,150
</TABLE>
(1) Restated for an acquisition by a pooling of interest.
(2) Tax benefit attributable to the utilization of the Company's net operating
loss carryforwards.
(3) Restated for the three-for-two stock splits completed on July 13, 1995
and February 19, 1996.
(4) Includes Common Stock and Common Stock equivalents.
10
<PAGE> 13
- ----------------------------------------------MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
OVERVIEW
The Company's revenues are currently generated from three sources. First,
the Company generates revenues through its COBRA compliance services. Second,
the Company generates revenue from providing administration services with
respect to benefits provided to retirees and inactive employees. Third, the
Company generates revenue from providing administration services with respect
to benefits provided to active employees.
The first source of revenue for the Company, COBRA compliance services, is
generated primarily from its qualifying event agreements with employers and
through capitation agreements with insurance companies. Through qualifying
event agreements, the Company receives a fixed, per occurrence fee from its
customers for each qualifying event. A qualifying event occurs when an employee
or his or her dependents experience a loss of coverage under a group healthcare
plan. The amount of the fixed fee varies depending on the method of the
qualifying event notification mailing, which is selected by the customer.
Through capitation agreements, insurance companies designate the Company as the
administrator of COBRA compliance for their group insurance clients that are
subject to COBRA. The Company is paid a monthly fee for each employee covered
by the group plan. The revenue generated under a capitation agreement is not
dependent on the triggering of a qualifying event, but is determined based on
the number of employees covered by the group plan at the beginning of each
month. The Company also receives an administrative fee typically equal to 2%
of the monthly health insurance premium that is paid by or on behalf of each
continuant. In addition, the Company generates revenues from customers for
additional COBRA compliance and healthcare administration services, both on a
one-time and continuous basis. These additional revenues include new account
fees paid to the Company when it is retained by a new customer. During fiscal
1995 and fiscal 1996, 83.8% and 69.9%, respectively, of the Company's revenues
were attributable to the Company's COBRA compliance services.
The second source of the Company's revenue is administration services with
respect to benefits provided to retirees and inactive employees, including
retiree healthcare, disability, surviving dependent, family leave and severance
benefits. During fiscal 1995 and fiscal 1996, 7.2% and 15.7%, respectively, of
the Company's revenues were attributable to the Company's administration
services for retirees and inactive employees.
The third source of the Company's revenue is administration services with
respect to benefits provided to active employees. Through this service, the
Company provides benefits administration services for active employees, such as
enrollment, eligibility verification, QDRO administration, Flexible Spending
Account administration and pension services. During fiscal 1995 and fiscal
1996, 9.0% and 14.4%, respectively, of the Company's revenues were attributable
to benefits administration services for active employees.
The Company has experienced significant growth in recent years, with
revenues increasing from $9.0 million in fiscal 1993 to $31.2 million in fiscal
1996, and net income increasing from $952,000 in fiscal 1993 to $5.7 million
in fiscal 1996.
Cost of services includes direct personnel, occupancy and other costs
associated with providing services to customers, such as mailing and printing
costs. Selling, general and administrative expenses include administrative,
marketing and certain other indirect costs. Other operating expenses primarily
consist of certain software development costs.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of revenue represented by certain items reflected in the Company's statements
of income as restated to reflect the acquisition by a pooling of interest.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Cost of services 54.4 53.3 56.6
Selling,
general &
administrative
expenses 24.1 23.6 21.1
Other operating
expenses 2.7 2.0 .7
Acquisition costs -- -- 1.2
----- ----- -----
Operating
income 18.8 21.1 20.4
Interest
income (net) 100.5 103.0 109.2
Income taxes 7.3 9.3 11.4
----- ----- -----
Net income 12.0% 14.8% 18.2%
===== ===== =====
- -----------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
YEAR ENDED JULY 31, 1996
COMPARED TO
YEAR ENDED JULY 31, 1995
Revenues increased $12.3 million, or 65.5%, to $31.2 million during the
year ended July 31, 1996 from $18.8 million in the year ended July 31, 1995. Of
the $12.3 million increase in revenues, $6.0 million was attributable to
increased revenues from COBRA compliance services, $3.5 million was
attributable to increased revenues from retiree/inactive employee benefits
administration and approximately $2.8 million was due to increased revenues
from active employee benefits administration.
The COBRA compliance revenues increased primarily as a result of the
addition of new customers and as a result of the acquisitions.
The increase in revenues from retiree/inactive employee benefits
administration was primarily attributable to the addition of new customers
obtained by the Company and as a result of the acquisitions during the year
ended July 31, 1996.
The increase in revenues from active employee benefits administration was
primarily attributable to the addition of new customers obtained by the Company
and as a result of an acquisition during the year ended July 31, 1996.
Cost of services increased 75.8% to $17.6 million during the year ended
July 31, 1996 from $10.0 million during the year ended July 31, 1995. The
increase in cost of services was attributable to the addition of data
processing, information systems and customer service personnel to support
growth as well as the result of the acquisitions. As a percentage of revenues,
cost of services increased to 56.6% from 53.3% for the same period. This
increase as a percentage of revenues resulted from increasing the operating
infrastructure to support the Company's growth.
Selling, general and administrative expenses increased 47.8% to $6.6
million during the year ended July 31, 1996 from $4.5 million in the year ended
July 31, 1995. The increase in selling, general and administrative expenses was
primarily attributable to the addition of marketing, management and
administrative personnel to support the Company's growth. As a percentage of
revenues, selling, general and administrative expenses decreased to 21.1% from
23.6% for the same periods. The decrease as a percentage of revenues resulted
primarily from operating efficiencies from the allocation of these expenses
over a larger revenue base.
Other operating expenses decreased 41.8% to $218,000 during the year ended
July 31, 1996 from $375,000 in the year ended July 31, 1995.
Interest income increased $2.4 million, or 426.3%, to $3.0 million during
the year ended July 31, 1996 from $573,000 in the year ended July 31, 1995.
This increase is a result of the investment of the proceeds from the secondary
stock offering completed in March 1996.
Income taxes increased 102.9% to $3.6 million during the year ended July
31, 1996 from $1.8 million during the year ended July 31, 1995. The Company's
effective tax rate remained the same for both periods at 38.6%.
As a result of the foregoing, the Company's net income increased 103.1% to
$5.7 million during the year ended July 31, 1996 from $2.8 million in the year
ended July 31, 1995. Net income per share was $.49 for the year ended July 31,
1996 compared to $.28 for the prior year.
