<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
----------- ------------
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 34684-2141
- ------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: 813-785-2819
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 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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
<TABLE>
<S> <C> <C> <C>
Class: Voting Common Stock, $.01 Par Value Outstanding at March 9, 1998: 27,422,792
Class: Nonvoting Common Stock, $.01 Par Value Outstanding at March 9, 1998: None
</TABLE>
1
<PAGE> 2
ABR INFORMATION SERVICES, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three
and six months ended January 31, 1997 and 1998 3
Consolidated Balance Sheets as of July 31, 1997 and
January 31, 1998 4
Consolidated Statements of Cash Flows for the six months
ended January 31, 1997 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1.
ABR INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
January 31, January 31,
----------------------------- ------------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $11,714,389 $16,711,144 $22,103,582 $31,946,082
Operating expenses:
Cost of services 6,549,598 9,353,006 12,524,843 18,177,322
Selling, general and administrative 2,368,084 3,313,379 4,515,024 5,988,527
----------- ----------- ----------- -----------
Operating income 2,796,707 4,044,759 5,063,715 7,780,233
----------- ----------- ----------- -----------
Other income:
Interest income 1,909,046 1,370,501 3,869,108 2,803,277
Lease revenue, net - 1,140,301 - 1,140,301
----------- ----------- ----------- -----------
Total other income 1,909,046 2,510,802 3,869,108 3,943,578
----------- ----------- ----------- -----------
Income before income taxes 4,705,753 6,555,561 8,932,823 11,723,811
Income taxes 1,769,288 2,404,586 3,384,995 4,071,876
----------- ----------- ----------- -----------
Net income $ 2,936,465 $ 4,150,975 $ 5,547,828 $ 7,651,935
=========== =========== =========== ===========
Net income per share:
Basic $ .11 $ .15 $ .20 $ .28
=========== =========== =========== ===========
Diluted $ .11 $ .15 $ .20 $ .27
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
ABR INFORMATION SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
July 31, 1997 January 31, 1998
(Unaudited)
--------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 33,322,734 $ 34,513,809
Investments 108,499,196 107,553,794
Accounts receivable, net 8,295,884 10,614,289
Prepaid expenses and other 2,595,306 3,024,335
------------ ------------
Total current assets 152,713,120 155,706,227
LONG-TERM INVESTMENTS 14,128,644 4,812,131
PROPERTY AND EQUIPMENT, net 27,790,354 43,259,254
SOFTWARE DEVELOPMENT COSTS, net 11,767,211 17,348,217
GOODWILL, INTANGIBLES AND OTHER ASSETS, net 15,617,519 16,380,385
------------ ------------
TOTAL ASSETS $222,016,848 $237,506,214
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 613,138 $ 788,566
Accrued expenses 512,035 695,164
Customer account deposits 23,133,381 27,082,441
Unearned revenue 594,524 583,210
Income taxes payable 20,770 733,934
------------ ------------
Total current liabilities 24,873,848 29,883,315
------------ ------------
DEFERRED INCOME TAXES 3,047,243 5,785,059
------------ ------------
SHAREHOLDERS' EQUITY
Preferred Stock - authorized 2,000,000 shares of
$.01 par value; no shares issued -- --
Common Stock - authorized, 100,250,000
shares of $.01 par value; issued and outstanding,
27,376,356 and 27,403,542 shares, respectively 273,763 274,035
Additional paid in capital 170,459,157 170,549,033
Retained earnings 23,362,837 31,014,772
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 194,095,757 201,837,840
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $222,016,848 $237,506,214
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
ABR INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
January 31,
-------------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,547,828 $ 7,651,935
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and other amortization 1,259,182 2,106,025
Amortization of software 231,042 766,581
Deferred income taxes 877,240 2,737,816
Provision for losses on accounts receivable 11,517 18,000
Tax benefit related to exercise of certain stock options 56,606 --
Change in operating assets and liabilities:
Accounts receivable (1,287,727) (2,336,405)
Prepaid expenses and other (826,760) (429,029)
Other assets 3,737 (56,552)
Accounts payable (42,551) 175,428
Accrued expenses 300,059 183,129
Unearned revenue (47,991) (11,314)
Customer account deposits 882,274 3,949,060
Income taxes payable (77,208) 713,164
------------- -------------
Net cash provided by operating activities 6,887,248 15,467,838
------------- -------------
Cash flows from investing activities:
Additions to investments (265,579,923) (341,101,076)
Maturity of investments 281,578,092 351,362,991
Additions to property and equipment (5,038,339) (17,132,923)
Additions to software development costs (2,226,125) (6,347,587)
Cash paid for acquisition, net (863,053) (1,148,316)
------------- -------------
Net cash provided by (used in) investing activities 7,870,652 (14,366,911)
------------- -------------
Cash flows from financing activities:
Exercise of common stock options 604,980 90,148
------------- -------------
Net cash provided by financing activities 604,980 90,148
------------- -------------
Net increase in cash and cash equivalents 15,362,880 1,191,075
Cash and cash equivalents at beginning of year 14,088,396 33,322,734
------------- -------------
Cash and cash equivalents at end of period $ 29,451,276 $ 34,513,809
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
ABR INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1998
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 largest provider of COBRA (the "Consolidated Omnibus
Reconciliation Act") compliance services. COBRA is a federally mandated law
related to the portability of employee group health insurance. Additionally, the
Company provides compliance services related to the federally mandated Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"). The Company
provides portability (COBRA and HIPAA) services through the trade name
CobraServSM.
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, qualified domestic relations order ("QDRO")
administration, 401(k) administration services, flexible spending account
("FSA") administration and pension services. All services are offered on either
an "a la carte" 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 entire benefits administration
function.
The Company provides information and support services to more than 25,000
employers, ranging in size from 2 to 200,000 employees, including approximately
100 of the Fortune 500 companies, insurance companies and other employers. The
Company is headquartered in Palm Harbor, Florida, and employs approximately
1,000 people in marketing/operations centers in Florida, New Jersey, Virginia
and California. The Company's operations are in a single business segment, the
information services business. Effective September 8, 1997, the Company
consolidated a number of its subsidiaries into one operating subsidiary called
ABR Benefits Services, Inc.
NOTE B - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
the instructions to Form 10-Q and do not include all the information and
footnote disclosure required by generally accepted accounting principles for
complete financial statements. The financial statements as of January 31, 1998
and for the three and six months ended January 31, 1998 and January 31, 1997 are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
periods. The results of operations for the three and six months ended January
31, 1998 are not necessarily indicative of results that may be expected for the
year ending July 31, 1998. These financial statements should be read in
conjunction with the audited financial statements of the Company as of July 31,
1996 and 1997, and for each of the three years in the period ended July 31,
1997, included in the Company's 1997 Annual Report to Shareholders.
During the period ended January 31, 1998, the Company adopted Statement of
Financial Accounting Standard No. 128 "Earnings Per Share" (FAS 128). This
Standard became effective for financial statements issued after December 15,
1997 and eliminates primary and fully diluted income per share and replaces them
with basic and diluted income per share. Accordingly, all income per share
amounts for the prior periods presented have been restated to conform to the new
Standard (see Note C).
6
<PAGE> 7
NOTE C - NET INCOME PER COMMON SHARE
The following table reconciles the numerators and denominators of the
basic and diluted income per share computations, as computed in accordance with
FAS 128:
<TABLE>
<CAPTION>
Three months ended Six months ended
January 31, January 31,
---------------------------- ----------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic
Net income (numerator):
Net income available to common stockholders $ 2,936,465 $ 4,150,975 $ 5,547,828 $ 7,651,935
=========== =========== =========== ===========
Shares (denominator):
Weighted average shares 27,317,897 27,396,114 27,265,634 27,388,357
=========== =========== =========== ===========
Basic per share earnings $ .11 $ .15 $ .20 $ .28
=========== =========== =========== ===========
Diluted:
Net income (numerator):
Net income available to common stockholders $ 2,936,465 $ 4,150,975 $ 5,547,828 $ 7,651,935
=========== =========== =========== ===========
Shares (denominator):
Weighted average shares 27,317,897 27,396,114 27,265,634 27,388,357
Effect of dilutive stock options 569,678 485,486 682,817 499,248
----------- ----------- ----------- -----------
Adjusted weighted average shares 27,887,575 27,881,600 27,948,451 27,887,605
=========== =========== =========== ===========
Diluted per share earnings $ .11 $ .15 $ .20 $ .27
=========== =========== =========== ===========
Options not included in diluted income per share
because exercise price was greater than average
market price: First Quarter N/A N/A 0 815,834
Second Quarter 2,000 921,418 2,000 921,418
Price Range $34.33 $24.08 to $34.33 $24.08 to
$34.33 $34.33
</TABLE>
These options which expire on various dates through 2007 were still outstanding
at January 31, 1998.
NOTE D - COMMITMENTS
On October 2, 1997, the Company acquired a 383,000 square foot office
campus in St. Petersburg, Florida for $13.5 million. Although no formal
construction commitments exist for this facility, the Company expects to spend
approximately $20 million to expand and renovate the facility over the next
three years. The Company expects to occupy portions of this facility starting in
calendar 1998. The former owner of the facility has signed a short-term
agreement to lease back portions of the campus, prior to the Company occupying
the entire facility in approximately 2000. The Company's lease revenue on the
campus is dependent upon the amount of square footage being utilized by the
former owner and is recorded net of the direct expenses of operating the
facility.
The Company estimates that as of January 31, 1998, approximately $9.1
million will be required in order for the Company to purchase additional
equipment, furniture and hardware, and to complete currently defined software
projects.
7
<PAGE> 8
NOTE E - BUSINESS ACQUISITIONS
On December 15, 1995, the Company, in an acquisition accounted for as a
purchase, acquired all of the outstanding capital stock of Bullock Associates,
Inc. ("Bullock"), for $12.5 million, with an additional $2.0 million payable
upon the attainment of certain revenue requirements during 1996 and 1997. During
fiscal 1997 and 1998, $863,053 and $1,136,947, respectively, of this additional
amount was paid for the attainment of these revenue requirements. Bullock, now
part of ABR Benefits Services, Inc., is located in Princeton, New Jersey and
provides COBRA administration, retiree insurance administration, insurance
continuation billing and collection, pension benefits administration services,
QDRO 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.
On February 26, 1998, the Company, in an acquisition accounted for as a
purchase, acquired all of the outstanding capital stock of Charing Company, Inc.
("Charing") for $7.5 million in cash and an additional amount to be paid
contingent upon future earnings. Charing is located in Wisconsin and provides
retirement plan administration, Section 125 administration, consulting services
and comprehensive employee benefits statement reporting. The results of
operations of Charing will be included in the Company's results of operations as
of February 1, 1998. Goodwill resulting from the acquisition will be amortized
over a period of 25 years on a straight-line method.
On February 27, 1998, the Company, in an acquisition accounted for as a
purchase, acquired all the outstanding capital stock of Matthews, Malone &
Associates, Ltd. ("Matthews/Malone") for $2.9 million in cash and an additional
amount to be paid contingent upon future earnings. Matthews/Malone is located in
Arizona and provides defined benefit and defined contribution plan services as
well as Section 125 administration and non-qualified plan administration
services. The results of operations of Matthews/Malone will be included in the
Company's results of operations as of February 1, 1998. Goodwill resulting from
the acquisition will be amortized over a period of 25 years on a straight-line
method.
The Company has not provided pro forma financial information with respect
to the Charing and Matthews/Malone acquisitions as they are not significant
acquisitions.
NOTE F - LITIGATION
The Company is involved in various litigation arising from the ordinary
course of its business. In the opinion of management, the ultimate outcome of
litigation is not expected to be material to the Company's financial position,
results of operations or liquidity.
8
<PAGE> 9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements contained in the following discussion and analysis that are
not purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such forward-looking statements involve a number of risks
and uncertainties and are based on information available to the Company on the
date hereof. The Company assumes no obligation to update any such
forward-looking statements.
The following discussion and analysis should be read in conjunction with
the Financial Statements and notes thereto appearing elsewhere in this Form
10-Q.
OVERVIEW
The Company's operating revenues currently are generated from three
sources: portability compliance services, administration services with respect
to benefits provided to retirees and inactive employees, and administration
services with respect to benefits provided to active employees. Additionally,
the Company generates non-operating revenue from the short-term lease of its St.
Petersburg, Florida operations center.
The first source of the Company's revenue is providing portability
compliance services primarily through its qualifying event agreements with
employers and 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 or change of coverage under a group
healthcare plan. The amount of the fixed fee varies depending on the type of
qualifying event (i.e., COBRA (the "Consolidated Omnibus Budget Reconciliation
Act") or HIPAA (the "Health Insurance Portability and Accountability Act of
1996")) and 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 compliance for their group
insurance clients that are subject to COBRA, HIPAA or state mandated
continuation coverage health portability laws. 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 COBRA continuant. In addition, the Company generates revenues
from customers for additional compliance and healthcare administration services,
both on a one-time and continuous basis. During the first six months of fiscal
1997 and 1998, 62.2% and 60.0%, respectively, of the Company's revenues were
attributable to portability compliance services.
The second source of the Company's service revenue is providing
administration services with respect to benefits provided to retirees and
inactive employees, including retiree healthcare, disability, surviving
dependent, family leave and severance benefits. During the first six months of
fiscal 1997 and 1998, 16.0% and 11.6%, respectively, of the Company's revenues
were attributable to administration services for retirees and inactive
employees.
The third source of the Company's service revenue is providing
administration services with respect to benefits provided to active employees,
including open enrollment, employee enrollment and eligibility, QDRO ("Qualified
Domestic Relations Order") administration, flexible spending account
administration, 401(k) plan administration, and other pension services. During
the first six months of fiscal 1997 and 1998, 21.8% and 28.4%, respectively, of
the Company's revenues were attributable to benefits administration services for
active employees.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
YEAR 2000 MATTERS
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. In 1996, the Company
initiated the process of modifying existing software programs to become year
2000 compliant. Management has determined that the year 2000 issue will not pose
significant operational problems for its computer systems. As a result, all
costs associated with this conversion are being expensed as incurred.
The Company will utilize both internal and external resources to reprogram,
or replace, and test the software for Year 2000 modifications. The Company
anticipates completing the Year 2000 project no later than March 1999, which is
prior to any anticipated impact on its operating systems. The total cost of the
Year 2000 project is estimated at approximately $225,000 and is being funded
through operating cash flows and is not expected to have a material effect on
the results of operations.
The cost of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 Issue. There can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted and would
not have an adverse effect on the Company's systems.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenue represented by
certain items reflected in the Company's statements of income.
<TABLE>
<CAPTION>
Three months ended Six months ended
January 31, January 31,
------------------------ -----------------------
1997 1998 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of services (55.9) (56.0) (56.7) (56.9)
Selling, general and administrative expenses (20.2) (19.8) (20.4) (18.7)
----- ----- ----- -----
Operating income 23.9 24.2 22.9 24.4
Interest income 16.3 8.2 17.5 8.8
Lease revenue, net - 6.8 - 3.5
Income taxes (15.1) (14.4) (15.3) (12.7)
----- ----- ----- -----
Net income 25.1% 24.8% 25.1% 24.0%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JANUARY 31, 1998 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1997
Revenues increased $5.0 million, or 42.7%, to $16.7 million during the
three months ended January 31, 1998 from $11.7 million during the three months
ended January 31, 1997. Of the $5.0 million increase in revenues, $2.3 million
was attributable to increased revenues from portability compliance services,
$128,000 was attributable to increased revenues from retiree/inactive employee
benefits administration and $2.6 million was due to increased revenues from
active employee benefits administration.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
The increase in portability compliance revenues was primarily attributable
to the addition of new customers and new service product offerings. New products
pertain to clients having to comply with state-mandated continuation coverage
health portability laws and the federally-mandated HIPAA law.
The increase in active employee benefits administration revenues was
primarily attributable to the addition of new customers obtained by the Company
and new service product offerings in enrollment and eligibility administration
and qualified retirement plan services.
Cost of services increased $2.9 million, or 42.8%, to $9.4 million during
the three months ended January 31, 1998 from $6.5 million during the three
months ended January 31, 1997. The increase in cost of services was attributable
to the addition of data processing, information systems and customer service
personnel to support revenue growth, the amortization of software placed in
service as completed and the transition and consolidation of certain operational
duties into the Florida operations center. As a percentage of revenues, the 1998
cost of services increased slightly to 56.0% from 55.9% in the previous year.
Selling, general and administrative expenses increased $.9 million, or
39.9%, to $3.3 million during the three months ended January 31, 1998 from $2.4
million during the three months ended January 31, 1997. The increase in selling,
general and administrative expenses was primarily attributable to the addition
of marketing, management and administrative personnel and equipment necessary to
support the Company's growth. As a percentage of revenues, selling, general and
administrative expenses decreased slightly to 19.8% from 20.2% for the
corresponding periods.
Interest income decreased $.5 million to $1.4 million during the three
months ended January 31, 1998 from $1.9 million during the three months ended
January 31, 1997. This decrease was the result of less cash available for
investing due to capital purchases, increased utilization of tax-free investment
instruments which yield a lower stated interest rate, and an overall decline in
short-term interest rates.
Lease revenue increased to $1.1 million for the three months ended January
31, 1998 as compared to $0 for the corresponding period in 1997 due to the
purchase of an office campus (with an existing tenant) in St. Petersburg,
Florida. Lease revenue is presented net of direct costs associated with
operating the campus. This net revenue will decrease as the Company begins to
occupy the campus in phases beginning in calendar 1998 and will decrease to $0
by April 1999, at the latest. Final occupancy by the Company is expected in
2000.
Income taxes increased 35.9% to $2.4 million during the three months ended
January 31, 1998 from $1.8 million during the three months ended January 31,
1997. The Company's effective tax rate decreased to 36.7% for the three months
ended January 31, 1998 from 37.6% for the corresponding period in the previous
year. This decrease reflected the Company's greater utilization of tax-free
investments.