YEAR ENDED JULY 31, 1995
COMPARED TO
YEAR ENDED JULY 31, 1994
Revenues increased $5.4 million, or 39.9%, to $18.8 million for the year
ended July 31, 1995 from $13.5 million for the year ended July 31, 1994. Of the
$5.4 million increase in revenues, $4.3 million was attributable to additional
revenues from COBRA compliance services, $386,000 was due to additional
revenues from retiree/inactive employee benefits administration and $655,000
was due to increased revenues from active employee benefits administration.
COBRA compliance revenues increased primarily as a result of the addition
of new customers, a higher rate of employee turnover experienced by the
Company's customers and an increase in the average price for these services.
These revenues also increased due to an increase in revenues from the 2%
administration fee on monthly health insurance premiums collected from
continuants during the year ended July 31, 1995 compared to the year ended July
31, 1994.
The increases in revenues from retiree/inactive employee benefits
administration and active employee benefits administration were primarily
attributable to the addition of new customers obtained by the Company who were
not customers of the Company during the year ended July 31, 1994.
Cost of services increased 37.1% to $10.0 million for the year ended July
31, 1995 from $7.3 million for the year
12
<PAGE> 15
ended July 31, 1994. As a percentage of revenues, however, cost of services
decreased to 53.3% for the year ended July 31, 1995 from 54.4% for the year
ended July 31, 1994. The increase in cost of services was attributable to the
addition of data processing, information systems and customer service personnel
to support growth and an increase in operating expenses to service the
additional revenues. The decrease as a percentage of revenues resulted from
economies of scale associated with spreading certain fixed costs over a larger
revenue base.
Selling, general and administrative expenses increased 36.9% to $4.5
million for the year ended July 31, 1995 from $3.3 million for the year ended
July 31, 1994 and as a percentage of revenues, remained fairly constant. The
increase in selling, general and administrative expenses was primarily
attributable to the addition of management, marketing and administrative
personnel to support the Company's growth.
Other operating expenses remained fairly constant for the year ended July
31, 1995 compared to the year ended July 31, 1994 and as a percentage of
revenues, decreased to 2.0% from 2.7% for the same periods. The decrease as a
percentage of revenues resulted from operating efficiencies associated with the
allocation of these expenses over a larger revenue base.
Income taxes increased 79.0% to $1.8 million for the year ended July 31,
1995 from $981,000 for the year ended July 31, 1994. The Company's effective
tax rate remained fairly constant, increasing slightly to 38.6% from 37.8%. In
fiscal 1994, the Company adopted SFAS No. 109, "Accounting for Income Taxes."
The effect on the Company's consolidated financial statements of the adoption
of SFAS No. 109 was insignificant. See Note B of notes to consolidated
financial statements.
As a result of the foregoing, the Company's net income increased 73.5% to
$2.8 million for the year ended July 31, 1995 from $1.6 million for the year
ended July 31, 1994. Net income per share was $.28 for the year ended July 31,
1995 compared to $.22 for the year ended July 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
In March 1996, the Company completed a secondary stock offering which
provided, net cash after offering expenses, $151 million to its operations. Net
cash provided by operating activities was $11.5 million for the year ended July
31, 1996 compared to $5.4 million for the same period of 1995. As of July 31,
1996 and 1995, the Company's working capital and current ratio were $145.8
million and 8.1-to-1 and $14.2 million and 2.1-to-1, respectively. The Company
invests excess cash balances in short-term investment grade securities, such as
money market investments, obligations of the U.S. government and its agencies
and obligations of state and local government agencies.
During the year ended July 31, 1996, the Company's capital expenditures
were $15.8 million.
The Company recently purchased a 110,000 square foot facility situated on
12.7 acres of land in Palm Harbor, Florida. The cost of improvements to be
made by the Company to such facility has been estimated to be $5.8 million.
Additionally during the past 12 months, the Company purchased 72 acres of
land for $2.1 million in Tarpon Springs, Florida to hold for future
expansion of operating facilities. Management estimates that as of
July 31, 1996, approximately $12.0 million will be required in order for
the Company to purchase equipment for and to upgrade the Company's
information processing systems.
The Company has a five-year, $15.0 million unsecured credit facility. The
Company has agreed to maintain all of its assets free and clear of all liens,
encumbrances and pledges, except purchase money security interests in specific
equipment in an aggregate amount of less than $500,000 as long as the credit
facility remains outstanding or any indebtedness thereunder remains unpaid.
Interest on the principal balance outstanding under this line of credit accrues
at a floating interest rate equal to the prime rate or, at the Company's
option, to the 30-day London Interbank Offering Rate (LIBOR), plus an
applicable interest rate margin between 1% and 2% based on certain financial
ratios. The credit facility contains certain financial covenants requiring the
maintenance of cash and cash equivalents and investments equal to or greater
than customer account deposits, a funded debt to EBITDA ratio of a maximum of
2.25-to-1, a debt service coverage ratio of not less than 1.35-to-1, as well as
the maintenance of a certain funded debt to tangible net worth ratio. As of
July 31, 1996, the Company was in compliance with all such covenants and there
were no amounts outstanding under the credit facility.
The Company believes that its cash, investments, its cash flow from
operations and the funds available from its credit facility will be adequate to
meet the Company's expected capital requirements for the foreseeable future.
13
<PAGE> 16
ABR INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME----------------------------------------------
<TABLE>
<CAPTION>
Years ended July 31,
-----------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue $13,464,797 $18,834,636 $31,162,181
Operating expenses:
Cost of services 7,319,671 10,035,168 17,645,269
Selling, general and administrative 3,249,890 4,448,319 6,575,390
Other operating 368,873 375,029 218,319
Acquisition costs -- -- 361,198
----------- ----------- -----------
10,938,434 14,858,516 24,800,176
----------- ----------- -----------
Operating income 2,526,363 3,976,120 6,362,005
Interest income (expense):
Interest income 98,109 572,573 3,013,551
Interest expense (33,312) (4) (141,406)
----------- ----------- -----------
64,797 572,569 2,872,145
----------- ----------- -----------
Income before income taxes 2,591,160 4,548,689 9,234,150
Income taxes 980,665 1,755,011 3,560,366
----------- ----------- -----------
Net income $ 1,610,495 $ 2,793,678 $ 5,673,784
=========== =========== ===========
Net income per share $ .22 $ .28 $ .49
=========== =========== ===========
Weighted average shares outstanding 7,482,461 10,000,745 11,533,527
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 17
ABR INFORMATION SERVICES, INC.