As a result of the foregoing, the Company's net income increased $1.2
million, or 41.4%, to $4.2 million during the three months ended January 31,
1998 from $2.9 million in the three months ended January 31, 1997. Basic and
diluted net income per share was $.15 for the quarter ended January 31, 1998 as
compared to $.11 (basic and diluted) for the corresponding prior year period,
after adjustment for the Company's 2-for-1 stock split in February 1997.
SIX MONTHS ENDED JANUARY 31, 1998 COMPARED TO SIX MONTHS ENDED JANUARY 31, 1997
Revenues increased $9.8 million, or 44.5%, to $31.9 million in the six
months ended January 31, 1998 from $22.1 million in the corresponding period of
1997. Of the $9.8 million increase in revenues, $5.3 million was attributable to
increased revenues from portability compliance services, $166,000 was
attributable to increased revenues from retiree/inactive employee benefits
administration and $4.3 million was due to increased revenues from active
employee benefits administration.
The increase in portability compliance revenues was primarily attributable
to the addition of new customers and new service product offerings. New products
pertain to clients having to comply with state-mandated continuation coverage
health portability laws and the federally-mandated HIPAA law.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
The increase in active employee benefits administration revenues was
primarily attributable to the addition of new customers obtained by the Company
and new service product offerings in enrollment and eligibility administration
and qualified retirement plan services.
Cost of services increased $5.7 million, or 45.1%, to $18.2 million during
the six months ended January 31, 1998 from $12.5 million during the six months
ended January 31, 1997. As a percentage of revenues, cost of services increased
slightly to 56.9% from 56.7% for the corresponding period of 1997.
Selling, general and administrative expenses increased $1.5 million, or
32.6%, to $6.0 million during the six months ended January 31, 1998 from $4.5
million during the six months ended January 31, 1997. As a percentage of service
revenues, selling, general and administrative expense decreased to 18.7% during
the six months ended January 31, 1998 from 20.4% during the six months ended
January 31, 1997. The decrease as a percent of revenues resulted primarily from
allocating expenses over an increasingly larger revenue base.
Interest income decreased $1.1 million to $2.8 million during the six
months ended January 31, 1998 from $3.9 million during the six months ended
January 31, 1997. This decrease was the result of less cash available for
investing due to capital purchases, increased utilization of tax-free investment
instruments which yield a lower interest rate and an overall decline in
short-term interest rates.
Lease revenue increased to $1.1 million during the six months ended January
31, 1998 as compared to $0 for the corresponding period in 1997 due to the
purchase of an office campus (with an existing tenant) in St. Petersburg,
Florida. Lease revenue is presented net of direct costs associated with
operating the campus. This net revenue will decrease as the Company begins to
occupy the campus in phases beginning in calendar 1998 and will decrease to $0
by April 1999, at the latest. Final occupancy by the Company is expected in
2000.
Income taxes increased 20.3% to $4.1 million during the six months ended
January 31, 1998 from $3.4 million during the six months ended January 31, 1997.
The Company's effective tax rate decreased to 34.7%, for the six months ended
January 31, 1998 from 37.9% for the corresponding period in the previous year
primarily due to greater utilization of tax-free investments.
As a result of the foregoing, the Company's net income increased $2.1
million, or 37.9%, to $7.7 million during the six months ended January 31, 1998
from $5.6 million during the six months ended January 31, 1997. Basic and
diluted net income per share were $.28 and $.27, respectively, for the six
months ended January 31, 1998 as compared to $.20 (basic and diluted) for the
corresponding prior year period after adjustment for the Company's 2-for-1 stock
split in February 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended January 31, 1998, net cash provided by operating
activities was $15.5 million as compared to $6.9 million for the corresponding
period of fiscal 1997. As of January 31, 1998 and July 31, 1997, the Company's
working capital and current ratio were $125.8 million and 5.2-to-1 and $127.8
million and 6.1-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 six months ended January 31, 1998, the Company's capital
expenditures were $23.5 million.
On October 2, 1997, the Company acquired a 383,000 square foot office
campus in St. Petersburg, Florida for $13.5 million. Although no formal
construction commitments exist for this facility, the Company expects to spend
approximately $20 million to expand and renovate the facility over the next
three years. Management estimates that as of January 31, 1998, approximately
$9.1 million will be required in order for the Company to purchase additional
equipment, furniture and hardware, and to complete its currently defined
software projects.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
The Company has a two-year, $15.0 million unsecured credit facility with a
financial institution. 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 earnings before interest,
taxes, depreciation and amortization (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 certain funded debt to tangible net worth ratio. As of January
31, 1998, the Company was in compliance with all such covenants and there were
no amounts outstanding under the credit facility. This facility expires in March
1998. The Company presently intends to renew and increase the amount of the
facility, although no assurance can be given that the Company can or will do so.
The Company believes that its cash, investments, cash flows from operations
and funds available from its credit facility will be adequate to meet the
Company's expected capital requirements for the foreseeable future.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's 1997 Annual Meeting of Shareholders held on December 5,
1997, two matters were submitted to a vote of shareholders. Suzanne M.
MacDougald and Peter A. Sullivan were elected as directors of the Company for
terms expiring in 2000. The following table sets forth certain information with
respect to the election of directors at the annual meeting:
<TABLE>
<CAPTION>
Shares Withholding
Name of Nominee Shares Voted For Authority
--------------------- ---------------- -------------------
<S> <C> <C>
Suzanne M. MacDougald 24,097,183 114,221
Peter A. Sullivan 24,100,183 111,221
</TABLE>
The following table sets forth the other directors of the Company whose
terms of office continued after the 1997 annual meeting of the shareholders:
<TABLE>
<CAPTION>
Name of Director Term Expires
------------------------ ---------------
<S> <C>
Mark M. Goldman 1998
James E. MacDougald 1999
Thomas F. Costello 1999
</TABLE>
Second, the Company's shareholders approved the ABR Information Services,
Inc. 1997 Employee Stock Option Plan. The following table sets forth certain
information with respect to the vote on such matter:
<TABLE>
<CAPTION>
Shares Voted Shares Voted
For Against Abstentions
--------------- ---------------- ---------------
<S> <C> <C>
15,199,349 2,727,357 1,411,512
</TABLE>
14
<PAGE> 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.15 Stock purchase agreement dated February 26, 1998 and
effective February 1, 1998, by and among ABR Information
Services, Inc. and the shareholders of Charing Company, Inc.
10.16 Stock purchase agreement dated February 27, 1998 and
effective February 1, 1998, by and among ABR Information
Services, Inc., Matthews, Malone & Associates, Ltd. and the
shareholders of Matthews, Malone & Associates, Ltd.
27.1 Financial Data Schedule - six months (Edgar Version Only)
27.2 Financial Data Schedule - nine months (Edgar Version Only)
27.3 Financial Data Schedule - year (Edgar Version Only)
(b) Reports on Form 8-K
None.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: March 13, 1998 ABR INFORMATION SERVICES, INC.
(Registrant)
/s/ James P. O'Drobinak
---------------------------------
James P. O'Drobinak
Senior Vice President
and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
16
<PAGE> 1
EXHIBIT 10.15
STOCK PURCHASE AGREEMENT
DATED FEBRUARY 26, 1998,
AND EFFECTIVE AS OF FEBRUARY 1, 1998,
BY AND AMONG
ABR INFORMATION SERVICES, INC.,
A FLORIDA CORPORATION,
CHARING COMPANY, INC.
A WISCONSIN CORPORATION,
DONALD A. SMART,
RICHARD L. BONDOW,
JOHN C. HAASE,
JODI K. HOLMAN,
DANIEL J. JARECKI, AND
DONALD W. SCHMIDT,
AS SHAREHOLDERS,
AND
DONALD A. SMART,
AS SHAREHOLDERS' AGENT
<PAGE> 2
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. PURCHASE AND SALE OF SHARES......................................... 1
2. PURCHASE PRICE - PAYMENT............................................ 1
2.1. Purchase Price......................................... 1
2.2. Payment of Purchase Price.............................. 5
3. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF
COMPANY AND SHAREHOLDERS............................................ 7
3.1. Corporate.............................................. 7
3.2. Shareholders........................................... 8
3.3. No Violation........................................... 9
3.4. Financial Statements................................... 9
3.5. Tax Matters............................................ 10
3.6. Accounts Receivable.................................... 11
3.7. Absence of Certain Changes............................. 11
3.8. Absence of Undisclosed Liabilities..................... 13
3.9. No Litigation.......................................... 13
3.10. Compliance With Laws and Orders........................ 14
3.11. Title to and Condition of Properties................... 16
3.12. Insurance.............................................. 17
3.13. Contracts and Commitments.............................. 18
3.14. Labor Matters.......................................... 20
3.15. Employee Benefit Plans................................. 21
3.16. Employment Compensation................................ 25
3.17. Trade Rights........................................... 25
3.18. Major Customers and Suppliers.......................... 26
3.19. Service Warranty and Liability......................... 27
3.20. Bank Accounts.......................................... 27
3.21. Affiliates' Relationships to Company................... 27
3.22. Assets Necessary to Business........................... 28
3.23. No Brokers or Finders.................................. 28
3.24. Year 2000 Compliance .................................. 28
3.25. Systems Performance .................................. 28
3.26. Disclosure............................................. 29
4. REPRESENTATIONS AND WARRANTIES OF BUYER............................. 29
4.1. Corporate.............................................. 29
4.2. Authority.............................................. 29
4.3. No Brokers or Finders.................................. 30
4.4. Disclosure............................................. 30
4.5. Investment Intent...................................... 30
5. COVENANTS........................................................... 31
5.1. Section 338(h)(10) Election............................ 31
5.2. Employment and Noncompetition Agreement................ 32
5.3. Noncompetition; Confidentiality........................ 32
5.4. General Releases....................................... 34
5.5. Errors and Omissions Gap Coverage...................... 34
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
6. INDEMNIFICATION..................................................... 34
6.1. By Shareholders........................................ 34
6.2. By Buyer............................................... 34
6.3. Indemnification of Third-Party Claims.................. 35
6.4. Payment................................................ 36
6.5. Indemnification for Environmental Matters.............. 36
6.6. Limitations on Indemnification......................... 37
6.7. No Waiver.............................................. 38
6.8. Exclusive Remedies . . . . . .......................... 38
7. CLOSING............................................................. 39
7.1. Documents to be Delivered by Company and
Shareholders........................................... 39
7.2. Documents to be Delivered by Buyer..................... 40
8. TERMINATION......................................................... 41
9. RESOLUTION OF DISPUTES.............................................. 41
9.1. Arbitration............................................ 41
9.2. Arbitrators............................................ 42
9.3. Procedures; No Appeal.................................. 42
9.4. Authority.............................................. 42
9.5. Entry of Judgment...................................... 42
9.6. Confidentiality........................................ 42
9.7. Continued Performance.................................. 42
9.8. Tolling................................................ 43
10. MISCELLANEOUS....................................................... 43
10.1. Disclosure Schedule.................................... 43
10.2. Further Assurance...................................... 43
10.3. Disclosures and Announcements.......................... 44
10.4. Assignment; Parties in Interest........................ 44
10.5. Law Governing Agreement................................ 44
10.6. Amendment and Modification............................. 44
10.7. Notice................................................. 44
10.8. Expenses............................................... 46
10.9. Tax Records............................................ 47
10.10. Entire Agreement....................................... 47
10.11. Counterparts........................................... 47
10.12. Headings............................................... 47
10.13. Shareholders' Agent; Power of Attorney................. 47
10.14. Glossary of Terms...................................... 49
</TABLE>
iii
<PAGE> 4
DISCLOSURE SCHEDULE
<TABLE>
<S> <C> <C>
Schedule 3.1.(c) - Foreign Corporation Qualification
Schedule 3.1.(e) - Directors and Officers of the
Company
Schedule 3.1.(f) - Shareholder List
Schedule 3.2.(c) - Title Exceptions
Schedule 3.3 - Violation, Conflict, Default
Schedule 3.4 - Financial Statements
Schedule 3.5.(b) - Tax Returns (Exceptions to
Representations)
Schedule 3.5.(d) - Consolidated Group Membership
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 - Liens
Schedule 3.11.(c) - Real Property
Schedule 3.12 - Insurance
Schedule 3.13.(b) - Personal Property Leases
Schedule 3.13.(d) - Significant Sales Commitments
Schedule 3.13.(e) - Contracts with Affiliates and
Certain Others
Schedule 3.13.(g) - Collective Bargaining Agreements
Schedule 3.13.(h) - Loan Agreements, etc.
Schedule 3.13.(i) - Guarantees
Schedule 3.13.(l) - Material Contracts
Schedule 3.14 - Labor Matters
Schedule 3.15.(a) - Employee Plans/Agreements
Schedule 3.15.(e) - Controlled Group, Etc.
Schedule 3.15.(f) - Employee Plans/Agreements Payments
and Compliance
Schedule 3.16 - Employment Compensation
Schedule 3.17 - Trade Rights
Schedule 3.18.(a) - Major Customers
Schedule 3.18.(b) - Major Suppliers
Schedule 3.18.(c) - Sales Representatives
Schedule 3.19 - Service Warranty, Warranty Expense
and Liability Claims
Schedule 3.20 - Bank Accounts
Schedule 3.21.(a) - Contracts with Affiliates
Schedule 3.21.(c) - Obligations of and to Affiliates
Schedule 3.24 - Year 2000 Noncompliance
Schedule 5.1 - Purchase Price Allocation
</TABLE>
iv
<PAGE> 5
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated February 26,
1998, and effective as of February 1, 1998, by and among ABR Information
Services, Inc., a Florida corporation ("Buyer"), Charing Company, Inc., a
Wisconsin corporation ("Company"), Donald A. Smart, Richard L. Bondow, John C.
Haase, Jodi K. Holman, Daniel J. Jarecki and Donald W. Schmidt (individually
"Shareholder" and together the "Shareholders"), and Donald A. Smart (the
Shareholders' Agent").
RECITALS
1. Company is engaged in the business of providing pension
administrative services to third parties (the "Charing Business"). Shareholders
own all of the issued and outstanding shares (the "Shares") of capital stock of
Company.
2. Company's facilities consist solely of leased offices at 7
North Pinckney Street, Suite 100, Madison, Wisconsin 53703 (the "Madison
office"), 16655 West Bluemound Road, Suite 290, Brookfield, Wisconsin 53005 (the
"Brookfield office"), and 505 King Street, Suite 200, P.O. Box 3059, Lacrosse,
Wisconsin 54602- 3059 (the "Lacrosse office") (collectively, the "Facilities").
3. Buyer desires to purchase the Shares from Shareholders and
Shareholders desire to sell the Shares to Buyer, upon the terms and conditions
herein set forth.
4. Shareholders wish to designate Donald A. Smart as their
agent and attorney-in-fact, with the authority to act on their behalf in
connection with the sale of the Shares to Buyer.
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. PURCHASE AND SALE OF SHARES
Subject to the terms and conditions of this Agreement, effective as of
the Effective Date (as hereinafter defined) Shareholders shall sell to Buyer and
Buyer shall purchase from Shareholders all of the Shares.
2. PURCHASE PRICE - PAYMENT
2.1. Purchase Price.
2.1.(a) Amount. The aggregate purchase price (the "Purchase
Price") payable for the Shares shall be the sum of
<PAGE> 6
(a) SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000) and (b) a
contingent payment (the "Contingent Payment") based on the Charing
Business' incremental increase in pretax profitability for the
twelve-month period commencing February 1, 1998 and ending on January 31,
1999 (the "1998 Period") as compared to the twelve-month period
commencing February 1, 1997 and ending on January 31, 1998 (the "1997
Period"). All payments of Purchase Price are to be made for pro rata
distribution among the Shareholders in accordance with their respective
shareholdings in the Company.
2.1.(b) Calculation of Contingent Payment. The Contingent Payment
shall equal the product of (i) six, multiplied by (ii) the dollar amount
obtained by subtracting the Company's net earnings before income taxes
("EBIT") for the 1997 Period ("1997 EBIT") from the Company's EBIT for
the 1998 Period ("1998 EBIT"). Thus, if for example, Company's 1997 EBIT
equalled $1,100,000 and Company's 1998 EBIT equals $1,300,000, then the
Contingent Payment will equal $1.2 million (six times $0.2 million),
resulting in an aggregate Purchase Price of $8.7 million.
2.1.(c) Calculation of EBIT. The calculation of Company's EBIT for
any period shall include revenue received from pension administration
services provided by Company but shall not include revenue received from
COBRA administration services or other services not performed by Company
as of the date hereof but offered by Buyer or any of its subsidiaries or
affiliates. Except as expressly provided herein, the calculation of EBIT
for any period shall be made in accordance with generally accepted
accounting principles applied on a consistent basis, subject to the
following adjustments:
(i) Any depreciation or amortization adjustments
resulting solely from the transactions contemplated by this
Agreement shall not be included for purposes of calculating 1998
EBIT.
(ii) Notwithstanding Company's actual expenses for the
1998 Period relating to items and functions (such as property and
casualty insurance, errors and omissions insurance, health and
welfare programs, accounting functions and human resource
functions) that Shareholders' Agent and Buyer mutually agree shall
be provided to Company by Buyer or another subsidiary thereof,
Company shall record as an expense for purposes of calculating
1998 EBIT the same dollar amount as it recorded in calculating
1997 EBIT with respect to such items and functions.
(iii) The reasonable costs and expenses of Morton, Nehls &
Tierney, S.C. associated with the
2
<PAGE> 7
preparation of Company's audited financial statements for the 1996
and 1997 calendar years and Company's federal and State of
Wisconsin tax returns for the 1997 calendar year and 1998 S
corporation fiscal period of January 1 through January 31, shall
be borne by Company, but shall not be included for purposes of
calculating 1997 EBIT or 1998 EBIT.
(iv) To the extent that any employee of Company shall be
required to travel to Buyer's Florida offices at Buyer's request,
Buyer shall make and pay for directly all necessary travel and
lodging arrangements.
(v) The calculation of 1998 EBIT shall not exclude any
expense item (or series of related items) relating to personnel
matters or exceeding $10,000 annually, unless such exclusion has
been preapproved in writing by Buyer.
(vi) Shareholders' Agent shall review with Buyer on a
monthly basis any and all expense items Shareholders' Agent
desires to exclude for purposes of calculating 1998 EBIT.
(vii) Buyer (or any subsidiary of Buyer) may generate new
pension administrative services sales revenue for Company during
the 1998 Period ("New Company Revenue"). Company may generate for
Buyer during the 1998 Period new COBRA administrative services
sales revenue (or other new business for similar administrative
services not performed by Company as of the date hereof) ("New
Buyer Revenue"). If New Company Revenue and/or New Buyer Revenue
is generated during the 1998 Period, Buyer and Company agree to
make a reasonable determination of the sales and other reasonable
costs incurred (A) by Company to obtain the New Buyer Revenue and
(B) by Buyer to obtain the New Company Revenue, for purposes of
calculating Company's 1998 EBIT. The mutually agreed upon costs
incurred by Buyer (or any subsidiary of Buyer) in generating the
New Company Revenue shall be included for purposes of calculating
the 1998 EBIT. The mutually agreed upon costs incurred by Company
in generating New Buyer Revenue shall be excluded for purposes of
calculating the 1998 EBIT. The New Company Revenue shall be
included in calculating 1998 EBIT and the New Buyer Revenue shall
be excluded in calculating 1998 EBIT.
(viii) The $9,800 Wisconsin recycling tax for the Company's
fiscal period from January 1 through February 1, 1998, shall be
paid by Company when due and shall be excluded from the
calculation of 1997 EBIT and 1998 EBIT.
3
<PAGE> 8
(ix) The imputed interest expense on the Buyer
Distribution Loan (as hereinafter defined) shall be included in
the calculation of 1998 EBIT.
2.1.(d) Distribution of 1997 EBIT. The Company's EBIT for calendar
year 1997 and EBIT for the period from January 1, 1998 through January
31, 1998 ("January 1998 EBIT") shall be distributed pro rata to the
Shareholders on or before the Closing Date in accordance with their
respective shareholdings in the Company as set forth in Schedule 3.1(f);
provided, however, that (i) the Company shall have a minimum net worth as
of both the Effective Date and the Closing Date of $100,000, and (ii) at
no time from the Effective Date through the Closing Date shall the
Company's cash balance fall below $100,000. Anything in this Agreement to
the contrary notwithstanding, for purposes of calculating the January
1998 EBIT, the $10,000 fee paid by the Company to Morton, Nehls &
Tierney, S.C. for preparing the Company's audited financial statements
for the 1996 and 1997 calendar years shall not be deducted as an expense
of the Company for January, 1998. To the extent possible, the
distribution of calendar year 1997 EBIT and January 1998 EBIT shall be
funded out of the Company's available cash (subject to the foregoing
minimum net worth and available cash requirements). The balance of the
cash necessary to fund said distribution of calendar year 1997 EBIT and
January 1998 EBIT shall be provided in accordance with Section 2.1(e).
2.1.(e) Distribution Loan. Buyer agrees to loan Company on the
Closing Date an amount equal to (i) the Company's accrued Shareholder
distribution amount of $337,838 as of December 31, 1997, plus (ii)
January 1998 EBIT, minus (iii) the total Shareholder distributions made
by Company to the Shareholders on or before the Closing Date which
Company was permitted to make from its available cash under Section
2.1(d) and still meet the financial covenants stated therein. The loan
described in this Section 2.1(e) is referred to herein as the "Buyer
Distribution Loan." The proceeds of the Buyer Distribution Loan shall
then be distributed to the Shareholders on the Closing Date so that by
the Closing Date, the Shareholders shall have received total
distributions equal to the Company's $337,838 accrued Shareholder
distribution amount as of December 31, 1997, plus January 1998 EBIT. The
Buyer Distribution Loan shall be repaid in full by Company to Buyer
during the 1998 Period. To the extent it is repaid after such time, the
unpaid principal balance as of such date shall be charged in full against
1998 EBIT, provided that the Distribution Loan has been repaid through
such date to the
4
<PAGE> 9
extent of available cash flow of the Company during the 1998 Period.
2.1.(f) Interest on Buyer Distribution Loan. The calculation of
Company's 1998 EBIT shall include an imputed interest expense to Company
equal to interest calculated on the outstanding principal balance of the
Buyer Distribution Loan which remains unpaid from time to time, at the
rate announced from time to time by NationsBank, N.A. (or its successor)
as its prime rate. Interest on the Buyer Distribution Loan calculated
under this Section 2.1(f) shall commence on the date the Buyer
Distribution Loan is made to the Company and continue until the Buyer
Distribution Loan is repaid.
2.2. Payment of Purchase Price. The Purchase Price shall be paid by
Buyer as follows:
2.2.(a) Cash to Shareholders' Agent. At the Closing, Buyer shall
deliver to the Shareholders' Agent the sum of Seven Million Dollars
($7,000,000.00), to be allocated among the Shareholders pro rata in
accordance with their respective shareholdings in Company as set forth in
Schedule 3.1.(f).
2.2.(b) Contingent Payment. The initial calculation of the
Contingent Payment shall be made by the Shareholders' Agent, who shall
deliver his calculation within thirty (30) days following the end of the
1998 Period to Buyer for its review and comment. If Shareholders' Agent
and Buyer are able to agree in writing upon the amount of the Contingent
Payment within fifteen (15) days following delivery of the initial
calculation to Buyer, then Buyer shall pay such amount. Such payment of
the Contingent Payment, if any, shall be made to the Shareholders' Agent
within forty-five (45) calendar days following the close of the 1998
Period. In the event Buyer and Shareholders' Agent cannot agree on the
amount of the Contingent Payment within forty-five (45) calendar days
following the close of the 1998 Period, then the determination of the
contingent payment shall be submitted to binding arbitration in
accordance with Article 9 of this Agreement.
2.2.(c) Purchase Price Holdback.
(i) On the Closing Date, Buyer will transfer the sum of
Five Hundred Thousand Dollars ($500,000) to a segregated
interest-bearing account with a bank or other financial
institution with a combined capital and surplus in excess of
$50,000,000, which amount shall be held by Buyer in such account
for the purpose of securing the indemnification obligations of
Company and Shareholders under this Agreement. For purposes
hereof, "Holdback Period" shall mean the
5
<PAGE> 10
period commencing on the date hereof and ending one (1) year from
the date hereof, subject to extension as hereinafter provided.
(ii) If, prior to the expiration of the Holdback Period,
Buyer determines to assert a claim for indemnification under
Article 6 of this Agreement, then Buyer shall give the
Shareholders' Agent written notice of such claim (for purposes of
this Section 2.2(c), a "Claim Notice"), specifying in reasonable
detail the basis therefor and the amount and calculation thereof.
If the Shareholders' Agent does not deliver to Buyer written
notice of an objection to the claim for indemnification within
twenty (20) days after receipt of the Claim Notice relating
thereto, Buyer shall be entitled to withdraw the dollar amount of
its claim (as set forth in the Claim Notice) from the segregated
account. If the Shareholders' Agent shall timely deliver to Buyer
such written notice of objection, then Buyer shall not make a
withdrawal from the segregated account with respect to the claim
set forth in the Claim Notice until: (x) Buyer and Shareholders'
Agent have executed joint written instructions referring to such
Claim Notice and directing Buyer to withdraw, for Buyer's own
account, funds from the segregated account; or (y) Buyer has
received a copy of a judgment, decree or order of a court, or copy
of an arbitration award, adjudicating the dispute with respect to
such claim for indemnification; whereupon Buyer shall withdraw
from the segregated account, for Buyer's own account, such amount
as provided therein.
(iii) If Buyer has not delivered a Claim Notice to
Shareholders' Agent prior to the expiration of the Holdback
Period, or if any and all Claim Notices delivered to Shareholders'
Agent during the Holdback Period have been resolved pursuant to
subsection (ii) above, then Buyer shall deliver to Shareholders'
Agent the portion of the funds held in the segregated account
equal to (x) $500,000, less (y) any amounts withdrawn by Buyer as
provided herein, plus (z) any interest earned with respect to such
amount. Buyer shall deliver such amount to the Shareholders' Agent
promptly after the expiration of the Holdback Period, unless one
or more Claim Notice(s) have not been finally resolved pursuant to
subsection (ii) above, in which case Buyer shall retain such
amount in the segregated account until: (a) Buyer and
Shareholders' Agent have executed joint written instructions
referring to such Claim Notice(s) and directing Buyer as to the
disbursement of the funds in the segregated account; or (b) Buyer
has received a copy of a judgment, decree or order of a
6
<PAGE> 11
court, or copy of an arbitration award, adjudicating the dispute
with respect to such Claim Notice(s); whereupon Buyer shall
disburse the funds in the segregated account as provided therein.
2.2.(d) Method of Payment. All payments under this Section 2.2
shall be made in the form of certified or bank cashier's check payable to
the order of the recipient or, at the recipient's option, by wire
transfer of immediately available funds to an account designated by the
recipient not less than 48 hours prior to the time for payment specified
herein.
3. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF COMPANY AND
SHAREHOLDERS
Company and Shareholders, jointly and severally, make the following
representations and warranties to Buyer, each of which was true and correct on
the Effective Date (other than Section 3.2(b)), remains true as of the Closing
Date, shall be unaffected by any investigation heretofore or hereafter made by
Buyer, or any knowledge of Buyer other than as specifically disclosed in the
Disclosure Schedule delivered to Buyer at the time of the execution of this
Agreement, and shall survive the Closing of the transactions provided for herein
as provided in Article 6. Regardless of the foregoing, the representations and
warranties set forth in Section 3.2 are made severally by each Shareholder, with
respect to such Shareholder only.
3.1. Corporate.
3.1.(a) Organization. Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Wisconsin.
3.1.(b) Corporate Power. Company has all requisite corporate power
and authority to own, operate and lease its properties and to carry on
its business as and where such is now being conducted.
3.1.(c) Qualification. Company 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 its business, makes such licensing or qualification
necessary. The states in which Company is licensed or qualified to do
business are listed in Schedule 3.1.(c).
3.1.(d) Subsidiaries. Company does not own any interest in any
corporation, partnership or other entity.
7
<PAGE> 12
3.1.(e) Corporate Documents, etc. The copies of the Amended and
Restated Articles of Incorporation and By-Laws of the Company, including
any amendments thereto, which have been delivered by Shareholders to
Buyer are true, correct and complete copies of such instruments as
presently in effect. The corporate minute book and stock records of the
Company which have been furnished to Buyer for inspection are true,
correct and complete and accurately reflect all material corporate action
taken by the Company. The directors and officers of the Company are
listed in Schedule 3.1.(e).
3.1.(f) Capitalization of the Company. The authorized capital
stock of the Company consists entirely of 56,000 shares of common stock,
par value $0.90 per share. No shares of such capital stock are issued or
outstanding except for 5,250 shares of common stock of the Company which
are owned of record and beneficially by Shareholders in the respective
numbers set forth in Schedule 3.1.(f). All such shares of capital stock
of the Company are validly issued, fully paid and nonassessable. There
are no (a) securities convertible into or exchangeable for any of the
Company's capital stock or other securities, (b) options, warrants or
other rights to purchase or subscribe to capital stock or other
securities of the Company or securities which are convertible into or
exchangeable for capital stock or other securities of the Company, 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 the Company, any such convertible or
exchangeable securities or any such options, warrants or other rights.
3.2. Shareholders.
3.2.(a) Power. Each Shareholder has full power, legal right and
authority to enter into, execute and deliver this Agreement and the other
agreements, instruments and documents contemplated hereby (such other
documents sometimes referred to herein as "Ancillary Instruments"), and
to carry out the transactions contemplated hereby.
3.2.(b) Validity. This Agreement has been duly and validly
executed and delivered by each Shareholder and is, and when executed and
delivered each Ancillary Instrument will be, the legal, valid and binding
obligation of such Shareholder, enforceable in accordance with its terms,
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. Except as set forth in Schedule 3.2.(c), each
Shareholder has, and Buyer is receiving, good
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and marketable title to the Shares to be sold by such 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 Company and Shareholders of the transactions contemplated hereby
and thereby (a) will violate any statute, law, ordinance, rule or regulation
(collectively, "Laws") or any 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) will require 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), or (c) subject to
obtaining the consents referred to in Schedule 3.3, will violate or conflict
with, or constitute a default (or an event which, with notice or lapse of time,
or both, would constitute a default) under, or will result in the termination
of, or accelerate the performance required by, or result in the creation of any
Lien upon any of the assets of Company (or the Shares) under, any term or
provision of the Amended and Restated Articles of Incorporation or By-Laws of
Company or of any contract, commitment, understanding, arrangement, agreement or
restriction of any kind or character to which Company or any Shareholder is a
party or by which Company or any Shareholder or any of its or their assets or
properties may be bound or affected.
3.4. Financial Statements. Included as Schedule 3.4 are true and
complete copies of the financial statements of Company consisting of (i) balance
sheets of Company as of December 31, 1996 and 1997, and the related statements
of income and cash flows for the years then ended (including the notes contained
therein or annexed thereto), which financial statements have been reported on,
and are accompanied by, the signed, unqualified opinions of Morton, Nehls &
Tierney, S.C., independent auditors for Company for such years; and (ii) a
compiled balance sheet of the Company as of January 31, 1998, and the related
compiled statements of income and cash flows for the one month then ended. The
audited balance sheet of the Company as of December 31, 1997 is hereinafter
referred to as the "Recent Balance Sheet." All of such financial statements
(including all notes and schedules contained therein or annexed thereto) are
true, complete and accurate, have been prepared in accordance with generally
accepted accounting principles (except, in the case of compiled statements, for
the absence of footnote disclosure) applied on a consistent basis, have been
prepared in accordance with the books and records of Company, and fairly
present, in accordance with generally
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accepted accounting principles, the assets, liabilities and financial position,
the results of operations and cash flows of Company as of the dates and for the
years and periods indicated.
3.5. Tax Matters.
3.5.(a) Provision For Taxes. The provision made for taxes on the
Recent 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, whether or
not disputed, at the date of the Recent Balance Sheet and for all years
and periods prior thereto. Since the date of the Recent Balance Sheet,
Company has not incurred any taxes other than taxes incurred in the
ordinary course of business consistent in type and amount with past
practices of Company. Notwithstanding the foregoing, Company will be
required to pay two State of Wisconsin recycling tax assessments in
calendar 1998. The assessment for the fiscal period from January 1
through February 1, 1998 will equal $9,800. The recycling tax assessment
for the balance of calendar 1998 will equal the lesser of (i) Company's
net income for that fiscal period multiplied by .004345, and (ii) $9,800.
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 Company have been timely filed
and when filed were true and correct in all material respects, and the
taxes shown as due thereon were paid or adequately accrued. True and
complete copies of all tax returns or reports filed by Company for each
of its six most recent fiscal years have been delivered to Buyer. Company
has duly withheld and paid all taxes which it is required to withhold and
pay relating to salaries and other compensation heretofore paid to the
employees of Company.
3.5.(c) Tax Audits. The federal and state income tax returns of
Company have never been audited by the Internal Revenue Service or any
state taxing authorities. Company has not 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 or other
deficiency which has not been paid nor any objection to any return or
report filed by Company. There are outstanding no agreements or waivers
extending the statutory period of limitations applicable to any tax
return or report.
3.5.(d) No Consolidated Group. Except as set forth in Schedule
3.5(d), Company has never been a member of an affiliated group of
corporations that filed a consolidated tax
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return. The Company does not have any liability for the taxes of any
person or entity under Sections 1.1502-6 or 1.1502-78 of Title 26 of the
Code of Federal Regulations (or any similar provisions of state, local or
foreign income tax laws).
3.5.(e) S Corporation. Company properly and timely filed a valid
election under Section 1362 of the Internal Revenue Code of 1986, as
amended (the "Code"), to be treated as an S corporation ("S Corp") as
defined under Section 1361 of the Code for federal income tax purposes
effective from January 1, 1989 and has corresponding elections in effect
under the laws of Wisconsin. Such elections have remained in effect since
January 1, 1989. Except for transactions contemplated by this Agreement,
neither Company nor any of the Shareholders has taken any action, nor has
any event occurred, that would result in the revocation or termination of
any of such elections effective on or after January 1, 1989. Company is
not subject to the tax imposed by Section 1374 of the Code (or any
equivalent state statute) and Company does not have a "net unrealized
built-in gain" as such phrase is defined in Section 1374(d) of the Code
(or any equivalent state statute).
3.5.(f) Other. The Company has never (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, (v) made any payments, or been
a party to an agreement (including this Agreement) that under any
circumstances could obligate it to make payments that will not be
deductible because of Section 280G of the Code, or (vi) been a party to
any tax allocation or tax sharing agreement. The Company is not a "United
States real property holding company" within the meaning of Section 897
of the Code.
3.6. Accounts Receivable. All accounts receivable of Company reflected
on the Recent Balance Sheet, and all accounts receivable accrued in the normal
course of business since the date thereof, represent arm's length sales actually
made in the ordinary course of business; are collectible (net of a five percent
(5%) allowance for doubtful accounts, even though no reserve is shown on the
Recent Balance Sheet for doubtful accounts) in the ordinary course of business
without the necessity of commencing legal proceedings; are subject to no
counterclaim or setoff; and are not in dispute. Schedule 3.6 contains an aged
schedule of accounts receivable included in the Recent Balance Sheet.
3.7. Absence of Certain Changes. Except as and to the extent set forth
in Schedule 3.7, since the date of the Recent Balance Sheet there has not been:
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3.7.(a) No Adverse Change. Any adverse change in the financial
condition, assets, liabilities, business, prospects or operations of
Company;
3.7.(b) No Damage. Any loss, damage or destruction, whether
covered by insurance or not, affecting the Company, its properties or the
Charing Business;
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 Company (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;
3.7.(d) No Labor Disputes. Any labor dispute or disturbance, other
than routine individual grievances which are not material to the
business, financial condition or results of operations of Company.