- ---------------------------------------------------- CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
July 31,
-------------------------------
1995 1996
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $19,403,090 $ 14,088,396
Investments 4,974,035 147,111,102
Accounts receivable, net of allowance for doubtful
accounts of $26,202 and $38,894, respectively 2,507,956 3,870,539
Prepaid expenses and other 717,990 1,282,952
----------- ------------
Total current assets 27,603,071 166,352,989
PROPERTY AND EQUIPMENT, net 2,447,119 14,539,898
SOFTWARE DEVELOPMENT COSTS, net of accumulated
amortization of $128,388 and
$220,535, respectively 2,984,736 6,181,973
GOODWILL, INTANGIBLES AND OTHER ASSETS, net 155,766 15,498,745
----------- ------------
TOTAL ASSETS $33,190,692 $202,573,605
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 278,040 $ 615,663
Accrued expenses 893,110 762,442
Customer accounts deposits 11,783,187 18,019,405
Unearned revenue 271,375 647,093
Income taxes payable 184,968 483,663
----------- ------------
Total current liabilities 13,410,680 20,528,266
DEFERRED INCOME TAXES 567,041 895,555
SHAREHOLDERS' EQUITY
Preferred Stock - authorized 2,000,000 shares of
$.01 par value; no shares issued -- --
Common Stock - authorized 20,250,000
shares of $.01 par value; issued and outstanding,
6,640,814 and 13,588,194 shares, respectively 66,408 135,882
Additional paid in capital 13,686,162 169,879,717
Retained earnings 5,460,401 11,134,185
----------- ------------
TOTAL SHAREHOLDERS' EQUITY 19,212,971 181,149,784
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $33,190,692 $202,573,605
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 18
ABR INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY---------------------------------
YEARS ENDED JULY 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-in
Number Amount Capital
---------- -------- ------------
<S> <C> <C> <C>
Balance at July 31, 1993 2,798,531 $ 27,985 $ 1,659,001
Exercise of stock options and warrants 438,524 4,385 896,814
Redeemable preferred stock dividends -- -- --
Purchase and retirement of common stock (383) (4) (3,548)
Initial public offering, net of offering costs
of $507,977 1,199,875 11,999 10,350,891
Tax benefit related to exercise of certain
stock options -- -- 499,193
Net income -- -- --
---------- -------- -----------
Balance at July 31, 1994 4,436,547 44,365 13,402,351
Common stock split 2,165,931 21,659 (22,364)
Exercise of stock options 38,336 384 231,846
Tax benefit related to exercise of certain
stock options -- -- 74,329
Net income -- -- --
---------- -------- -----------
Balance at July 31, 1995 6,640,814 66,408 13,686,162
Common stock split 3,248,882 32,489 (33,917)
Exercise of stock options 145,911 1,459 666,890
Tax benefit related to exercise of certain
stock options -- -- 1,426,563
Shares issued in conjunction with acquisitions 132,712 1,327 3,048,848
Secondary stock offering, net of offering costs
of $381,092 3,419,875 34,199 151,085,171
Net income -- -- --
---------- -------- -----------
Balance at July 31, 1996 13,588,194 $135,882 $169,879,717
========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
Retained
Earnings Total
----------- ------------
<S> <C> <C>
Balance at July 31, 1993 $ 1,066,301 $ 2,753,287
Exercise of stock options and warrants -- 901,199
Redeemable preferred stock dividends (10,073) (10,073)
Purchase and retirement of common stock -- (3,552)
Initial public offering, net of offering costs
of $507,977 -- 10,362,890
Tax benefit related to exercise of certain
stock options -- 499,193
Net income 1,610,495 1,610,495
----------- ------------
Balance at July 31, 1994 2,666,723 16,113,439
Common stock split -- (705)
Exercise of stock options -- 232,230
Tax benefit related to exercise of certain
stock options -- 74,329
Net income 2,793,678 2,793,678
----------- ------------
Balance at July 31, 1995 5,460,401 19,212,971
Common stock split -- (1,428)
Exercise of stock options -- 668,349
Tax benefit related to exercise of certain
stock options -- 1,426,563
Shares issued in conjunction with acquisitions -- 3,050,175
Secondary stock offering, net of offering costs
of $381,092 -- 151,119,370
Net income 5,673,784 5,673,784
----------- ------------
Balance at July 31, 1996 $11,134,185 $181,149,784
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 19
ABR INFORMATION SERVICES, INC.
- -------------------------------------------CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended July 31,
----------------------------------------------
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 1,610,495 $2,793,678 $5,673,784
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 511,444 621,602 1,642,754
Deferred income taxes 76,897 362,379 328,514
Tax benefit related to exercise of certain stock options 499,193 74,329 1,426,563
Increase in allowance for doubtful accounts 6,078 8,649 12,692
Change in operating assets and liabilities:
Accounts receivable (494,690) (918,172) (771,537)
Prepaid expenses and other (265,695) (173,240) (528,798)
Income taxes recoverable (176,165) 176,165 --
Other assets (58,531) (61,942) (8,953)
Accounts payable 14,875 8,660 (674,980)
Accrued expenses 346,147 420,601 (130,668)
Customer accounts deposits 2,392,100 1,704,471 4,228,527
Unearned revenue -- 271,375 23,931
Income taxes payable (95,591) 134,573 298,695
----------- ----------- ------------
Net cash provided by operating activities 4,366,557 5,423,128 11,520,524
Cash flows from investing activities:
Additions to investments (17,037,187) (5,445,720) (314,607,394)
Maturities of investments -- 17,508,872 172,470,327
Additions to property and equipment (994,011) (1,135,622) (12,537,101)
Additions to software development costs (397,652) (2,366,075) (3,292,648)
Collection of note receivable 250,000 -- --
Acquisitions, net -- -- (10,656,020)
----------- ----------- ------------
Net cash provided by (used in) investing activities (18,178,850) 8,561,455 (168,622,836)
Cash flows from financing activities:
Proceeds from bank borrowings -- -- 6,000,000
Principal payments under bank borrowings (602,525) -- (6,000,000)
Payments of redeemable preferred stock and dividends (263,561) -- --
Exercise of stock options/warrants 901,199 232,230 668,349
Public offerings, net of cost 10,362,890 -- 151,119,370
Other (3,552) (705) (101)
----------- ----------- ------------
Net cash provided by financing activities 10,394,451 231,525 151,787,618
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents (3,417,842) 14,216,108 (5,314,694)
Cash and cash equivalents at beginning of year 8,604,824 5,186,982 19,403,090
----------- ----------- ------------
Cash and cash equivalents at end of year $ 5,186,982 $19,403,090 $ 14,088,396
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 20
ABR INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-------------------------------------
JULY 31, 1994, 1995 AND 1996
NOTE A - DESCRIPTION OF ORGANIZATION AND BUSINESS
ABR Information Services, Inc. (the "Company") is a leading provider of
comprehensive benefits administration, compliance and information services to
employers seeking to outsource their benefits administration functions. The
Company believes it is the leading provider of COBRA compliance services. COBRA
is a federally mandated law related to the portability of employee group health
insurance. The Company also provides benefits administration services with
respect to benefits provided to retirees and inactive employees, including
retiree healthcare, disability, surviving dependent, family leave and severance
benefits. Additionally, the Company provides benefits administration services
with respect to benefits provided to active employees, including enrollment,
eligibility verification, QDRO administration, HMO consolidation and pension
services. These services are offered on either an "a la carte" basis or a total
outsourcing basis, allowing customers to outsource certain benefits
administration tasks which they find too costly or burdensome to perform
in-house, or to outsource the total benefits administration function.