3.7.(e) No Commitments. Any commitment or transaction by Company
(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 Company's capital
stock; any redemption, purchase or other acquisition by Company of any
capital stock of Company, or any security relating thereto; or any other
payment to any shareholder of Company 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 Company, other
than sales, leases, transfers or other dispositions made in the ordinary
course of business and consistent with past practice;
3.7.(h) No Indebtedness. Any indebtedness for borrowed money
incurred, assumed or guaranteed by Company;
3.7.(i) No Liens. Any mortgage, pledge, lien or encumbrance made
on any of the properties or assets of Company;
3.7.(j) No Amendment of Contracts. Any entering into, amendment or
termination by Company of any contract, or any waiver of material rights
thereunder, other than in the ordinary course of business;
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3.7.(k) Loans and Advances. Any loan or advance (other than (i)
advances to employees in the ordinary course of business for travel and
entertainment in accordance with past practice or (ii) other advances
equal to less than $1,000 individually and $5,000 in the aggregate) to
any person including, but not limited to, any Affiliate (for purposes of
this Agreement, the term "Affiliate" shall mean and include: all
Shareholders, directors and officers of Company; the spouse of any such
person; 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 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);
3.7.(l) Credit. Any grant of credit to any customer or distributor
on terms or in amounts more favorable than those which have been extended
to such customer or distributor in the past, any other change in the
terms of any credit heretofore extended, or any other change of Company's
policies or practices with respect to the granting of credit; or
3.7.(m) No Unusual Events. Any other event or condition not in the
ordinary course of business of Company.
3.8. Absence of Undisclosed Liabilities. Except as and to the extent
specifically disclosed in the Recent Balance Sheet, or in Schedule 3.8, Company
does not have any liabilities, commitments or obligations (secured or unsecured,
and whether accrued, absolute, contingent, direct, indirect or otherwise), other
than commercial liabilities and obligations incurred since the date of the
Recent Balance Sheet in the ordinary course of business and consistent with past
practice and none of which has or will have a material adverse effect on the
business, financial condition or results of operations of Company. Except as and
to the extent described in the Recent Balance Sheet or in Schedule 3.8, neither
Company nor any Shareholder has knowledge of any basis for the assertion against
Company of any liability and there are no circumstances, conditions, happenings,
events or arrangements, contractual or otherwise, which may give rise to
liabilities, except commercial liabilities and obligations incurred in the
ordinary course of Company's business and consistent with past practice.
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 threatened against
Company, its directors (in such capacity), its business or any of its assets,
nor does Company or any Shareholder know, or have grounds to know, of any basis
for any Litigation. Schedule 3.9 also identifies all Litigation to which
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Company or any of its directors (in such capacity) have been parties since
January 1, 1992. Except as set forth in Schedule 3.9, neither Company nor its
business or 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),
Company (including each and all of its operations, practices, properties
and assets) is in compliance with all applicable Laws and Orders,
including, without limitation, those applicable to discrimination in
employment, occupational safety and health, trade practices, competition
and pricing, product warranties, 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), Company has not received notice of any violation or
alleged violation of, and is subject to no Liability for past or
continuing violation of, any Laws or Orders. All reports and returns
required to be filed by Company with any Government Entity have been
filed, and were accurate and complete when filed. Without limiting the
generality of the foregoing:
(i) The operation of Company's business as it is now
conducted does not, nor does any condition existing at any of the
Facilities, in any manner constitute a nuisance or other tortious
interference with the rights of any person or persons in such a
manner as to give rise to or constitute the grounds for a suit,
action, claim or demand by any such person or persons seeking
compensation or damages or seeking to restrain, enjoin or
otherwise prohibit any aspect of the conduct of such business or
the manner in which it is now conducted.
(ii) Company 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 each of such accounts has a positive
balance.
(iii) Company has delivered to Buyer copies of all reports
of Company 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. The
deficiencies, if any, noted on such reports have been corrected.
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3.10.(b) Licenses and Permits. Company has all licenses, permits,
approvals, authorizations and consents of all Government Entities and all
certification organizations required for the conduct of the business (as
presently conducted and as proposed to be conducted) and operation of the
Facilities. 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), Company (including its
operations, 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, Company
is in full compliance with all 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
Company 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 (or, to the best of
Company's and the Shareholders' knowledge, future) events, conditions,
circumstances, activities, practices, incidents, actions, omissions or
plans which may interfere with or prevent compliance or continued
compliance with the Environmental Laws or with any Order issued, entered,
promulgated or approved thereunder, or which may give rise to any
liability, including, without limitation, liability under CERCLA or
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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.
3.11. Title to and Condition of Properties.
3.11.(a) Marketable Title. Company has good and marketable title
to all of Company's assets, business and properties, including, without
limitation, all such properties (tangible and intangible) reflected in
the Recent Balance Sheet, 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 described in Schedule 3.11. None of
Company's assets, business or properties are subject to any restrictions
with respect to the transferability thereof; and the Company's title
thereto will not be affected in any way by the transactions contemplated
hereby.
3.11.(b) Condition. All property and assets owned or utilized by
Company are in good operating condition and repair, free from any defects
(except such minor defects as do not interfere with the use thereof in
the conduct of the normal operations of Company), have been maintained
consistent with the standards generally followed in the industry and are
sufficient to carry on the business of Company as conducted during the
preceding 12 months. All buildings, plants and other structures owned or
otherwise utilized by Company are in good condition and repair and have
no structural defects or defects affecting the plumbing, electrical,
sewerage, or heating, ventilating or air conditioning systems.
3.11.(c) Real Property. Schedule 3.11.(c) sets forth all real
property owned, leased, used or occupied by Company (the "Real
Property"), including a description of all land, and all encumbrances,
easements or rights of way of record (or, if not of record, of which
Company has notice or knowledge) granted on or appurtenant to or
otherwise affecting such Real Property, the zoning classification
thereof, and all plants, buildings or other structures located thereon.
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 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 as the same are now constituted. All of the Real Property has
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permanent rights of access to dedicated public highways. No fact or
condition exists which would prohibit or adversely affect the ordinary
rights of access to and from the Real Property from and to the existing
highways and roads and there is no pending or threatened restriction or
denial, governmental or otherwise, upon such ingress and egress. To the
best of Company's and Shareholders' knowledge, there is not (i) any claim
of adverse possession or prescriptive rights involving any of the Real
Property, (ii) any structure located on any Real Property which
encroaches on or over the boundaries of neighboring or adjacent
properties or (iii) any structure of any other party which encroaches on
or over the boundaries of any of such Real Property. To the best of
Company's and Shareholders' knowledge, none of the Real Property is
located in a flood plain, flood hazard area, wetland or lakeshore erosion
area within the meaning of any Law, regulation or ordinance. No public
improvements have been commenced and to the best of Company's and
Shareholders' knowledge none are planned which in either case may result
in special assessments against or otherwise materially adversely affect
any Real Property. To the best of Company's and Shareholders' knowledge,
no portion of any of the Real Property has been used as a landfill or for
storage or landfill of hazardous or toxic materials. Neither Company nor
any Shareholder has notice or knowledge of any (i) planned or proposed
increase in assessed valuations of any Real Property, (ii) Order
requiring repair, alteration, or correction of any existing condition
affecting any Real Property or the systems or improvements thereat, (iii)
condition or defect which could give rise to an order of the sort
referred to in "(ii)" above, (iv) underground storage tanks, or any
structural, mechanical, or other defects of material significance
affecting any Real Property or the systems or improvements thereat
(including, but not limited to, inadequacy for normal use of mechanical
systems or disposal or water systems at or serving the Real Property), or
(v) work that has been done or labor or materials that has or have been
furnished to any Real Property during the period of six (6) months
immediately preceding the date of this Agreement for which liens could be
filed against any of the Real Property.
3.11.(d) No Condemnation or Expropriation. Neither the whole nor
any portion of the property or any other assets of Company is subject to
any Order to be sold or is being condemned, expropriated or otherwise
taken by any Government Entity with or without payment of compensation
therefor, nor to the best of Company's and Shareholders' knowledge has
any such condemnation, expropriation or taking been proposed.
3.12. Insurance. Set forth in Schedule 3.12 is a complete and accurate
list and description of all policies of fire, liability, errors and omissions,
electronic data processing,
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workers compensation, health and other forms of insurance presently in effect
with respect to the business and properties of Company, 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. All such policies
are valid, outstanding and enforceable policies and provide insurance coverage
for the properties, assets and operations of Company, of the kinds, in the
amounts and against the risks customarily maintained by organizations similarly
situated; and no such policy (nor any previous policy) provides for or is
subject to any currently enforceable retroactive rate or premium adjustment,
loss sharing arrangement or other actual or contingent liability arising wholly
or partially out of events arising prior to the date hereof. 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, and neither Company nor any Shareholder has knowledge of any act or
omission of Company which could result in cancellation of any such policy prior
to its scheduled expiration date. Company 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 years.
Company has duly and timely made all claims it has been entitled to make under
each policy of insurance. Since January 1, 1989, all general liability policies
maintained by or for the benefit of Company have been "occurrence" policies and
not "claims made" policies. There is no claim by Company pending under any
errors and omissions, electronic data processing, general liability or similar
policy as to which coverage has been questioned, denied or disputed by the
underwriters of such policies, and neither Company nor any of the Shareholders
knows of any basis for denial of any claim under any such policy. Company 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 Company with
all requirements of law and with the requirements of all material contracts to
which Company is a party.
3.13. Contracts and Commitments.
3.13.(a) Real Property Leases. Except as set forth in Schedule
3.11.(c), Company has no leases of real property.
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3.13.(b) Personal Property Leases. Except as set forth in Schedule
3.13.(b), Company has no leases of personal property involving
consideration or other expenditure in excess of $5,000 or involving
performance over a period of more than three months.
3.13.(c) Purchase Commitments. Company has no purchase commitments
for inventory items or supplies that, together with amounts on hand,
constitute in excess of three months normal usage, or which are at an
excessive price.
3.13.(d) Sales Commitments. Except as set forth in Schedule
3.13.(d), Company has no sales contracts or commitments to customers
which aggregate in excess of $150,000 to any one customer (or group of
affiliated customers). Company has no sales contracts or commitments
except those made in the ordinary course of business, at arm's length,
and no such contracts or commitments are for a sales price which would
result in a loss to the Company.
3.13.(e) Contracts With Affiliates and Certain Others. Except as
set forth in Schedule 3.13(e), Company has no agreement, understanding,
contract or commitment (written or oral) with any Affiliate or any
employee, agent, consultant, distributor, dealer or franchisee that is
not immediately cancelable by Company without liability, penalty or
premium of any nature or kind whatsoever.
3.13.(f) Powers of Attorney. The Company has not given a power of
attorney, which is currently in effect, to any person, firm or
corporation for any purpose whatsoever.
3.13.(g) Collective Bargaining Agreements. Except as set forth in
Schedule 3.13.(g), Company is not a party to any collective bargaining
agreements with any unions, guilds, shop committees or other collective
bargaining groups. Copies of all such agreements have heretofore been
delivered to Buyer.
3.13.(h) Loan Agreements. Except as set forth in Schedule
3.13.(h), Company is not obligated under any loan agreement, promissory
note, letter of credit, or other evidence of indebtedness as a signatory,
guarantor or otherwise.
3.13.(i) Guarantees. Except as disclosed on Schedule 3.13.(i),
Company 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.
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3.13.(j) Contracts Subject to Renegotiation. Company is not a
party to any contract with any governmental body which is subject to
renegotiation.
3.13.(k) Restrictive Agreements. Company is not a party to nor is
it bound by any agreement requiring Company to assign any interest in any
trade secret or proprietary information, or prohibiting or restricting
Company from competing in any business or geographical area or soliciting
customers or otherwise restricting it from carrying on its business
anywhere in the world.
3.13.(l) Other Material Contracts. Company has no lease, contract
or commitment of any nature involving consideration or other expenditure
in excess of $ 5,000, or involving performance over a period of more than
three months, or which is otherwise individually material to the
operations of Company, except as explicitly described in Schedule
3.13.(l).
3.13.(m) No Default. Company is not in default under any lease,
contract or commitment, 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
Company's obligations or result in the creation of any Lien on any of the
assets owned, used or occupied by Company. No third party is in default
under any lease, contract or commitment to which Company is a party, 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
give rise to an automatic termination, or the right of discretionary
termination, thereof.
3.14. Labor Matters. Except as set forth in Schedule 3.14, within the
last five years Company 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) Company 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 against Company pending or threatened; (c) there is
no labor strike, dispute, request for representation, slowdown or stoppage
actually pending or threatened against or affecting Company nor any secondary
boycott with respect to products of Company; (d) no question concerning
representation has been raised or is threatened respecting the employees of
Company; (e) no grievance which might have a material adverse effect on Company,
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
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or court complaints against Company 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, benefit, 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,
"golden parachutes," 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 or binding oral statements of policies, practices or
understandings relating to employment, which are provided to, for the
benefit of, or relate to, any persons employed by Company ("Company
Employees"). 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 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 Company 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 benefit plan (including, without limitation, the
Employee Plans/Agreements) that is subject to the provisions of Title IV
of ERISA and with respect to which the Company 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
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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 Company 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 Company 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 Company 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. There have been no
"prohibited transactions" within the meaning of Section 406 or 407 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
no event or omission has occurred in connection with which the Company or
any of its assets or any Employee Plan/Agreement, directly or indirectly,
could be subject to any 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 Company
has agreed to
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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 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 Company's actuaries in connection with the
funding of such Employee Plan/Agreement).
3.15.(e) Controlled Group; Affiliated Service Group; Leased
Employees. Except as set forth in Schedule 3.15(e): (i) Company is not
and never has been a member of a controlled group of corporations as
defined in Section 414(b) of the Code or in common control with any
unincorporated trade or business as determined under Section 414(c) of
the Code; (ii) Company is not and never has been a member of an
"affiliated service group" within the meaning of Section 414(m) of the
Code; and (iii) there are not and never have been any leased employees
within the meaning of Section 414(n) of the Code who perform services for
Company, and no individuals are expected to become leased employees with
the passage of time. Company has no liability, actual or contingent,
under Title IV of ERISA.
3.15.(f) Payments and Compliance. Except as set forth in Schedule
3.15.(f), with respect to each Employee Plan/Agreement, (i) all payments
due from Company to date have been made and all amounts properly accrued
to date as liabilities of Company which have not been paid have been
properly recorded on the books of Company and are reflected in the Recent
Balance Sheet; (ii) Company 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
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
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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. No Employee Plan/Agreement
provides benefits, including, without limitation, death or medical
benefits (whether or not insured) with respect to current or former
Company employees beyond their retirement or other termination of service
other than (i) coverage mandated by applicable law, (ii) death or
retirement benefits under any Employee Plan/Agreement that is an employee
pension benefit plan, (iii) deferred compensation benefits accrued as
liabilities on the books of Company (including the Recent Balance Sheet),
(iv) disability benefits under any Employee Plan/ Agreement that is an
employee welfare benefit plan and which have been fully provided for by
insurance or otherwise or (v) benefits in the nature of severance pay.
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 Company to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement, (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 Company 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
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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. Company 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.
3.16. Employment Compensation. Schedule 3.16 contains a true and correct
list of all employees to whom Company is paying compensation, including bonuses
and incentives, at an annual rate in excess of Twenty Thousand Dollars ($20,000)
for services rendered or otherwise; 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 Company now has any interest, specifying whether such Trade
Rights are owned, controlled, used or held (under license or otherwise) by
Company, 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 of Company, as such
is currently being conducted or proposed to be conducted, Company does not
require any Trade Rights that it does not already have. To the best of Company's
and Shareholders' knowledge, with respect to its use of the name "Charing,"
Company is not infringing and has not infringed any Trade Rights of another, nor
is any other person infringing the rights of Company to the name "Charing".
Other than with respect to its use of the name "Charing", Company is not
infringing and has not infringed any Trade Rights of another in the operation of
the business of Company, nor is any other person infringing the Trade Rights of
Company. Company has not granted any license or made any assignment of any Trade
Right listed on Schedule 3.17, nor does Company pay any royalties or other
consideration for the right to
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use any Trade Rights of others. There is no Litigation pending or threatened to
challenge Company's right, title and interest with respect to its continued use
and right to preclude others from using any Trade Rights of Company. All Trade
Rights of Company are valid, enforceable and in good standing, and there are no
equitable defenses to enforcement based on any act or omission of Company. The
consummation of the transactions contemplated hereby will not alter or impair
any Trade Rights owned or used by Company. As used herein, the term "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 and Suppliers.
3.18.(a) Major Customers. Schedule 3.18.(a) contains a list of the
twenty (20) largest customers of Company for each of the two (2) most
recent fiscal years (determined on the basis of the total dollar amount
of net sales) showing the total dollar amount of net sales to each such
customer during each such year. Neither Company nor any 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.(a)
will not continue to be customers of the business of Company after the
Closing at substantially the same level of purchases as heretofore.
3.18.(b) Major Suppliers. Schedule 3.18.(b) contains a list of all
suppliers that Company paid in excess of $100,000 during either of the
two (2) most recent fiscal years, showing the total dollar amount of
purchases from each such supplier during each such year. Neither Company
nor any Shareholder has any knowledge or information of any facts
indicating, nor any other reason to believe, that any of the suppliers
listed on Schedule 3.18.(b) will not continue to be suppliers to the
business of Company after the Closing and will not continue to supply the
business with substantially the same quantity and quality of goods at
competitive prices.
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3.18.(c) Sales Representatives. Schedule 3.18.(c) contains a list
of all sales representatives of Company, together with true, correct and
complete copies of all sales representative contracts and policy
statements, and a description of all substantial modifications or
exceptions.
3.19. Service Warranty and Liability. Schedule 3.19 contains a true,
correct and complete copy of Company's standard warranty or warranties for sales
of Services (as defined below) and, except as stated therein, there are no
warranties, commitments or obligations with respect to the provision of such
Services. Schedule 3.19 sets forth the estimated aggregate annual cost to
Company of meeting warranty or liability obligations or commitments for
customers for each of the five (5) preceding fiscal years. Schedule 3.19
contains a description of all liability claims and similar Litigation relating
to services rendered, which are presently pending or which to Company's or any
Shareholder's knowledge are threatened, or which have been asserted or commenced
against Company within the last five (5) years, in which a party thereto either
requests injunctive relief or alleges damages (whether or not covered by
insurance). The provision of such services by the Company meets and complies
with all governmental laws and regulations currently in effect. As used in this
Section 3.19, the term "Services" means any and all services currently or at any
time previously rendered, provided or sold by Company, or by any predecessor of
Company under any brand name or mark under which services are or have been
rendered, provided or sold by Company.
3.20. Bank Accounts. Schedule 3.20 sets forth the names and locations of
all banks, trust companies, savings and loan associations and other financial
institutions at which the Company 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.
3.21. Affiliates' Relationships to Company.
3.21.(a) Contracts With Affiliates. All leases, contracts,
agreements or other arrangements between Company and any Affiliate are
described on Schedule 3.21.(a).
3.21.(b) No Adverse Interests. No Affiliate has any direct or
indirect interest in (i) any entity which does business with Company or
is competitive with Company's business, or (ii) any property, asset or
right which is used by Company in the conduct of its business.
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3.21.(c) Obligations. All obligations of any Affiliate to Company,
and all obligations of Company to any Affiliate, are listed on Schedule
3.21.(c).
3.22. Assets Necessary to Business. Company presently has and at the
Closing will have good, valid and marketable title to all property and assets,
tangible and intangible, and all leases, licenses and other agreements,
necessary to permit Buyer to carry on the business of Company as presently
conducted.
3.23. No Brokers or Finders. Neither Company 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.
3.24. Year 2000 Compliance. Except as set forth in Schedule 3.24:(a) the
computer source codes, programs and other software of Company (including machine
readable code, printed listings of code, databases, documentation and related
property and information of Company used or under development for use in the
Charing Business) (collectively, "Software") accurately determines chronological
dates and accurately performs all calculations, data manipulations, sorting and
transmission of date data regardless of whether the date represents or
references different centuries (For example, when the actual date changes from
12/31/1999 to 1/1/2000, the Software will accurately determine that 1/1/2000 is
the new date and determine that an individual born in 1948 is 52 years old and
not -48 [i.e., 00-48 = -48], or otherwise incorrectly perform the age
calculation); (b) the Software provides that all date related user interface
functionalities and data fields permit the entry of a four digit year (i.e., the
years 1965, 2065 and 3065 could all be entered by the user without the need of a
manual override) and such date data will result in accurate calculations, data
manipulations, sorting and transmission of all data, including the date data;
(c) the entry of a date equal to or greater than 01/01/2000 into the Software
will not affect any calculation that produces or uses time spans such that the
results of the calculation are incorrect (i.e., such as an interest
calculation); and (d) the integrity of calculations performed utilizing the
Software will not be affected by date data for dates on or after 01/02/2000, and
calculations using previously generated data (on or before 12/31/1999) will also
maintain calculation integrity.
3.25. Systems Performance. The Software and related systems owned or
used by Company perform in accordance with the written specifications previously
delivered to Buyer. The Software and related system components are capable of
interconnecting and/or interfacing with each other, and they deliver the
functionality needed to meet the information systems requirements of the Charing
Business as they are presently conducted. No Shareholder will cause any
unplanned interruption of the operations of, or
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accessibility to, the Software or related systems (or any system component)
through any device, method or means including, without limitation, the use of
any "virus," "lockup," "time bomb" or "key lock" device or program, or disabling
code, which has the potential or capability of causing any unplanned
interruption of the operations of, or accessibility of, the Software or related
systems (or any system component) to Buyer, or any user authorized by Buyer, or
which could alter, destroy or inhibit the use of the Software or related systems
(or any system component), or the data contained therein (collectively,
"Disabling Devices"), which could block access to or prevent the use of the
Software or any system (or system component) by Buyer or any authorized user. No
Shareholder has placed, nor is any Shareholder aware of, any Disabling Device on
any Software or system component owned or used by Company.
3.26. Disclosure. No written representation or warranty by Company
and/or the Shareholders in this Agreement, nor any written statement,
certificate, schedule, document or exhibit hereto furnished or to be furnished
by or on behalf of Company or Shareholders pursuant to this Agreement or in
connection with transactions contemplated hereby, contains or shall contain any
untrue statement of material fact or omits or shall omit 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
Shareholders, each of which was true and correct on the Effective Date (other
than Section 4.2)), remains true as of the Closing Date, shall be unaffected by
any investigation hereafter made by Shareholders or any notice to Shareholders,
and shall survive the Closing of the transactions provided for herein as
provided in Article 6.
4.1. Corporate.
4.1.(a) Organization. Buyer is a corporation duly organized and
validly existing, and its status is active, 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 other documents and instruments to
be executed and delivered by Buyer and to carry out the transactions
contemplated hereby and thereby.
4.2. Authority. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by Buyer pursuant
hereto and the consummation of the
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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 other
documents and instruments to be executed and delivered by Buyer pursuant hereto
or the consummation of the transactions contemplated hereby and thereby. This
Agreement constitutes, and when executed and delivered, the other documents and
instruments to be executed and delivered by Buyer pursuant hereto will
constitute, valid and binding agreements of Buyer, enforceable in accordance
with their respective terms, 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 Broadview Associates LLC,
neither Buyer nor any of its directors, officers, employees or agents has
retained, employed or used any broker or finder in connection with the
transaction provided for herein or in connection with the negotiation thereof.
Buyer shall be solely responsible for all fees payable to Broadview Associates
LLC in connection with the transactions contemplated by this Agreement.
4.4. Disclosure. No written representation or warranty by Buyer in this
Agreement, nor any written 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 or
shall contain any untrue statement of material fact or omits or shall omit a
material fact necessary to make the statements contained therein not misleading.
4.5. Investment Intent.
4.5.(a) Not for Resale. Buyer is acquiring the Shares for its own
account, not as nominee or agent, for investment and not with a view to,
or for resale in connection with, any distribution or public offering
within the meaning of the U.S. Securities Act of 1933, as amended.
4.5.(b) Information. Buyer has been furnished with such materials
and has been given access to such information relating to Company as it
or its qualified representative has requested and it has been afforded
the opportunity to ask questions regarding Company and the Shares.
4.5.(c) No Impact on Obligations. The provisions of this Section
4.5 shall not impact or affect the obligations of Company or Shareholders
under this Agreement. Notwithstanding Section 4.5(b) above, Buyer is
acquiring the Shares in reliance on the agreements, covenants,
representations and warranties of Company and Shareholders set forth in
this
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Agreement and the other documents and instruments to be delivered by
Company and Shareholders pursuant hereto.
5. COVENANTS
5.1. Section 338(h)(10) Election.
5.1.(a) Election. At the Buyer's option, Company and Shareholders
will join with the Buyer in making an election under Section 338(h)(10)
of the Code (and any corresponding elections under state tax law)
(collectively, a "Section 338(h)(10) Election") with respect to the
purchase and sale of the stock of the Company hereunder. The Shareholders
of the Company will pay any tax attributable to the making of the Section
338(h)(10) Election and will indemnify the Buyer, the Company and their
subsidiaries against any tax (including interest and penalties) arising
out of any failure to pay such tax. The Shareholders will also pay any
state, local, or foreign tax ((and indemnify the Buyer, the Company and
their subsidiaries against any tax (including interest and penalties)
arising out of any failure to pay such tax)) attributable to an election
under state, local, or foreign law similar to the election available
under Section 338(g) of the Code (or which results from the making of an
election under Section 338(g) of the Code) with respect to the purchase
and sale of the stock of the Company hereunder; provided, however, that
the Wisconsin recycling tax for the fiscal period from January 1 through
February 1, 1998 shall be paid by Company as provided in Section 2.1.(c).
Buyer shall be responsible for the preparation and filing of such
election. The allocation of purchase price among the assets of the
Company shall be made in accordance with Schedule 5.1 hereto.
Shareholders and Buyer shall accept such purchase price allocations and
Buyer and each Shareholder shall report, act, file in all respects and
for purposes consistent with such allocations. Shareholders and the
Company (if required) shall execute and deliver to Buyer at Closing three
copies of such documents or forms (including Section 338 Forms, as
defined below) as Buyer shall request or as are required by applicable
law for an effective Section 338(h)(10) Election, including, without
limitation, any "Statement of Section 338(h)(10)" and IRS Form 8023
(together with any schedules or attachments thereto, the "Section 338
Forms") that are required pursuant to the Treasury Regulations.
5.1.(b) Payment for Additional Tax Liability. At Closing, Buyer
shall deliver to Shareholders' Agent by wire transfer the sum of Thirty
Thousand Dollars ($30,000) for additional federal and State of Wisconsin
income tax payable by Shareholders as a result of the allocation, as set
forth in
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Schedule 5.1, of a portion of the Purchase Price to the noncompetition
agreements contained herein and to certain software development costs.
5.2. Employment and Noncompetition Agreement. Contemporane- ously with
the execution of this Agreement, Shareholders shall cause (i) Gregory D. Wait to
execute and deliver to Company an Employment and Noncompetition Agreement,
substantially in the form of Exhibit A hereto, and (ii) each of Donald A. Smart,
Richard L. Bondow, John C. Haase, Jodi K. Holman, Daniel J. Jarecki and Donald
W. Schmidt to execute and deliver to Company an Employment and Noncompetition
Agreement, substantially in the form of Exhibit B hereto.
5.3. 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 the business of Company 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 5.2 hereof, each Shareholder hereby covenants and agrees as follows:
5.3.(a) Covenant Not to Compete. For a period of one (1) year
(five (5) years in the case of Donald A. Smart) from the Closing Date, no
Shareholder will directly or indirectly:
(i) engage in, continue in or carry on any business
which competes with Company or the Charing Business or is
substantially similar thereto, including owning or controlling any
financial interest in any corporation, partnership, firm or other
form of business organization which is so engaged;
(ii) consult with, advise or assist in any way, whether
or not for consideration, any corporation, partnership, firm or
other business organization which is now or becomes a competitor
of Company or Buyer in any aspect with respect to the Charing
Business, including, but not limited to, advertising or otherwise
endorsing the products of any such competitor; soliciting
customers or otherwise serving as an intermediary for any such
competitor; 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 such competitor;
(iii) offer employment to an employee of Company or the
Charing Business, without the prior written consent of Buyer; or
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(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 Company or the Charing
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 and
cover the following states: Wisconsin, Minnesota, Iowa, Illinois and Michigan.
The parties agree that Buyer may sell, assign or otherwise transfer this
covenant not to compete, in whole or in part, to any person, corporation, firm
or entity that purchases all or part of the business of the Company. In the
event a court of competent jurisdiction determines that the provisions of this
covenant not to compete are excessively broad as to duration, geographical scope
or activity, it is expressly agreed that this covenant not to compete shall be
construed so that the remaining provisions shall not be affected, but shall
remain in full force and effect, and any such over broad provisions shall be
deemed, without further action on the part of any person, to be modified,
amended and/or limited but only to the extent necessary to render the same valid
and enforceable in such jurisdiction.
5.3.(b) Covenant of Confidentiality. No Shareholder shall at any
time subsequent to the Closing, except as explicitly requested by Buyer,
(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 Company. For purposes hereof,
"confidential information" shall mean and include, without limitation,
all Trade Rights in which Company has an interest, all customer lists and
customer information, and all other information concerning Company's
processes, apparatus, equipment, packaging, products, marketing and
distribution methods, not previously disclosed to the public directly by
Company.
5.3.(c) Equitable Relief for Violations. Each Shareholder agrees
that the provisions and restrictions contained in this Section 5.3 are
necessary to protect the legitimate continuing interests of Buyer in
acquiring the 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 5.3.
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5.4. General Releases. Contemporaneously with the execution of this
Agreement,, each Shareholder shall deliver a general release to Buyer, in
substantially the form attached hereto as Exhibit C.
5.5. Errors and Omissions Gap Coverage. Shareholders shall promptly
reimburse Buyer, up to a maximum of $12,000, for the cost of obtaining errors
and omissions insurance coverage for Company from a carrier acceptable to Buyer.
Such policy shall cover occurrences from February 23, 1996 to August 26, 1997,
the period during which Company did not maintain errors and omissions coverage.
6. INDEMNIFICATION
6.1. By Shareholders. Subject to the terms and conditions of this
Article 6, each Shareholder, jointly and severally, hereby agrees to indemnify,
defend and hold harmless Buyer, its directors, officers, employees and
controlled and controlling persons (hereinafter "Buyer's Affiliates") and the
Company from and against all Claims asserted against, resulting to, imposed
upon, or incurred by Buyer, Buyer's Affiliates or the Company, directly or
indirectly, by reason of, arising out of or resulting from (a) the inaccuracy or
breach of any representation or warranty of any Shareholder or Company contained
in or made pursuant to this Agreement or any agreement or instrument executed
and delivered pursuant to this Agreement, (b) the breach of any covenant or
agreement of any Shareholder or the Company contained in this Agreement or any
agreement or instrument executed and delivered pursuant to this Agreement, (c)
the litigation matters referred to in Schedule 3.9 or any Claim against the
Company and/or any Buyer Affiliate(s) by William D. Biersach, or his heirs or
successors and assigns, relating to or arising out of his sale of shares of
common stock of the Company to the Company and the Shareholders, or (d) the
conduct of the Charing Business or operations of the Company prior to the
Closing. Regardless of the foregoing, however, breaches of representations and
warranties contained in Section 3.2 hereof shall be subject only to several
indemnification by the respective Shareholders who shall have made and breached
such representations and warranties. As used in this Article 6, the term "Claim"
shall include (i) all debts, liabilities and obligations; (ii) all losses,
damages (including, without limitation, 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, whether
or not ultimately determined to be valid.
6.2. By Buyer. Subject to the terms and conditions of this Article 6,
Buyer hereby agrees to indemnify, defend and hold
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harmless each Shareholder, and each Shareholder's heirs and permitted successors
and assigns, 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 any agreement or
instrument executed and delivered pursuant to this Agreement, or (b) the breach
of any covenant or agreement of Buyer contained in this Agreement or any
agreement or instrument executed and delivered pursuant to this Agreement.
6.3. Indemnification of Third-Party Claims. The obligations and
liabilities of any party to indemnify any other party 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 such Claim, and the
Indemnifying Party will undertake the defense thereof by representatives
chosen by it. In all matters concerning the Shareholders by virtue of
joint and several liability, the Shareholders' Agent shall give and
receive notice and otherwise act in all respects on their behalf. Failure
to give such notice shall not affect the Indemnifying Party's duty or
obligations under this Article 6, except to the extent the Indemnifying
Party is prejudiced thereby. So long as the Indemnifying Party is
defending any such Claim actively and in good faith, the Indemnified
Party shall not settle such Claim. The Indemnified Party shall make
available to the Indemnifying Party or its representatives all records
and other materials required by them and in the possession or under the
control of the Indemnified Party, for the use of the Indemnifying Party
and its representatives in defending any such Claim, and shall in other
respects give reasonable cooperation in such defense.
6.3.(b) Failure to Defend. If the Indemnifying Party, within a
reasonable time after written notice of any such Claim, fails to defend
such Claim actively and in good faith, the Indemnified Party will (upon
further written 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 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 Section 6.3
to the contrary notwithstanding, (i) if there is
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<PAGE> 40
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,
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, which payment may be accomplished in
whole or in part, at the option of the Indemnified Party, by the Indemnified
Party setting off any amount owed to the Indemnifying Party by the Indemnified
Party. To the extent set-off is made by an Indemnified Party in satisfaction or
partial satisfaction of an indemnity obligation under this Article 6 that is
disputed by the Indemnifying Party, upon a subsequent determination by final
judgment not subject to appeal that all or a portion of such indemnity
obligation was not owed to the Indemnified Party, the Indemnified Party shall
pay the Indemnifying Party the amount which was set-off and not owed together
with interest from the date of set-off until the date of such payment at an
annual rate equal to the rate announced by NationsBank, N.A. (or its sucessor)
as its prime rate on the date of set-off. 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. 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. Indemnification for Environmental Matters. Without limiting the
generality of the foregoing, each Shareholder, jointly and severally, agrees to
indemnify, reimburse, hold harmless and defend Buyer, Buyer's affiliates and
Company for, from, and against all Claims asserted against, imposed on, or
incurred by any such person, directly or indirectly, in connection with any
pollution, threat to the environment, or exposure to, or manufacture,
processing, distribution, use, treatment, generation, transport or handling,
disposal, emission, discharge, storage or release of
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Waste that (A) is related in any way to Company's or any previous owner's or
operator's ownership, operation or occupancy of the business, properties and
assets owned or used by Company, and (B) in whole or in part occurred, existed,
arose out of conditions or circumstances that existed, or was caused on or
before the Closing Date.
6.6. Limitations on Indemnification. Except for any willful or knowing
breach or misrepresentation, as to which claims may be brought without
limitation as to time or amount:
6.6.(a) Time Limitation. No claim or action shall be brought under
this Article 6 after the lapse of two (2) years following the Closing
Date. Regardless of the foregoing, however, or any other provision of
this Agreement:
(i) Any claim or action brought for breach of any
representation or warranty made by Shareholders with respect to
tax or ERISA matters may be brought at any time within three (3)
years following the Closing Date.
(ii) Any claim for indemnification made by a party
hereunder by delivering written notice of the claim to the
Indemnifying Party or Parties, by filing a suit or action in a
court of competent jurisdiction or a court reasonably believed to
be of competent jurisdiction (in those situations where a lawsuit
is permitted by this Agreement) or by a demand for arbitration in
accordance with Article 9 hereof for breach of a covenant,
agreement, representation or warranty prior to the termination of
the applicable survival period for such claim under this Section
6.6(a) shall be preserved despite the subsequent termination of
such survival period.