The financial statements have been restated to reflect the three-for-two stock
splits completed July 1995 and February 1996 and an acquisition (see Note M) by
a pooling of interest completed June 1996.
The Company is headquartered in Palm Harbor, Florida and provides information
and support services to more than 21,000 employers including Fortune 500
companies, insurance companies and other employers. The Company's operations
are in a single business segment, the information services business.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The financial statements include the accounts of ABR Information Services, Inc.
and all of its subsidiaries. All material intercompany balances and
transactions have been eliminated.
2. Revenue Recognition
Revenues are recognized when the related services have been provided. Advance
payments received from customers for services not provided are included in
unearned revenue. Cost of services includes personnel, occupancy and other
costs associated with providing services to customers, such as mailing and
printing costs.
3. Customer Accounts Deposits
As part of the services provided to customers, the Company bills and collects
for its customers and maintains the funds in segregated accounts until the
funds are remitted. For financial statement purposes the segregated funds are
included in cash and investments (as the funds are not restricted) with the
corresponding liability presented as customer accounts deposits.
4. Cash and Cash Equivalents
The Company considers all highly liquid investments, with a maturity of 30 days
or less when purchased, as cash equivalents.
As of July 31, 1995 and 1996, substantially all of the Company's cash is
invested in overnight repurchase agreements of mortgage-backed or government
securities. The Company has a security interest in the specific investment
underlying the repurchase agreements.
5. Investments
Effective August 1, 1994, the Company implemented Statement of Financial
Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt
and Equity Securities." The Company's investments are classified as
held-to-maturity investment
18
<PAGE> 21
----------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
debt securities. These are securities which the Company has the ability and
positive intent to hold to maturity and are stated at cost, adjusted for
amortization of premiums and accretion of discounts which are computed by the
interest method. Gains and losses on the sale of investment securities are
computed on the basis of specific identification of the adjusted cost of each
security.
6. Contract Set-Up Costs
Under certain contractual arrangements with customers, the Company incurs
set-up costs. These costs are capitalized and amortized, over the contract
period but no longer than twelve months, using the straight-line method. As of
July 31, 1995 and 1996 unamortized set-up costs of $300,367 and $370,335,
respectively, are included in prepaid expenses. During 1994, 1995 and 1996,
amortization of set-up costs totalled $301,919, $405,299, and $569,755,
respectively.
7. Property and Equipment
Property and equipment is stated at cost. Depreciation expense is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the lives of the respective leases or
the service lives of the improvements, whichever is shorter.
8. Software Development Costs
Software development costs consist primarily of purchased software, consulting
services, salaries and certain other expenses related to the development and
modification of software capitalized in accordance with the provisions of SFAS
No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Capitalization of such cost begins only upon the
establishment of technological feasibility as defined in SFAS No. 86. Such
capitalized costs are amortized when the software is available to service
customers using the straight-line method over an estimated life of four to five
years or based on the ratio of current gross revenue to the anticipated gross
revenue, whichever is greater, with amortization expense of $48,548, $52,217
and $95,411, for the years ended 1994, 1995 and 1996, respectively.
Software development costs that were expensed and not capitalized under SFAS
No. 86 totalled $967,033, $1,138,639 and $1,312,653, for the years ended 1994,
1995 and 1996, respectively.
The Company estimates the cost to complete the current software projects will
be $1.6 million.
9. Income Taxes
Deferred income taxes principally result from expensing certain software
development costs for income tax return purposes while capitalizing and
amortizing certain of these costs for financial statement purposes. In
addition, accelerated depreciation methods used for income tax return purposes
create deferred taxes.
Effective August 1, 1993, the Company implemented SFAS No. 109 "Accounting for
Income Taxes" which requires an asset and liability method. The amounts
calculated as a result of adopting SFAS No. 109 method had an insignificant
effect on the Company's deferred income taxes and retained earnings,
accordingly, no adjustment was required.
10. Net Income Per Share
Net income per share has been computed using the weighted average of the
outstanding Common Stock plus the dilutive Common Stock equivalents (stock
options and warrants), using the treasury or the modified treasury stock method
(see Note G). Primary and fully diluted calculations result in the same net
income per share.
19
<PAGE> 22
ABR INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-------------------------------------
JULY 31, 1994, 1995 AND 1996
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
11. Reclassifications
Certain amounts have been reclassified to conform with the July 31, 1996
presentation.
12. Goodwill and Other Intangibles
Amortization is based upon the allocation of the total purchase price (see Note
M) and amortization periods, using the straight-line method, as follows:
<TABLE>
<CAPTION>
Estimated
Useful
Allocation Lives
---------- ---------
<S> <C> <C>
Non-competition agreements $ 600,000 5 years
Contracts 2,000,000 10 years
Goodwill 13,191,654 25 years
</TABLE>
Amortization expense totalled $482,708 for the year ended July 31, 1996.
The Company measures impairment of the goodwill and other intangibles based
upon the net present value of the cash flows estimated to be generated by those
assets, compared to the assets' carrying value. Based on this measurement, no
impairment exists.
13. New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFASNo. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." This pronouncement requires impairment losses to be
recorded on long-lived assets used in operations when impairment indicators are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. The Company will adopt
SFASNo. 121 in the first quarter of fiscal 1997 and based on current
circumstances, management does not believe the effect of the adoption will be
material to the financial statements.