(iii) If any act, omission, disclosure or failure to
disclose shall form the basis for a claim for breach of more than
one representation or warranty, and such claims have different
periods of survival hereunder, the termination of the survival
period of one claim shall not affect a party's right to make a
claim based on the breach of representation or warranty still
surviving.
6.6.(b) Amount Limitations.
(i) Basket. An Indemnified Party shall not be entitled
to indemnification under this Article 6 for breach of a
representation or warranty unless the aggregate of the
Indemnifying Party's indemnification obligations to the
Indemnified Party pursuant to this
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<PAGE> 42
Article 6 (but for this Section 6.6(b)) exceeds $25,000; but in
such event, the Indemnified Party shall be entitled to
indemnification in full for all breaches of representations and/or
warranties (subject to the aggregate limit on the indemnification
obligations of Shareholders as set forth in Section 6.6.(b)(ii)).
(ii) Cap. Except as hereinafter set forth, the aggregate
amount of the indemnification obligations of Shareholders pursuant
to this Article 6 shall not exceed Three Million Seven Hundred
Fifty Thousand Dollars ($3,750,000).
6.7. 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, and regardless of
whether such breach, violation or failure is deemed to be "material" for
purposes of Section 9.2.
6.8. Exclusive Remedies.
6.8.(a) Limitation Claims. Except as provided in Section 6.8(b),
anything at law or equity to the contrary notwithstanding, each party's
exclusive remedy against any and all other parties to this Agreement (i) for any
breach of any representation, warranty, covenant or agreement made in this
Agreement, (ii) any breach of any representation, warranty, covenant or
agreement made in any agreement or instrument executed and delivered pursuant to
this Agreement, and (iii) for any and all other claims, of any kind or nature,
which one party may have against any or all other parties hereto with respect to
the transactions contemplated by this Agreement, shall all be limited to a claim
for indemnification in accordance with this Article 6, which claim shall be
subject to the limitations set forth in Section 6.6.
6.8.(b) Exceptions. Section 6.8(a) shall not bar or apply to (i)
any claims or causes of action any party may have against any or all parties
relating to Section 5.3 hereof, to the Employment and Noncompetition Agreements
described in Section 5.2 hereof, or to the General Releases executed and
delivered by Shareholders pursuant to Section 5.4 hereof, (ii) any claims or
causes of action relating to any other agreement between or among any parties
hereto entered into after the Closing Date, (iii) any claims or causes of action
for specific performance of, or injunctive relief with respect to, the terms,
conditions covenants and agreements of this Agreement and any other agreements
or instruments executed and delivered pursuant to this Agreement, or
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(iv) any claims or causes of action any party may have against any or all
parties for fraud or knowing or willful misconduct.
7. CLOSING
The closing of this transaction ("the Closing") shall take place
contemporaneously with the execution and delivery of this agreement at the
offices of LaFollette & Sinykin, One East Main Street, Madison, Wisconsin, at
9:00 A.M. on February 26, 1998, or at such other hour and place as the parties
hereto shall agree upon in writing. The date hereof is referred to in this
Agreement as the "Closing Date". Unless otherwise indicated, the transactions
contemplated hereby shall be deemed for all purposes to be effective as of
February 1, 1998, which date shall be referred to herein as the "Effective
Date".
7.1. Documents to be Delivered by Company and Shareholders. At the
Closing, Company and Shareholders shall deliver to Buyer the following
documents, in each case duly executed or otherwise in proper form:
7.1.(a) Stock Certificate(s). Stock certificates representing the
Shares, duly endorsed for transfer or with duly executed stock powers
attached, in either case as of the Effective Date.
7.1.(b) Opinion of Counsel. A written opinion of LaFollette &
Sinykin, counsel to Company and Shareholders, dated as of the Closing
Date, addressed to Buyer, substantially in the form of Exhibit D hereto.
7.1.(c) Consents and Approvals. Executed originals of all
approvals, consents and waivers that are required to effect the
transactions contemplated hereby.
7.1.(d) Estoppel Certificates. An estoppel certificate or status
letter from the landlord under each lease of Real Property, which
estoppel certificate or status letter will certify: (i) the lease is
valid and in full force and effect; (ii) the amounts payable by Company
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.(e) Employment and Noncompetition Agreements. The Employment
and Noncompetition Agreements referred to in Section 5.5, duly executed
by the persons referred to in such Section.
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7.1.(f) Certified Resolutions. Certified copies of the resolutions
of the Board of Directors and the Shareholders of Company, authorizing
and approving this Agreement and the consummation of the transactions
contemplated by this Agreement.
7.1.(g) Articles; By-Laws. A copy of the By-Laws of Company
certified by the secretary of Company, and a copy of the Amended and
Restated Articles of Incorporation of Company certified by the Secretary
of State of the state of incorpora- tion of Company.
7.1.(h) Incumbency Certificate. Incumbency certifi- cates 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.(i) General Releases. The General Releases referred to in
Section 5.7, duly executed by the persons referred to in such Section.
7.1.(j) Resignations. The resignations of all officers and
directors of the Company, effective as of the Closing and in form
satisfactory to Buyer's counsel.
7.1.(k) Affidavit. An affidavit from each of the Shareholders in
form and substance satisfactory to Buyer, to the effect that Company is
not a "foreign person," "foreign corporation," "foreign partnership,"
"foreign trust" or "foreign estate" under Section 1445 of the Code, and
containing all such other information as is required to comply with the
requirements of such Section.
7.1.(l) Other Documents. All other documents, instruments or
writings required to be delivered to Buyer at the Closing pursuant to
this Agreement and such other certificates of authority and documents as
Buyer may reasonably request.
7.2. Documents to be Delivered by Buyer. At the Closing, Buyer shall
deliver to Shareholders the following documents, in each case duly executed or
otherwise in proper form:
7.2.(a) Cash Purchase Price. To Shareholders' Agent, certified or
bank cashier's checks (or wire transfers) as required by Section 2.2(a)
and Section 5.1.(b) hereof.
7.2.(b) Opinion of Counsel. A written opinion of Foley &
Lardner, counsel to Buyer, dated as of the Closing Date, addressed to
the Shareholders, in substantially the form of Exhibit E hereto.
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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 by this
Agreement.
7.2.(d) Incumbency Certificate. Incumbency certifi- cates relating
to each person executing any document executed and delivered to Company
or Shareholders by Buyer pursuant to the terms hereof.
7.2.(e) Other Documents. All other documents, instruments or
writings required to be delivered to Company at the Closing pursuant to
this Agreement and such other certificates of authority and documents as
Company may reasonably request.
8. TERMINATION
This Agreement may be terminated without further liability of any party
at any time prior to the Closing: (a) by mutual written agreement of Buyer and
Shareholders' Agent; or (b) by either Buyer or Shareholders' Agent (i) if the
Closing shall not have occurred by 11:59 p.m. Eastern time on the date hereof,
provided the terminating party has not, through breach of a representation,
warranty or covenant, prevented the Closing from occurring at or before such
time, or (ii) if any Government Entity shall have issued a final and
non-appealable Order enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement.
9. RESOLUTION OF DISPUTES
9.1. Arbitration.
9.1.(a) Any dispute, controversy or claim arising out of or
relating to this Agreement or any contract or agreement entered into
pursuant hereto or the performance by the parties of its or their terms
shall be settled by binding arbitration held in Madison, Wisconsin in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect, except as specifically otherwise
provided in this Article 9. 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 any
Shareholder under Section 5.3 of this Agreement, or any covenants not to
compete contained in any Employment and Noncompetition Agreement
delivered pursuant to Section 5.2 hereof.
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9.1.(b) No party shall be required to submit to arbitration
hereunder unless all persons who are not parties to this Agreement, but
who are necessary parties to a complete resolution of the controversy,
submit to the arbitration process on the same terms as the parties
hereto. Without limiting the generality of the foregoing, no claim under
Article 6 for the indemnification of a third-party claim shall be subject
to arbitration under this Article 9 unless the third party bringing such
claim against the indemnitee shall agree in writing to the application of
this Article 9 to the resolution of such claim.
9.2. Arbitrators. If the matter in controversy (exclusive of attorney
fees and expenses) shall appear, as at the time of the demand for arbitration,
to exceed $250,000, then the panel to be appointed shall consist of three
neutral arbitrators; otherwise, one neutral arbitrator.
9.3. Procedures; No Appeal. The arbitrator(s) shall allow such
discovery as the arbitrator(s) 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 arbitrator(s). The
arbitrator(s) 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 arbitrator(s) 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.
9.4. Authority. The arbitrator(s) shall have authority to award relief
under legal or equitable principles, including interim or preliminary relief,
and to allocate responsibility for the costs of the arbitration and to award
recovery of attorneys fees and expenses in such manner as is determined to be
appropriate by the arbitrator(s).
9.5. Entry of Judgment. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and subject matter
jurisdiction. Buyer and each Shareholder hereby submit to the in personam
jurisdiction of the Federal and State courts in Wisconsin, for the purpose of
confirming any such award and entering judgment thereon.
9.6. Confidentiality. All proceedings under this Article 9 and all
evidence given or discovered pursuant hereto, shall be maintained in confidence
by all parties.
9.7. Continued Performance. The fact that the dispute resolution
procedures specified in this Article 9 shall have been or may be invoked shall
not excuse any party from performing its
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obligations under this Agreement and during the pendency of any such procedure
all parties shall continue to perform their respective obligations in good
faith, subject to any rights to terminate this Agreement that may be available
to any party and to the right of setoff provided in Section 6.4 hereof.
9.8. Tolling. All applicable statutes of limitation shall be tolled
while the procedures specified in this Article 9 are pending. The parties will
take such action, if any, required to effectuate such tolling.
10. MISCELLANEOUS
10.1. Disclosure Schedule. The Schedules have been compiled in a bound
volume (the "Disclosure Schedule"), executed by Shareholders and dated and
delivered to Buyer on the date of this Agreement. Information set forth in the
Disclosure Schedule specifically refers to the article and section of this
Agreement to which such information is responsive and such information shall not
be deemed to have been disclosed with respect to any other article or section of
this Agreement or for any other purpose. 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.
10.2. Further Assurance. From time to time, at Buyer's request and
without further consideration, Company and Shareholders 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.
10.3. Disclosures and Announcements. Announcements concerning the
transactions provided for in this Agreement by Buyer, Company or Shareholders
shall be subject to the approval of the other parties in all essential respects,
except that approval of the Shareholders or Company 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
stockholders or be required to make pursuant to any rule or regulation of the
Securities and Exchange Commission or Nasdaq, or otherwise required by law.
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10.4. Assignment; Parties in Interest.
10.4.(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, (i) merge Company with and into itself and/or any subsidiary
of Buyer, or (ii) 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 Shareholders hereunder.
10.4.(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 any right or
remedy under or by reason of this Agreement.
10.5. Law Governing Agreement. This Agreement may not be modified or
terminated orally, and shall be construed and inter- preted according to the
internal laws of the State of Wisconsin, excluding any choice of law rules that
may direct the application of the laws of another jurisdiction.
10.6. Amendment and Modification. Buyer and Shareholders may amend,
modify and supplement this Agreement in such manner as may be agreed upon in
writing between Buyer and Shareholders' Agent; provided, however, that Buyer
may, in Buyer's sole discretion, require the execution of any amendment by all
of the Shareholders personally.
10.7. 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 delivery 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, Florida 34684-2116
Attention: James E. MacDougald
Chairman of the Board, President
and Chief Executive Officer
Facsimile: (813) 789-3857
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(with a copy to)
Foley & Lardner
100 North Tampa Street, Suite 2700
Tampa, Florida 33602-5804
Attention: Todd B. Pfister
Facsimile: (813) 221-4210
or to such other person or address as Buyer shall furnish to Shareholders' Agent
in writing.
(b) If to Shareholders, to Shareholders' Agent:
7 North Pinckney Street
Suite 100
Madison, Wisconsin 53703
Attention: Donald A. Smart
Facsimile: (608) 251-5441
(with a copy to)
LaFollette & Sinykin
One East Madison Street
Post Office Box 2719
Madison, WI 53701-2719
Attention: Robert E. Chritton
Facsimile: (608) 257-0609
or to such other person or address as Shareholders shall designate as a
successor Shareholders' Agent in accordance with this Agreement.
(c) If to Company, to:
Charing Company, Inc.
7 North Pinckney Street
Suite 100
Madison, Wisconsin 53703
Attention: President
Facsimile: (608) 251-5441
(with a copy to)
Foley & Lardner
100 North Tampa Street, Suite 2700
Tampa, FL 33602-5804
Attention: Todd B. Pfister
Facsimile: (813) 221-4210
Any notice to Company given after Closing shall also be given in the same manner
to Buyer.
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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.
10.8. Expenses.
10.8.(a) Brokerage. Except as to Broadview Associates LLC, which
shall be compensated by Buyer, Shareholders 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 Shareholders represent and warrant that there is no
broker involved on behalf of Company) 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.
10.8.(b) Expenses to be Paid by Shareholders. Shareholders shall
pay, and shall indemnify, defend and hold Buyer and Company harmless from
and against, 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.
10.8.(c) Expenses to be Paid by Company. Company shall pay the
reasonable costs and expenses of Morton, Nehls & Tierney, S.C. associated
with the preparation of Company's audited financial statements for the
1996 and 1997 calendar years and Company's federal and State of Wisconsin
tax returns for the 1997 calendar year and 1998 S corporation fiscal
period of January 1 through January 31.
10.8.(d) 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.
10.8.(e) Costs of Litigation or Arbitration. The parties agree
that (subject to the discretion, in an arbitration proceeding, of the
arbitrator as set forth in Section 9.4) the prevailing party in any
action brought with
46
<PAGE> 51
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
attorneys' fees and prejudgment interest.
10.9. Tax Records. Buyer shall cause all books and records of Company in
its possession on the Closing Date and relating to the Shareholders' tax
obligations (the "Tax Records") to be retained by Company until the fifth
anniversary of the Closing Date. Thereafter, Buyer shall cause Company not to
destroy such Tax Records prior to the seventh anniversary of the Closing Date
without first giving Shareholders written notice at least forty-five (45) days
prior to the date when any such Tax Records are to be destroyed. During such
period, Shareholders shall have the right to obtain from Company Tax Records
which are intended to be destroyed. After the Closing Date, Shareholders may
inspect and make copies of Tax Records as reasonably required upon reasonable
advance notice and at reasonable times.
10.10. 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 agreements, representations or warranties between
the parties other than those set forth or provided for herein.
10.11. Counterparts; Facsimile Signatures. 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. This Agreement
and the Ancillary Instruments may be effective upon the execution and delivery
by any party hereto of facsimile copies of signature pages hereto and thereto
duly executed by such party; provided, however, that any party delivering a
facsimile signature page covenants and agrees to deliver promptly after the date
hereof two (2) original copies to the other parties hereto.
10.12. Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
10.13. Shareholders' Agent; Power of Attorney.
10.13.(a) Shareholders' Agent. The Shareholders hereby appoint and
constitute Donald A. Smart as Shareholders' Agent hereunder, to exercise
the powers on behalf of Shareholders set forth in this Agreement; and
Donald A. Smart hereby accepts such appointment. In the event of the
death, resignation or inability to act of Donald A. Smart, and upon
receipt by Buyer of evidence of the same which is satisfactory to Buyer,
Donald W. Schmidt shall be successor Shareholders' Agent with all powers
of his predecessor.
47
<PAGE> 52
10.13.(b) Power of Attorney. Each Shareholder, by his or her
execution of this Agreement, hereby constitutes and appoints the
Shareholders' Agent his or her true and lawful attorney in fact, with
full power in his or her name and on his or her behalf:
(i) to receive on behalf of such Shareholder the
proceeds of sale of such Shareholder's Shares being sold
hereunder, to give Buyer a receipt therefor on behalf of such
Shareholder and to hold such proceeds subject to the terms hereof
and the instructions of such Shareholder with respect to the
ultimate disbursement thereof;
(ii) to act on such Shareholder's behalf according to the
terms of this Agreement, including, without limitation, the power
to calculate and negotiate the payment of the Contingent Payment
as provided in Sections 2.1 and 2.2.(b); to contest or acquiesce
in any claim by Buyer pursuant to Section 2.2.(c); to amend this
Agreement in accordance with Article 10.6 or terminate this
Agreement in accordance with Section 8; to consent to the
assignment of rights under this Agreement in accordance with
Section 10.4.(a); to give and receive notices on behalf of all the
Shareholders; and to act on their behalf in connection with any
matter as to which the Shareholders jointly and severally are an
"Indemnified Party" or "Indemnifying Party" under Article 6
hereof; all in the absolute discretion of the Shareholders' Agent;
(iii) in general, to do all things and to perform all
acts, including, without limitation, executing and delivering all
agreements, certificates, receipts, instructions and other
instruments contemplated by or deemed advisable, in the
Shareholders' Agent's sole discretion, in connection with this
Agreement.
This power of attorney, and all authority hereby conferred, is granted
subject to the interests of the other Shareholders and the Buyer
hereunder and in consideration of the mutual covenants and agreements
made herein, and shall be irrevocable and shall not be terminated by any
act of any Shareholder or by operation of law, whether by the death or
incapacity of any Shareholder or by the occurrence of any other event.
Each Shareholder agrees, jointly and severally, to hold the Shareholders'
Agent free and harmless from any and all loss, damage or liability which
they, or any one of them, may sustain as a result of any action taken in
good faith hereunder.