SFASNo. 123, "Accounting for Stock Based Compensation" was issued by the
Financial Accounting Standards Board in October 1995. As it relates to stock
options granted to employees, SFAS No. 123 permits companies to continue using
the accounting method promulgated by the Accounting Principles Board Opinion
No. 25 ("APB No. 25") "Accounting for Stock Issued to Employees" to measure
compensation or to adopt the fair value based method prescribed by SFAS No.
123. If APB No. 25's method is continued, pro forma disclosures are required as
if SFAS No. 123 accounting provisions were followed. SFAS No. 123's accounting
recognition method can be adopted subsequent to the issuance of SFAS No. 123,
with a mandatory implementation date of August 1, 1996, and would pertain to
stock option awards granted or modified or settled for cash after August 1,
1995. If the Company elects to continue using the method under APB No. 25, SFAS
No. 123's pro forma disclosures are required after August 1, 1996. Management
has not completely analyzed the provisions of SFAS No. 123; accordingly,
management has not determined whether or not SFAS No. 123's accounting
recognition provisions will be adopted or APB No. 25's method will be
continued. In addition, management has not yet determined the potential effect
that SFAS No. 123's accounting provisions, if adopted, will have on the
Company's financial statements.
14. Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
20
<PAGE> 23
----------------------------
NOTE C - INVESTMENTS
The amortized cost and estimated market value of held-to-maturity investment
securities were as follows:
<TABLE>
<CAPTION>
July 31, 1996
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
------------ ---------- --------- ------------
<S> <C> <C> <C> <C>
Commercial Paper $146,111,102 $ -- ($22,949) $146,088,153
Obligations of states and local government agencies 1,000,000 -- -- 1,000,000
------------ ---------- --------- ------------
Total investment securities $147,111,102 $ -- ($22,949) $147,088,153
============ ========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
July 31, 1995
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
------------ ---------- --------- ------------
<S> <C> <C> <C> <C>
Obligations of states and local government agencies $4,886,166 $5,343 $ -- $4,891,509
---------- ------ --------- ----------
Accrued interest 87,869 -- -- 87,869
---------- ------ --------- ----------
Total investment securities $4,974,035 $5,343 $ -- $4,979,378
========== ====== ========= ==========
</TABLE>
As of July 31, 1995 and 1996, the maturities are within a twelve month time
period. Actual maturities may differ from contractual maturities due to
borrowers having the right to call or prepay obligations with or without call
or prepayment penalties.
Interest earned on investment securities and cash and cash equivalents was
$399,942, $1,214,971 and $3,846,102 for the years ended July 31, 1994, 1995 and
1996, respectively. A portion of these amounts is included in revenues and the
remainder is reported separately as interest income in the consolidated
statements of income.
NOTE D - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
July 31,
------------------------------
Estimated
1995 1996 Life
---------- ----------- --------
<S> <C> <C> <C>
Land and building $ -- $ 9,687,256 39 Years
Equipment 2,978,671 6,518,977 5 Years
Furniture and fixtures 512,784 732,394 10 Years
Leasehold improvements 473,245 293,753 Life of Lease
---------- -----------
3,964,700 17,232,380
Accumulated depreciation (1,517,581) (2,692,482)
---------- -----------
Total property and equipment, net $2,447,119 $14,539,898
========== ===========
</TABLE>
Depreciation for the years ended 1994, 1995 and 1996, was $462,896, $569,386
and $1,064,635, respectively.
NOTE E - LINES OF CREDIT
Prior to January 30, 1996, the Company had $6.0 million in credit facilities
available to it. Of the total amount, $1.0 million is for working capital
needs, collateralized by a blanket security interest in Company assets other
than accounts receivable, proprietary software and customer accounts deposits.
Interest on the principal balance outstanding under this line of credit accrues
at a floating interest rate equal to the prime rate. This line of credit must
be paid down to a minimum balance of $1,000 for 30 days during its term and is
subject to renewal on November 30, 1995. The remaining $5.0 million provides
the Company with capital equipment lines of credit collateralized by the
equipment purchased with advances against the lines. Interest on $2.0 million
of this credit line accrues at a fixed interest rate at the time of funding
equal to the prime rate. Interest on $3.0 million
21
<PAGE> 24
ABR Information Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-------------------------------------
July 31, 1994, 1995 and 1996
NOTE E - LINES OF CREDIT - CONTINUED
of this credit line accrues at a fixed rate at the time of funding equal to the
Treasury Note Rate plus 225 basis points. This facility contains financial
covenants consisting of maintaining a debt service coverage ratio of not less
than 1.75 to 1.0 and debt to tangible net worth of no more than .50 to 1.0.
On January 30, 1996, the Company entered into a five year, $15.0 million
unsecured credit facility. The Company has agreed to maintain all of its assets
free and clear of all liens, encumbrances and pledges, except purchase money
security interests in specific equipment in an aggregate amount of less than
$500,000 as long as the credit facility remains outstanding or any indebtedness
thereunder remains unpaid. Interest on the principal balance outstanding under
this line of credit accrues at a floating interest rate equal to the prime rate
or, at the Company's option, to the 30-day London Interbank Offering Rate
(LIBOR), plus an applicable interest rate margin between 1% and 2% based on
certain financial ratios. The credit facility contains certain financial
covenants requiring the maintenance of cash and cash equivalents and
investments equal to or greater than customer account deposits, a funded debt
to EBITDA ratio of a maximum of 2.25-to-1, a debt service coverage ratio of not
less than 1.35-to-1, as well as the maintenance of a certain funded debt to
tangible net worth ratio. As of July 31, 1996, the Company was in compliance
with all such covenants and there were no amounts outstanding under the credit
facility.
NOTE F - SHAREHOLDERS' EQUITY
Common Stock
The authorized Common Stock of the Company consists of 20,000,000 shares of
voting Common Stock, and 250,000 shares of nonvoting Common Stock. The shares
of nonvoting Common Stock have the same rights as the shares of voting Common
Stock, except that the holders of nonvoting Common Stock are not entitled to
vote on matters submitted to shareholders, except as required by applicable
law. As of July 31, 1996, there were no shares of nonvoting Common Stock issued
and outstanding. On July 13, 1995 and on February 19, 1996, the Company
completed three-for-two stock splits and on June 28, 1996 the company completed
an acquisition by a pooling of interest. The weighted average shares
outstanding, earnings per share and stock options have been restated to reflect
the stock splits and the acquisition by a pooling of interest.