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<PAGE> 53
10.14. Glossary of Terms. The following sets forth the location of
certain definitions of capitalized terms defined in the body of this Agreement:
"Affiliate" - Section 3.7.(k)
"Ancillary Instruments" - Section 3.2.(a)
"Buyer's Affiliates" - Section 6.1
"CERCLA" - Section 3.10.(c)
"Claim" - Section 6.1
"Closing" - Preamble to Article 9
"Closing Date" - Section 7
"Code" - Section 3.5.(e)
"Company Employees" - Section 3.15.(a)
"Contingent Payment" - Section 2.1
"Disclosure Schedule" - Article 10
"Effective Date" - Section 7
"Employee Plans/Agreement(s)" - Section 3.15.(a)
"Environmental Laws" - Section 3.10.(c)
"ERISA" - Section 3.15.(a)
"Escrow Agreement" - Section 5.4
"Estimated Closing Balance Sheet" - Section 2.3.(b)
"Facilities" - Second Recital
"Government Entities" - Section 3.3
"Indemnified Party" - Section 6.3.(a)
"Indemnifying Party" - Section 6.3.(a)
"Laws" - Section 3.3
"Lien" - Section 3.11.(a)
"Litigation" - Section 3.9
"Orders" - Section 3.3
"PBGC" - Section 3.15.(b)(ii)
"Purchase Price" - Section 2.1
"Real Property" - Section 3.11.(c)
"Recent Balance Sheet" - Section 3.4
"Section 338(h)(10) Election" - Section 5.1
"Services" - Section 3.19
"Settlement Date" - Section 2.2.(c)
"Shares" - First Recital
"Trade Rights" - Section 3.17
"Waste" - Section 3.10.(c)
Where any group or category of items or matters is defined collectively in the
plural number, any item or matter within such definition may be referred to
using such defined term in the singular number.
49
<PAGE> 54
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
BUYER:
ABR INFORMATION SERVICES, INC.,
a Florida corporation
By:
-----------------------------------
Title:
-----------------------------
COMPANY:
CHARING COMPANY, INC.,
a Wisconsin corporation
By:
-----------------------------------
Title:
-----------------------------
SHAREHOLDERS:
---------------------------------------
Donald A. Smart, Individually
---------------------------------------
Richard L. Bondow, Individually
---------------------------------------
John C. Haase, Individually
---------------------------------------
Jodi K. Holmann, Individually
---------------------------------------
Daniel J. Jarecki, Individually
---------------------------------------
Donald W. Schmidt, Individually
SHAREHOLDERS' AGENT:
---------------------------------------
Donald A. Smart
50
<PAGE> 1
EXHIBIT 10.16
STOCK PURCHASE AGREEMENT
DATED FEBRUARY 27, 1998,
AND EFFECTIVE AS OF FEBRUARY 1, 1998,
BY AND AMONG
ABR INFORMATION SERVICES, INC.,
A FLORIDA CORPORATION,
MATTHEWS, MALONE & ASSOCIATES, LTD.
AN ARIZONA CORPORATION,
AND
STEVEN R. MATTHEWS,
MICHAEL J. MALONE AND
ALAN GOLD,
AS SHAREHOLDERS
<PAGE> 2
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. PURCHASE AND SALE OF SHARES......................................... 1
2. PURCHASE PRICE - PAYMENT............................................ 1
2.1. Purchase Price............................................. 1
2.2. Payment of Purchase Price.................................. 4
3. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF
COMPANY AND SHAREHOLDERS............................................ 6
3.1. Corporate.................................................. 6
3.2. Shareholders............................................... 8
3.3. No Violation............................................... 8
3.4. Financial Statements....................................... 8
3.5. Tax Matters................................................ 9
3.6. Accounts Receivable........................................ 10
3.7. Absence of Certain Changes................................. 10
3.8. Absence of Undisclosed Liabilities......................... 12
3.9. No Litigation.............................................. 12
3.10. Compliance With Laws and Orders............................ 13
3.11. Title to and Condition of Properties....................... 15
3.12. Insurance.................................................. 16
3.13. Contracts and Commitments.................................. 18
3.14. Labor Matters.............................................. 19
3.15. Employee Benefit Plans..................................... 20
3.16. Employment Matters......................................... 24
3.17. Trade Rights............................................... 25
3.18. Major Customers and Suppliers.............................. 26
3.19. Service Warranty and Liability............................. 26
3.20. Bank Accounts.............................................. 27
3.21. Affiliates' Relationships to Company....................... 27
3.22. Assets Necessary to Business............................... 27
3.23. No Brokers or Finders...................................... 27
3.24. Year 2000 Compliance....................................... 27
3.25 Systems Performance........................................ 28
3.26. Disclosure................................................. 29
4. REPRESENTATIONS AND WARRANTIES OF BUYER............................. 29
4.1. Corporate.................................................. 29
4.2. Authority.................................................. 29
4.3. No Brokers or Finders...................................... 30
4.4. Disclosure................................................. 30
4.5. Investment Intent.......................................... 30
5. COVENANTS........................................................... 30
5.1. Employment and Noncompetition Agreements;
Consulting Agreement....................................... 30
5.2. Noncompetition; Confidentiality............................ 30
5.3. General Releases........................................... 32
5.4. Credited Service........................................... 32
5.5. Capital Contribution....................................... 32
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
6. INDEMNIFICATION..................................................... 32
6.1. By Shareholders............................................ 32
6.2. By Buyer................................................... 33
6.3. Indemnification of Third-Party Claims...................... 33
6.4. Payment.................................................... 34
6.5. Limitations on Indemnification............................. 35
6.6. No Waiver.................................................. 36
7. CLOSING............................................................. 36
7.1. Documents to be Delivered by Company and
Shareholders............................................... 36
7.2. Documents to be Delivered by Buyer......................... 38
7.3. Delivery of Buyer Loan..................................... 38
8. TERMINATION......................................................... 39
9. RESOLUTION OF DISPUTES.............................................. 39
9.1. Arbitration................................................ 39
9.2. Arbitrators................................................ 39
9.3. Procedures; No Appeal...................................... 40
9.4. Authority.................................................. 40
9.5. Entry of Judgment.......................................... 40
9.6. Confidentiality............................................ 40
9.7. Continued Performance...................................... 40
9.8. Tolling.................................................... 40
10. MISCELLANEOUS....................................................... 40
10.1. Disclosure Schedule........................................ 40
10.2. Further Assurance.......................................... 41
10.3. Disclosures and Announcements.............................. 41
10.4. Assignment; Parties in Interest............................ 41
10.5. Law Governing Agreement.................................... 42
10.6. Amendment and Modification................................. 42
10.7. Notice..................................................... 42
10.8. Expenses................................................... 44
10.9. Entire Agreement........................................... 44
10.10. Counterparts; Facsimile Signatures......................... 44
10.11. Headings................................................... 45
10.12. Glossary of Terms.......................................... 45
</TABLE>
iii
<PAGE> 4
DISCLOSURE SCHEDULE
<TABLE>
<S> <C> <C>
Schedule 3.1.(c) - Foreign Corporation Qualification
Schedule 3.1.(e) - Directors and Officers of the Company
Schedule 3.1.(f) - Shareholder List
Schedule 3.3 - Violation, Conflict, Default
Schedule 3.4 - Financial Statements
Schedule 3.5.(b) - Tax Returns (Exceptions to
Representations)
Schedule 3.5.(c) - Tax Audits
Schedule 3.5.(e) - Tax, Other
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 - Liens
Schedule 3.11.(c) - Real Property
Schedule 3.12 - Insurance
Schedule 3.13.(b) - Personal Property Leases
Schedule 3.13.(d) - Significant Sales Commitments
Schedule 3.13.(g) - Collective Bargaining Agreements
Schedule 3.13.(h) - Loan Agreements, etc.
Schedule 3.13.(i) - Guarantees
Schedule 3.13.(l) - Material Contracts
Schedule 3.14 - Labor Matters
Schedule 3.15.(a) - Employee Plans/Agreements
Schedule 3.16 - Employment Compensation
Schedule 3.17 - Trade Rights
Schedule 3.18.(a) - Major Customers
Schedule 3.18.(b) - Major Suppliers
Schedule 3.18.(c) - Sales Representatives
Schedule 3.19 - Service Warranty, Warranty Expense
and Liability Claims
Schedule 3.20 - Bank Accounts
Schedule 3.21.(a) - Contracts with Affiliates
Schedule 3.21.(c) - Obligations of and to Affiliates
Schedule 3.24 - Year 2000 Noncompliance
</TABLE>
iv
<PAGE> 5
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated February 27, 1998,
and effective as of February 1, 1998, by and among ABR Information Services,
Inc., a Florida corporation ("Buyer"), Matthews, Malone & Associates, Ltd., an
Arizona corporation ("Company"), and Steven R. Matthews, Michael J. Malone and
Alan Gold (individually "Shareholder" and together the "Shareholders").
RECITALS
1. Company is engaged in the business of providing qualified
and non-qualified pension administration services and flexible spending account
administration services to third parties (the "MMA Business"). Shareholders own
all of the issued and outstanding shares (the "Shares") of capital stock of
Company.
2. Company's facilities consist solely of leased offices at
5050 North 40th Street, Phoenix, Arizona 85018 (the "Facilities").
3. Buyer desires to purchase the Shares from Shareholders and
Shareholders desire to sell the Shares to Buyer, upon the terms and conditions
herein set forth.
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. PURCHASE AND SALE OF SHARES
Subject to the terms and conditions of this Agreement, effective as of
the Effective Date (as hereinafter defined) Shareholders shall sell to Buyer and
Buyer shall purchase from Shareholders all of the Shares.
2. PURCHASE PRICE - PAYMENT
2.1. Purchase Price.
2.1.(a) Amount. The aggregate purchase price (the "Purchase
Price") payable for the Shares shall be the sum of (a) TWO MILLION NINE
HUNDRED THOUSAND DOLLARS ($2,900,000), payable to the Shareholders as
hereinafter provided, and (b) a contingent payment (the "Contingent
Payment") based on the MMA Business' net earnings before income taxes
("EBIT") for the twelve-month period commencing as of the Effective
Date (the "Contingent Payment Period"), payable one-half (1/2) to
Steven R. Matthews and one-half (1/2) to Michael J. Malone.
<PAGE> 6
2.1.(b) Calculation of Contingent Payment. The Contingent
Payment shall equal (i) TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000),
in the event the MMA Business' EBIT for the Contingent Payment Period
equals or exceeds $500,000 and is less than $900,000, or (ii) FIVE
HUNDRED THOUSAND DOLLARS ($500,000), in the event the MMA Business'
EBIT for the Contingent Payment Period equals or exceeds $900,000. No
Contingent Payment shall be due or payable in the event the MMA
Business' EBIT for the Contingent Payment Period is less than $500,000.
The Contingent Payment shall be paid by Buyer to Shareholders as
follows: 50% to Steven R. Matthews, 50% to Michael J. Malone, and 0% to
Alan Gold.
2.1.(c) Calculation of EBIT. The calculation of the MMA
Business' EBIT for the Contingent Payment Period shall include revenue
received from qualified and non-qualified pension and existing flexible
spending account administration services but shall not include revenue
received from COBRA administration services or other services not
performed by Company as of the date hereof but offered by Buyer or any
of its subsidiaries or affiliates. Except as expressly provided herein,
the calculation of EBIT shall be made in accordance with generally
accepted accounting principles applied on a consistent basis, subject
to the following adjustments:
(i) Any depreciation or amortization adjustments
resulting solely from the transactions contemplated by this
Agreement shall not be included for purposes of calculating
EBIT for the Contingent Payment Period.
(ii) Notwithstanding Company's actual expenses
for the Contingent Payment Period relating to items and
functions (such as property and casualty insurance, errors and
omissions insurance, health and welfare programs and human
resource functions) that Company and Buyer mutually agree
shall be provided by Buyer or another subsidiary thereof,
Company shall accrue as an expense for purposes of calculating
EBIT for the Contingent Payment Period the same dollar amount
as it accrued in the twelve months preceding the Effective
Date with respect to such items and functions.
(iii) To the extent that any employee of Company
shall be required to travel, at Buyer's request, to any of
Buyer's offices outside of Arizona, Buyer shall make and pay
for directly all necessary travel and lodging arrangements.
(iv) The calculation of EBIT for the Contingent
Payment Period shall not exclude any expense
2
<PAGE> 7
item (or series of related items) relating to personnel
matters or exceeding $10,000 annually, unless such exclusion
has been preapproved in writing by Buyer.
(v) Company shall review with Buyer on a monthly
basis any and all expense items Company intends to exclude for
purposes of calculating EBIT for the Contingent Payment
Period.
(vi) In calculating EBIT for the Contingent
Payment Period, the first $1,000 per month of otherwise
excludable miscellaneous general and administrative expenses
(other than agreed upon personnel costs) shall be included in
making such calculation.
(vii) In the event Buyer (or any subsidiary
thereof) generates new qualified and non-qualified pension
administration services business (but excluding new flexible
spending account business) for Company during the Contingent
Payment Period, and/or Company generates new COBRA
administration services business (or other new business for
similar administrative services not performed by Company as of
the date hereof), Buyer and Company agree to make a reasonable
allocation of sales and other reasonable costs associated with
obtaining such new business for purposes of calculating
Company's EBIT for the Contingent Payment Period.
(viii) The imputed interest expense on the Buyer
Loan (as hereinafter defined) shall be included in the
calculation of EBIT for the Contingent Payment Period.
(ix) The reasonable accounting fees and other
fees and expenses incurred by the Company in connection with
the preparation of the audited financial statements of the
Company as set forth in Section 3.4 below, and the reasonable
legal fees and expenses incurred by Company in connection with
the transactions contemplated hereby, shall be borne by
Company, but shall not be included for purposes of calculating
EBIT for the Contingent Payment Period.
2.1.(d) Buyer Loan. Buyer agrees to loan to Company on the
Closing Date the sum of (i) $176,361.11 plus (ii) the amount necessary
to provide Company with available cash as of the Closing Date of
$50,000. The loan described in this Section 2.1(d) is referred to
herein as the "Buyer Loan." The proceeds of the Buyer Loan shall be
used by Company solely to pay off in full at the Closing Company's
obligations under its revolving line of credit loan and variable rate
single pay
3
<PAGE> 8
loan with Biltmore Investors Bank, N.A. and to provide Company with
available cash immediately following Closing of $50,000. The Buyer Loan
shall be repaid in full by Company to Buyer during the Contingent
Payment Period. To the extent it is repaid after such time, the unpaid
principal balance as of the end of the Contingent Payment Period shall
be charged in full against EBIT for the Contingent Payment Period.
2.1.(e) Interest on Buyer Loan. The calculation of Company's
EBIT for the Contingent Payment Period shall include an imputed
interest expense to Company equal to interest calculated on the
outstanding principal balance of the Buyer Loan which remains unpaid
from time to time, at the rate announced from time to time by
NationsBank, N.A. (or its successor) as its prime rate. Interest on the
Buyer Loan calculated under this Section 2.1(e) shall commence on the
date the Buyer Loan is made to the Company and continue until the Buyer
Loan is repaid in full.
2.2. Payment of Purchase Price. The Purchase Price shall be paid by
Buyer as follows:
2.2.(a) Cash to Shareholders. At the Closing, Buyer shall
deliver to the Shareholders the sum of Two Million Three Hundred Twenty
Thousand Dollars ($2,320,000), to be allocated among the Shareholders
as follows: Six Hundred Seventy-Six Thousand Six Hundred Sixty-Six and
67/100 Dollars ($676,666.67) to Steven R. Matthews; Six Hundred
Seventy-Six Thousand Six Hundred Sixty-Six and 67/100 Dollars
($676,666.67) to Michael J. Malone; and Nine Hundred Sixty-Six Thousand
Six Hundred Sixty-Six and 66/100 Dollars ($966,666.66) to Alan Gold.
2.2.(b) Purchase Price Holdback.
(i) Subject to the terms and conditions of this
Section 2.2(b), Buyer is withholding payment of a portion of
the Purchase Price equal to Five Hundred Eighty Thousand
Dollars ($580,000) (the "Holdback Amount") in order to secure
the indemnification obligations of Company and Shareholders
under this Agreement. For purposes hereof, "Holdback Period"
shall mean the period commencing on the date hereof and ending
four (4) months from the date hereof, subject to extension as
hereinafter provided.
(ii) If, prior to the expiration of the Holdback
Period, Buyer determines to assert a claim for indemnification
under Article 6 of this Agreement, then Buyer shall give each
of Steven R. Matthews and Michael J. Malone written notice of
such claim (for purposes of this Section 2.2(c), a "Claim
Notice"),
4
<PAGE> 9
specifying in reasonable detail the basis therefor and the
amount and calculation thereof. If Steven R. Matthews and
Michael J. Malone do not deliver to Buyer a joint written
notice of an objection to the claim for indemnification within
twenty (20) days after receipt of the Claim Notice relating
thereto, Buyer shall be entitled to offset the dollar amount
of its claim (as set forth in the Claim Notice) against the
Holdback Amount. If Steven R. Matthews and Michael J. Malone
shall timely deliver to Buyer such joint written notice of
objection, then Buyer shall not be entitled to an offset
against the Holdback Amount with respect to the claim set
forth in the Claim Notice until: (x) Buyer, Steven R. Matthews
and Michael J. Malone have executed joint written instructions
referring to such Claim Notice and directing Buyer to make an
offset against the Holdback Amount; or (y) Buyer has received
a copy of a judgment, decree or order of a court, or copy of
an arbitration award, adjudicating the dispute with respect to
such claim for indemnification; whereupon Buyer shall offset
against the Holdback Amount such amount as provided therein.
(iii) If Buyer has not delivered a Claim Notice to
each of Steven R. Matthews and Michael J. Malone prior to the
expiration of the Holdback Period, or if any and all Claim
Notices delivered to each of Steven R. Matthews and Michael J.
Malone during the Holdback Period have been resolved pursuant
to subsection (ii) above, then Buyer shall deliver to Steven
R. Matthews and Michael J. Malone the portion of the Holdback
Amount equal to (x) $580,000, less (y) any amounts offset by
Buyer as provided herein, plus (z) any interest earned with
respect to such amount at an imputed rate of 5.25% per annum.
Buyer shall deliver such amount, one-half (1/2) to Steven R.