Preferred Stock
The Board of Directors of the Company has the authority to issue up to
2,000,000 shares of Preferred Stock (par value of $.01 per share) in one or
more series and to fix the number of shares constituting any such series and
the rights and preferences thereof, including dividend rates, terms of
redemption (including sinking fund provision), redemption price or prices,
voting rights, conversion rights and liquidation preferences of the shares
constituting such series. As of July 31, 1996, there were no shares of
Preferred Stock issued and outstanding.
NOTE G - WARRANTS AND STOCK OPTIONS
The Company has established the 1987 and 1993 Stock Option Plans and the 1995
Non-Employee Director Stock Option Plan. Under the 1987 and 1993 Plans, 387,000
and 900,000 shares of Common Stock, respectively, have been authorized for
issuance. Under the 1995 Plan, 75,000 shares of Common Stock have been
authorized for issuance. During the years ended 1994, 1995 and 1996 all option
prices at date of grant equaled or exceeded the estimated fair value of the
Company's Common Stock as determined by the terms of the stock option plans.
<TABLE>
<CAPTION>
Shares Range of
----------------------- Price
Voting Nonvoting Per share
------ --------- ---------
<S> <C> <C> <C>
Warrants
Warrants outstanding at July 31, 1993 7,139 428,099 $ .81
Warrants granted -- -- $ --
- -----------------------------
Warrants exercised (7,139) (252,675) $ .81
Warrants cancelled -- (175,424) $ .81
----- -------
Warrants outstanding at July 31, 1994, 1995 and 1996 -- -- $ --
===== =======
</TABLE>
22
<PAGE> 25
------------------------------------------------
NOTE G - WARRANTS AND STOCK OPTIONS - Continued
<TABLE>
<CAPTION>
Shares Range of
--------------------- Price
Voting Nonvoting Per share
------- --------- ------------
<S> <C> <C> <C>
Options
Options outstanding at July 31, 1993 968,337 -- $ .81-3.10
Options granted 136,017 -- $ 4.13
Options exercised (726,865) -- $ .83-3.10
Options cancelled (77,427) -- $ .81-4.13
------- ---------
Options outstanding at July 31, 1994 300,062 -- $ 1.24-4.13
Options granted 272,749 -- $ 8.17-12.97
Options exercised (86,313) -- $ 1.24-4.13
Options cancelled (19,697) -- $ 2.07-8.17
------- ---------
Options outstanding at July 31, 1995 466,801 -- $ 2.07-12.97
Options granted 285,188 -- $13.53-33.25
Options exercised (145,911) -- $ 2.07-8.17
Options cancelled (22,224) -- $ 4.13-13.53
------- ---------
Options outstanding at July 31, 1996 583,854 -- $ 4.13-33.25
======= =========
</TABLE>
As of July 31, 1996, all outstanding options were exercisable, except for
options to purchase 278,933 shares at prices ranging from $12.97 to $33.25 per
share.
NOTE H - INCOME TAXES
<TABLE>
<CAPTION>
Years ended July 31,
--------------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Currently payable:
Federal $ 344,738 $1,112,399 $1,492,683
State 59,837 205,904 312,606
---------- ---------- ----------
404,575 1,318,303 1,805,289
Deferred 76,897 362,379 328,514
Tax benefit from the exercise of certain stock options 499,193 74,329 1,426,563
---------- ---------- ----------
Total income tax provision $ 980,665 $1,755,011 $3,560,366
========== ========== ==========
</TABLE>
Reconciliation of the federal statutory income tax rate of 34.0% to the
effective income tax rates are as follows:
<TABLE>
<CAPTION>
Years ended July 31,
-------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit 3.6% 3.6% 3.6%
Tax-exempt interest -- (2.2) (0.4)
Acquisition costs -- --% 3.4%
Other 0.2 3.2 (2.0)
---- ---- ----
Effective income tax rate 37.8% 38.6% 38.6%
==== ==== ====
</TABLE>
23
<PAGE> 26
ABR INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--------------------------------------
JULY 31, 1994, 1995 AND 1996
NOTE H - INCOME TAXES - Continued
Deferred tax asset and liability components were as follows:
<TABLE>
<CAPTION>
July 31,
---------------------------
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward (1) $ -- $ 428,000
Reserve for doubtful accounts 9,856 35,900
---------- ----------
9,856 463,900
Deferred tax liabilities:
Depreciation 86,366 199,900
Software development costs 473,940 1,159,555
Other 16,591 --
---------- ----------
576,897 1,359,455
---------- ----------
Net deferred tax liability $ 567,041 $ 895,555
========== ==========
</TABLE>
(1) Relates to approximately $1.1 million of net operating losses of an
acquired subsidiary, which expire in 2001. This transaction resulted in a
stock ownership change for purposes of Section 382 of the Internal Revenue
Code of 1986, as amended. Consequently a portion of the acquired
subsidiary's net operating loss carryforward is subject to a yearly
limitation on its utilization which can only be applied against future
income of the acquired subsidiary. The Company believes that it will
obtain the future income to fully utilize the net operating loss, thus no
valuation allowance has been recorded for the net operating loss
carryforward.
NOTE I - COMMITMENTS AND CONTINGENCIES
The Company leases office space under noncancellable leases which are accounted
for as operating leases. The leases are subject to an escalation clause using a
CPI index. The leases expire between February 1997 through May 2005.
Future minimum lease payments under noncancellable operating leases are as
follows as of July 31, 1996:
<TABLE>
<CAPTION>
July 31,
----------
<S> <C>
1997 $1,178,201
1998 773,126
1999 564,786
2000 196,031
2001 196,815
Thereafter 783,191
</TABLE>
Rent expense for all operating leases for the years ending July 31, 1994, 1995
and 1996 was $613,106, $673,391 and $1,129,738 respectively.
The Company has a commitment totalling $5.8 million for the cost of improvements
to be made to an operating facility.
The Company is engaged in litigation arising from the ordinary course of
business. In the opinion of management, the ultimate outcome of litigation will
not have a material impact on the Company's financial position.
NOTE J - INCENTIVE BONUS PLAN AND SAVINGS PLAN
Effective January 1, 1992, the Company established a defined contribution
savings plan (the "Savings Plan") covering substantially all employees. The
Savings Plan consists of an employee elective contribution and a company
matching contribution for each eligible participant. The Company's matching
contribution is determined by the Board of Directors on a discretionary basis.
The Company's contributions under the Savings Plan in fiscal 1994, 1995 and 1996
were approximately $54,000, $124,500 and $167,969, respectively.
24
<PAGE> 27
-----------------------------------
NOTE J - INCENTIVE BONUS PLAN AND SAVINGS PLAN - Continued
Effective August 1, 1993, the Company adopted an incentive bonus plan (the
"Incentive Bonus Plan"), which provides for the discretionary payment of annual
incentive awards to key employees from a pool equal to 10% of the Company's
pre-tax profits (income before income taxes), adjusted upward or downward based
on the attainment of pre-established goals related to the Company's pre-tax
margin (income before income taxes divided by revenues) and its revenue growth
(based on annual increases in revenues). Payments under the Incentive Bonus Plan
are discretionary, based on the determination of the Board of Directors of the
Company and are subject to certain limitations as provided in the Incentive
Bonus Plan. In fiscal 1994, 1995 and 1996, $462,047, $777,633 and $790,000,
respectively, of incentive bonus was expensed.
NOTE K - MAJOR CUSTOMER
During fiscal 1996, one of the Company's customers accounted for approximately
15% of revenues. This customer became a client of the Company as a result of the
New Jersey acquisition. Assuming the acquisition had occurred on August 1, 1995,
approximately 21% of revenue would have been derived from this customer. In
fiscal 1994 and 1995, no individual customer accounted for 10% or more of
revenues.
NOTE L - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
quarterly periods of fiscal 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 First Second Third Fourth
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $2,959,352 $3,240,965 $3,488,320 $3,776,160
Operating income 534,337 603,701 672,371 715,954
Net income 333,013 370,698 416,313 490,471
Net income per share $ .05 $ .05 $ .06 $ .06
1995
----------
Revenue $4,321,754 $4,493,809 $4,734,637 $5,284,436
Operating income 876,305 912,000 985,361 1,202,454
Net income 628,655 660,050 696,135 808,838
Net income per share $ .06 $ .07 $ .07 $ .08
1996
----------
Revenue $5,614,304 $6,851,136 $9,067,901 $9,628,840
Operating income 1,138,977 1,597,305 1,768,907 1,856,816
Net income 783,436 1,047,632 1,645,273 2,197,443
Net income per share $ .08 $ .10 $ .14 $ .16
</TABLE>
NOTE M - ACQUISITIONS
New Jersey Acquisition
On December 15 1995, the Company acquired all of the outstanding capital stock
of Bullock Associates, Inc., which was subsequently renamed ABR Benefits
Services, Inc. ("BSI"), for $12.5 million, with an additional $2.0 million
payable upon the attainment of certain revenue requirements during 1996 and
1997. This acquisition was accounted for as a purchase. BSI is located in
Princeton, New Jersey and provides COBRA administration, retiree insurance
administration, insurance continuation billing and collection, pension benefits
administration services, QDRO (Qualified Domestic Relations Order)
administration and educational benefit administration services as well as
administration for other employee benefits programs such as employee discount
plans, adoption programs, program rebates and emergency loans.
25
<PAGE> 28
ABR INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--------------------------------------
JULY 31, 1994, 1995 AND 1996
NOTE M - ACQUISITIONS - Continued
California Acquisition
Effective February 1, 1996, the Company acquired all of the outstanding capital
stock of Total Cobra Services, Inc. ("TCS") for 132,712 shares of restricted
Common Stock. This acquisition was accounted for as a purchase. TCS is located
in Irvine, California and provides COBRA administration and retiree billing
services. For the fiscal year ended December 31, 1995, TCS had revenues of less
than $2 million. Pro forma information is not provided for TCS as it is not a
significant acquisition.
Virginia Acquisition
On June 28, 1996, the Company completed a merger of The L.P. Baier Company
("LPB") where 143,010 shares of the Company's stock was exchanged for all of the
outstanding stock of LPB. LPB is located in Fairfax, Virginia and provides
primarily FSA (Flexible Spending Account) administrative services and COBRA
administration. The merger was accounted for as a pooling of interest, and
accordingly, the accompanying financial statements have been restated to include
the accounts and operations of LPB for all periods prior to the merger,
including restating the retained earnings at July 31, 1993 to reflect the
difference between the par value of the Company stock issued and the total
shareholders' equity of LPB.
Separate results of the combining entities for previously reported periods are
as follows:
<TABLE>
<CAPTION>
Years ended July 31
---------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue
ABR Information Services, Inc. $12,129,233 $16,692,376 $28,449,980
The L.P. Baier Company 1,335,564 2,142,260 2,712,201
----------- ----------- -----------
$13,464,797 $18,834,636 $31,162,181
=========== =========== ===========
Net Income
ABR Information Services, Inc. $ 1,595,652 $ 2,641,788 $ 5,578,144
The L.P. Baier Company 14,843 151,890 95,640
----------- ----------- -----------
$ 1,610,495 $ 2,793,678 $ 5,673,784
=========== =========== ===========
</TABLE>
In connection with this merger, $361,198 of acquisition costs were incurred and
have been charged to expense in the fourth quarter.
The following pro forma balances have been derived from the historical financial
statements of the Company and BSI and adjusts such information to give effect to
the acquisition of BSI. The balances for the years ended July 31, 1994, 1995,
and 1996 assume that the acquisition of BSI occurred on August 1, 1993. The
unaudited pro forma financial information is not necessarily indicative of the
results which would actually have occurred had the transaction been in effect on
the dates and for the periods indicated or which may result in the future.
<TABLE>
<CAPTION>
Years ended July 31
-------------------------------------
1994 1995 1996
------- ------- -------
(in thousands except per share data)
<S> <C> <C> <C>
Revenue $20,864 $27,819 $34,740
Operating income 4,430 5,840 7,245
Net income 2,339 3,483 6,015
Net income per share $ .31 $ .35 $ .52
</TABLE>
26
<PAGE> 29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
ABR Information Services, Inc.
We have audited the accompanying consolidated balance sheets of ABR Information
Services, Inc. as of July 31, 1995 and 1996 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended July 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ABR Information
Services, Inc. as of July 31, 1995 and 1996, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended July 31, 1996, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Tampa, Florida
September 13, 1996
MARKET PRICE INFORMATION
The following table sets forth the high and low sale price of the Company's
Common Stock since its initial public offering on May 26, 1994 as reported by
Nasdaq and restated for the three-for-two stock splits completed on July 13,
1995 and February 19, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------- -------------------------- -------------------------
High Low High Low High Low
--------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $19 53/64 $ 13 $7 7/32 $ 4 57/64 $ -- $ --
Second Quarter 32 53/64 19 21/64 9 35/64 6 7/64 -- --
Third Quarter 63 32 11/64 11 7/32 9 21/64 -- --
Fourth Quarter 65 38 15 43/64 10 25/32 5 53/64 4 35/64
Year 65 13 15 43/64 4 57/64 5 53/64 4 35/64
</TABLE>
The Company has never declared nor paid any cash dividends on the Common Stock.
The Company currently anticipates that all of its earnings will be retained for
development and expansion of the Company's business and does not anticipate
paying any cash dividends in the foreseeable future.
27
<PAGE> 30
CORPORATE AND SHAREHOLDER INFORMATION-------------------------------------------
CORPORATE HEADQUARTERS
ABR Information Services, Inc.
34125 U.S. Highway 19 North
Palm Harbor, FL 34684-2116
813-785-2819
INTERNET ADDRESS
http://www.abr.com
ANNUAL MEETING
The Annual Meeting of ABR Information Services, Inc. will be held at
10:00 a.m. (EST) on December 6, 1996, at the Hyatt Regency Westshore in Tampa,
Florida
FORM 10-K
A copy of the ABR Information Services, Inc. annual report to the Securities and
Exchange Commission on Form 10-K may be obtained without cost by request from
the Corporate Headquarters, Attention: Investor Relations
LISTING
The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol ABRX
TRANSFER AGENT AND REGISTRAR
First Union National Bank
Shareholder Services Group
230 South Tryon Street, 11th Floor
Charlotte, North Carolina 28288-1153
800-829-8432
LEGAL COUNSEL
Foley & Lardner
Tampa, Florida
Proskauer Rose Goetz & Mendelsohn LLP
New York, New York
INDEPENDENT AUDITORS
Grant Thornton LLP
Tampa, Florida
SHAREHOLDER INFORMATION
ABR Information Services, Inc.
34125 U.S. Highway 19 North
Attention: Investor Relations
Palm Harbor, FL 34684-2116
813-785-2819
STOCK PRICE PERFORMANCE*-------------------------------------------------------
[GRAPH]
5/26/94 - 7/31/96
*As restated for the three-for-two stock splits completed on July 13, 1995 and
February 19, 1996.
28
<PAGE> 31
- ----------------------------------------------------------DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
JAMES E. MACDOUGALD
Chairman of the Board,
President and Chief Executive Officer
ABR Information Services, Inc.
VINCENT ADDONISIO
Executive Vice President,
Treasurer and Chief Financial Officer
ABR Information Services, Inc.
THOMAS F. COSTELLO
Chairman and Chief Executive Officer
The Costello Group
MARK M. GOLDMAN
Vice Chairman
Phone Programs, Inc.
SUZANNE M. MACDOUGALD
Senior Vice President and Secretary
ABR Information Services, Inc.
OFFICERS OF ABR INFORMATION SERVICES, INC.
JAMES E. MACDOUGALD
Chairman of the Board,
President and Chief Executive Officer
VINCENT ADDONISIO
Executive Vice President,
Treasurer and Chief Financial Officer
SUZANNE M. MACDOUGALD
Senior Vice President and Secretary
ROBERT H. PARISEAU
Vice President
REVA R. MASKEWITZ
Controller
SUBSIDIARY OFFICERS
ABR COBRASERV, INC.
DENNIS A. SWEENEY
President
RANDOLPH C. METCALFE
Executive Vice President
KIMBALL S. ANDERSON
Senior Vice President-Sales and Marketing
LAUREN M. RINGUETTE
Senior Vice President
ANDREW D. SWENSON
Senior Vice President and Chief Information Officer
BRIAN R. ANNIS
Vice President
SHARI N. ARZATE
Vice President-New Major Accounts
DAGMAR S. DE STEFANO
Vice President-New Major Accounts
JOHN DOYLE
Vice President
KARLENE K. DUNKELBERGER
Vice President
DENISE A. ELKO
Vice President-New Major Accounts
PATRICK R. MANDERS
Vice President-Promotion and Communications
REVA R. MASKEWITZ
Vice President-Finance
ABR BENEFITS SERVICES, INC.
W. CARL BULLOCK
President
BARBARA A. BIASOTTI
Vice President-Customer Relations
NANCY L. CLARK
Vice President-Finance
THE L.P. BAIER COMPANY
RICK L. SNYDER
President
TINA A. MCINTOSH
Executive Vice President
ABR NATIONAL SERVICE CENTER, INC.
WILLIAM R. POVILUS
President
TOTAL COBRA SERVICES, INC.
WILLIAM E. EVANS
President
ABR PROPERTIES, INC.
JOSEPH C. LUKASON
President
30
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF ABR INFORMATION SERVICES, INC.
1. ABR CobraServ, Inc. (formerly known as Applied Benefits Research, Inc.)
2. ABR National Service Center, Inc.
3. ABR Properties, Inc.
4. ABR Benefits Services, Inc. (formerly known as Bullock Associates, Inc.)
5. Total Cobra Services, Inc. (formerly known as Total COBRA Services, Inc.)
6. The L.P. Baier Company
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated September 13, 1996, accompanying the
consolidated financial statements and schedule of ABR Information Services,
Inc. that are included in or incorporated by reference in the Company's
Form 10-K for the year ended July 31, 1996. We hereby consent to the
incorporation by reference of said reports in the Registration Statements of
ABR Information Services, Inc. on Form S-3 (File No. 333-2706, effective
March 21, 1996) and Form S-8 (File No. 33-86520, effective November 18, 1994).
/s/ Grant Thorton LLP
Tampa, Florida
October 1, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ABR
INFORMATION SERVICES, INC. ANNUAL 10-K
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 14,088,396
<SECURITIES> 147,111,102
<RECEIVABLES> 3,909,433
<ALLOWANCES> 38,894
<INVENTORY> 0
<CURRENT-ASSETS> 166,352,989
<PP&E> 17,232,380
<DEPRECIATION> 2,692,482
<TOTAL-ASSETS> 202,573,605
<CURRENT-LIABILITIES> 20,528,266
<BONDS> 0
0
0
<COMMON> 135,882
<OTHER-SE> 181,013,902
<TOTAL-LIABILITY-AND-EQUITY> 202,573,605
<SALES> 31,162,181
<TOTAL-REVENUES> 31,162,181
<CGS> 17,645,269
<TOTAL-COSTS> 6,575,390
<OTHER-EXPENSES> 579,517
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,872,145)
<INCOME-PRETAX> 9,234,150
<INCOME-TAX> 3,560,366
<INCOME-CONTINUING> 5,673,784
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,673,784
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