Matthews and one-half (1/2) to Michael J. Malone, promptly
after the expiration of the Holdback Period, unless one or
more Claim Notice(s) have not been finally resolved pursuant
to subsection (ii) above, in which case Buyer shall retain
such disputed amount(s) as calculated pursuant to Section
2.2.(b)(ii) above until: (a) Buyer, Steven R. Matthews and
Michael J. Malone have executed joint written instructions
referring to such Claim Notice(s) and directing Buyer as to
the disbursement of the remainder of the Holdback Amount; or
(b) Buyer has received a copy of a judgment, decree or order
of a court, or copy of an arbitration award, adjudicating the
dispute with respect to such Claim Notice(s); whereupon Buyer
shall disburse the remainder of the Holdback Amount as
provided therein.
5
<PAGE> 10
2.2.(c) Contingent Payment. The initial calculation of the
Contingent Payment shall be made by Buyer, which shall deliver its
calculation within thirty (30) days following the first anniversary of
the Effective Date to each of Steven R. Matthews and Michael J. Malone
for their review and comment. If Buyer, Steven R. Matthews and Michael
J. Malone are able to agree in writing upon the amount of the Continent
Payment within fifteen (15) days following delivery of the initial
calculation to each of Steven R. Matthews and Michael J. Malone, then
Buyer shall pay such amount. Such payment of the Contingent Payment, if
any, shall be made, one-half (1/2) to Steven R. Matthews and one-half
(1/2) to Michael J. Malone, within sixty (60) days following the first
anniversary of the Effective Date. In the event Buyer, Steven R.
Matthews and Michael J. Malone cannot agree on the amount of the
Contingent Payment within sixty (60) days following the first
anniversary of the Effective Date, then the determination of the
Contingent Payment shall be submitted to binding arbitration in
accordance with Article 9 of this Agreement.
2.2.(d) Method of Cash Payment. All payments under this
Section 2.2 shall be made in the form of a bank check payable to the
order of the recipient or, at the recipient's option, by wire transfer
of immediately available funds to an account designated by the
recipient not less than 48 hours prior to the time for payment
specified herein.
3. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF COMPANY AND
SHAREHOLDERS
Company and Shareholders, jointly and severally, make the following
representations and warranties to Buyer, each of which was true and correct on
the Effective Date (other than Section 3.2(b)), remains true as of the Closing
Date, shall be unaffected by any investigation heretofore or hereafter made by
or on behalf of Buyer, or any knowledge of Buyer other than as specifically
disclosed in the Disclosure Schedule delivered to Buyer at the time of the
execution of this Agreement, and shall survive the Closing of the transactions
provided for herein. Regardless of the foregoing, the representations and
warranties set forth in Section 3.2 are made severally by each Shareholder, with
respect to such Shareholder only.
3.1. Corporate.
3.1.(a) Organization. Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Arizona.
3.1.(b) Corporate Power. Company has all requisite corporate
power and authority to own, operate and lease its
6
<PAGE> 11
properties and to carry on its business as and where such is now being
conducted.
3.1.(c) Qualification. Company 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 its business, makes such licensing or
qualification necessary. The states in which Company is licensed or
qualified to do business are listed in Schedule 3.1.(c).
3.1.(d) Subsidiaries. Company does not own any interest in
any corporation, partnership or other entity.
3.1.(e) Corporate Documents, etc. The copies of the Articles
of Incorporation and By-Laws of the Company, including any amendments
thereto, which have been delivered by Shareholders to Buyer are true,
correct and complete copies of such instruments as presently in effect.
The corporate minute book and stock records of the Company which have
been furnished to Buyer for inspection are true, correct and complete
and accurately reflect all material corporate action taken by the
Company. The directors and officers of the Company are listed in
Schedule 3.1.(e).
3.1.(f) Capitalization of the Company. The authorized capital
stock of the Company consists entirely of Ten Thousand (10,000) shares
of common stock, par value $1.00 per share. No shares of such capital
stock are issued or outstanding except for One Hundred Fifty (150)
shares of common stock of the Company which are owned of record and
beneficially by Shareholders in the respective numbers set forth in
Schedule 3.1.(f). All such shares of capital stock of the Company are
validly issued, fully paid and nonassessable. There are no (a)
securities convertible into or exchangeable for any of the Company's
capital stock or other securities, (b) options, warrants or other
rights to purchase or subscribe to capital stock or other securities of
the Company or securities which are convertible into or exchangeable
for capital stock or other securities of the Company, 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 the Company, any such convertible or
exchangeable securities or any such options, warrants or other rights.
3.2. Shareholders.
3.2.(a) Power. Each Shareholder has full power, legal right
and authority to enter into, execute and deliver this Agreement and the
other agreements, instruments and
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documents contemplated hereby (such other documents sometimes referred
to herein as "Ancillary Instruments"), and to carry out the
transactions contemplated hereby.
3.2.(b) Validity. This Agreement has been duly and validly
executed and delivered by each Shareholder and is, and when executed
and delivered each Ancillary Instrument will be, the legal, valid and
binding obligation of such Shareholder, enforceable in accordance with
its terms, 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. Each Shareholder has, and Buyer is receiving,
good and marketable title to the Shares to be sold by such 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 Company and Shareholders of the transactions contemplated hereby
and thereby (a) will violate any statute, law, ordinance, rule or regulation
(collectively, "Laws") or any 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) will require 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), or (c) subject to
obtaining the consents referred to in Schedule 3.3, will violate or conflict
with, or constitute a default (or an event which, with notice or lapse of time,
or both, would constitute a default) under, or will result in the termination
of, or accelerate the performance required by, or result in the creation of any
Lien upon any of the assets of Company (or the Shares) under, any term or
provision of the Articles of Incorporation or By-Laws of Company or of any
contract, commitment, understanding, arrangement, agreement or restriction of
any kind or character to which Company or any Shareholder is a party or by which
Company or any Shareholder or any of its or their assets or properties may be
bound or affected.
3.4. Financial Statements. Included as Schedule 3.4 are true and
complete copies of the financial statements of Company consisting of a balance
sheet of Company as of December 31, 1997, and the related statements of income
and cash flows for the year then ended (including the notes contained therein or
annexed thereto), which financial statements have been reported on, and are
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<PAGE> 13
accompanied by, the signed, unqualified opinions of Secore & Niedzialek, P.C.,
independent auditors for Company for such year. The audited balance sheet of the
Company as of December 31, 1997 is hereinafter referred to as the "Recent
Balance Sheet." All of such financial statements (including all notes and
schedules contained therein or annexed thereto) are true, complete and accurate,
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 Company, and fairly present, in accordance with generally
accepted accounting principles, the assets, liabilities and financial position,
the results of operations and cash flows of Company as of the dates and for the
years and periods indicated. In addition to the foregoing, at or before the
Closing, Steven R. Matthews will make a contribution to capital of Company of
$43,356 by forgiving indebtedness in such amount reflected on the Recent Balance
Sheet. Company has a tangible net worth (i.e., stockholders' equity) as of the
Effective Date and the Closing Date (in each case after giving effect to the
foregoing contributions to capital) of a minimum of $529,510.
3.5. Tax Matters.
3.5.(a) Provision For Taxes. The provision made for taxes on
the Recent 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, whether or not disputed, at the date of the Recent Balance
Sheet and for all years and periods prior thereto. Since the date of
the Recent Balance Sheet, Company has not incurred any taxes other than
taxes incurred in the ordinary course of business consistent in type
and amount with past practices of Company.
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 Company have been
timely filed and when filed were true and correct in all material
respects, and the taxes shown as due thereon were paid or adequately
accrued. True and complete copies of all tax returns or reports filed
by Company for each of its six most recent fiscal years have been
delivered to Buyer. Company has duly withheld and paid all taxes which
it is required to withhold and pay relating to salaries and other
compensation heretofore paid to the employees of Company (whether
leased employees or otherwise).
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<PAGE> 14
3.5.(c) Tax Audits. The federal and state income tax returns
of Company have been audited by the Internal Revenue Service and
appropriate state taxing authorities for the periods and to the extent
set forth in Schedule 3.5.(c), and Company has not 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
or other deficiency which has not been paid nor any objection to any
return or report filed by Company. There are outstanding no agreements
or waivers extending the statutory period of limitations applicable to
any tax return or report.
3.5.(d) No Consolidated Group. Company has never been a
member of an affiliated group of corporations that filed a consolidated
tax return. Company does not have any liability for the taxes of any
person or entity under Sections 1.1502-6 or 1.1502-78 of Title 26 of
the Code of Federal Regulations (or any similar provisions of state,
local or foreign income tax laws).
3.5.(e) Other. Except as set forth in Schedule 3.5.(e), since
its incorporation Company 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), except as
contemplated hereby, (v) made any payments, or been a party to an
agreement (including this Agreement) that under any circumstances could
obligate it to make payments that will not be deductible because of
Section 280G of the Code, or (vi) been a party to any tax allocation or
tax sharing agreement. The Company is not a "United States real
property holding company" within the meaning of Section 897 of the
Code.
3.6. Accounts Receivable. All accounts receivable of Company
reflected on the Recent Balance Sheet, and all accounts receivable accrued in
the normal course of business since the date thereof, represent arm's length
sales actually made in the ordinary course of business; are collectible (net of
the reserve shown on the Recent Balance Sheet for doubtful accounts) in the
ordinary course of business without the necessity of commencing legal
proceedings; are subject to no counterclaim or setoff; and are not in dispute.
Schedule 3.6 contains an aged schedule of accounts receivable included in the
Recent Balance Sheet.
3.7. Absence of Certain Changes. Except as and to the extent set
forth in Schedule 3.7, since the date of the Recent Balance Sheet there has not
been:
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3.7.(a) No Adverse Change. Any adverse change in the
financial condition, assets, liabilities, business, prospects or
operations of Company;
3.7.(b) No Damage. Any loss, damage or destruction, whether
covered by insurance or not, affecting the Company, its properties or
the MMA Business;
3.7.(c) No Increase in Compensation. Any increase in the
compensation, salaries or wages payable or to become payable to any
employee, leased employee or agent of Company (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;
3.7.(d) No Labor Disputes. Any labor dispute or disturbance,
other than routine individual grievances which are not material to the
business, financial condition or results of operations of Company.
3.7.(e) No Commitments. Any commitment or transaction by
Company (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
Company's capital stock; any redemption, purchase or other acquisition
by Company of any capital stock of Company, or any security relating
thereto; or any other payment to any shareholder of Company 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 Company;
3.7.(h) No Indebtedness. Any indebtedness for borrowed money
incurred, assumed or guaranteed by Company;
3.7.(i) No Liens. Any mortgage, pledge, lien or encumbrance
made on any of the properties or assets of Company;
3.7.(j) No Amendment of Contracts. Any entering into,
amendment or termination by Company of any contract, or any waiver of
material rights thereunder, other than in the ordinary course of
business;
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
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practice) to any person including, but not limited to, any Affiliate
(for purposes of this Agreement, the term "Affiliate" shall mean and
include: all Shareholders, directors and officers of Company; the
spouse of any such person; 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 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);
3.7.(l) Credit. Any grant of credit to any customer or
distributor on terms or in amounts more favorable than those which have
been extended to such customer or distributor in the past, any other
change in the terms of any credit heretofore extended, or any other
change of Company's policies or practices with respect to the granting
of credit; or
3.7.(m) No Unusual Events. Any other event or condition not
in the ordinary course of business of Company other than those
contemplated by this Agreement.
3.8. Absence of Undisclosed Liabilities. Except as and to the
extent specifically disclosed in the Recent Balance Sheet, or in Schedule 3.8,
Company does not have any liabilities, commitments or obligations (secured or
unsecured, and whether accrued, absolute, contingent, direct, indirect or
otherwise), other than commercial liabilities and obligations incurred since the
date of the Recent Balance Sheet in the ordinary course of business and
consistent with past practice and none of which has or will have a material
adverse effect on the business, financial condition or results of operations of
Company. Except as and to the extent described in the Recent Balance Sheet or in
Schedule 3.8, neither Company nor any Shareholder has knowledge of any basis for
the assertion against Company of any liability and there are no circumstances,
conditions, happenings, events or arrangements, contractual or otherwise, which
may give rise to liabilities, except commercial liabilities and obligations
incurred in the ordinary course of Company's business and consistent with past
practice.
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 threatened against
Company, its directors (in such capacity), its business or any of its assets,
nor does Company or any Shareholder know, or have grounds to know, of any basis
for any Litigation. Schedule 3.9 also identifies all Litigation to which Company
or any of its directors (in such capacity) have been parties since January 1,
1992. Except as set forth in Schedule
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<PAGE> 17
3.9, neither Company nor its business or 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),
Company (including each and all of its operations, practices,
properties and assets) is in compliance with all applicable Laws and
Orders, including, without limitation, those applicable to
discrimination in employment, occupational safety and health, trade
practices, competition and pricing, product warranties, 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), Company has not received
notice of any violation or alleged violation of, and is subject to no
Liability for past or continuing violation of, any Laws or Orders. All
reports and returns required to be filed by Company with any Government
Entity have been filed, and were accurate and complete when filed.
Without limiting the generality of the foregoing:
(i) The operation of Company's business as it is
now conducted does not, nor does any condition existing at any
of the Facilities, in any manner constitute a nuisance or
other tortious interference with the rights of any person or
persons in such a manner as to give rise to or constitute the
grounds for a suit, action, claim or demand by any such person
or persons seeking compensation or damages or seeking to
restrain, enjoin or otherwise prohibit any aspect of the
conduct of such business or the manner in which it is now
conducted.
(ii) Company 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 each of such accounts
has a positive balance.
(iii) Company has delivered to Buyer copies of all
reports of Company 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. The deficiencies, if any, noted on such
reports have been corrected.
3.10.(b) Licenses and Permits. Company has all licenses,
permits, approvals, authorizations and consents of all Government
Entities and all certification organizations required for the conduct
of the business (as presently
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conducted and as proposed to be conducted) and operation of the
Facilities. 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), Company (including
its operations, 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 of Shareholders' knowledge, Company is in full
compliance with all 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, to the best of
Shareholders' knowledge, threatened against Company 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 (or, to the best of Company's and the
Shareholders' knowledge, future) events, conditions, circumstances,
activities, practices, incidents, actions, omissions or plans which may
interfere with or prevent compliance or continued compliance with the
Environmental Laws or with any Order issued, entered, promulgated or
approved thereunder, or which may 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
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manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any Waste.
3.11. Title to and Condition of Properties.
3.11.(a) Marketable Title. Company has good and marketable
title to all of Company's assets, business and properties, including,
without limitation, all such properties (tangible and intangible)
reflected in the Recent Balance Sheet, 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 described in
Schedule 3.11 and, in the case of real property, Liens for taxes not
yet due or which are being contested in good faith by appropriate
proceedings (and which have been sufficiently accrued or reserved
against in the Recent Balance Sheet), municipal and zoning ordinances
and easements for public utilities, none of which interfere with the
use of the property as currently utilized. None of Company's assets,
business or properties are subject to any restrictions with respect to
the transferability thereof; and the Company's title thereto will not
be affected in any way by the transactions contemplated hereby.
3.11.(b) Condition. All property and assets owned or utilized
by Company are in good operating condition and repair, free from any
defects (except such minor defects as do not interfere with the use
thereof in the conduct of the normal operations of Company), have been
maintained consistent with the standards generally followed in the
industry and are sufficient to carry on the business of Company as
conducted during the preceding 12 months. All buildings, plants and
other structures owned or otherwise utilized by Company are in good
condition and repair and have no structural defects or defects
affecting the plumbing, electrical, sewerage, or heating, ventilating
or air conditioning systems.
3.11.(c) Real Property. Schedule 3.11.(c) sets forth all real
property owned, used or occupied by Company (the "Real Property"),
including a description of all land, and all encumbrances, easements or
rights of way of record (or, if not of record, of which Company has
notice or knowledge) granted on or appurtenant to or otherwise
affecting such Real Property, the zoning classification thereof, and
all plants, buildings or other structures located thereon. Schedule
3.11.(c) also sets forth, with respect to each parcel of Real Property
which is leased, the material terms of such lease.
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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 as the same are now constituted. All of
the Real Property has permanent rights of access to dedicated public
highways. No fact or condition exists which would prohibit or adversely
affect the ordinary rights of access to and from the Real Property from
and to the existing highways and roads and there is no pending or
threatened restriction or denial, governmental or otherwise, upon such
ingress and egress. There is not (i) any claim of adverse possession or
prescriptive rights involving any of the Real Property, (ii) any
structure located on any Real Property which encroaches on or over the
boundaries of neighboring or adjacent properties or (iii) any structure
of any other party which encroaches on or over the boundaries of any of
such Real Property. None of the Real Property is located in a flood
plain, flood hazard area, wetland or lakeshore erosion area within the
meaning of any Law, regulation or ordinance. No public improvements
have been commenced and to Company's and Shareholders' knowledge none
are planned which in either case may result in special assessments
against or otherwise materially adversely affect any Real Property. No
portion of any of the Real Property has been used as a landfill or for
storage or landfill of hazardous or toxic materials. Neither Company
nor any Shareholder has notice or knowledge of any (i) planned or
proposed increase in assessed valuations of any Real Property, (ii)
Order requiring repair, alteration, or correction of any existing
condition affecting any Real Property or the systems or improvements
thereat, (iii) condition or defect which could give rise to an order of
the sort referred to in "(ii)" above, (iv) underground storage tanks,
or any structural, mechanical, or other defects of material
significance affecting any Real Property or the systems or improvements
thereat (including, but not limited to, inadequacy for normal use of
mechanical systems or disposal or water systems at or serving the Real
Property), or (v) work that has been done or labor or materials that
has or have been furnished to any Real Property during the period of
six (6) months immediately preceding the date of this Agreement for
which liens could be filed against any of the Real Property.
3.11.(d) No Condemnation or Expropriation. Neither the whole
nor any portion of the assets of Company is subject to any Order to be
sold or is being condemned, expropriated or otherwise taken by any
Government Entity with or without payment of compensation therefor, nor
to the best of Company's and Shareholders' knowledge has any such
condemnation, expropriation or taking been proposed.
3.12. Insurance. Set forth in Schedule 3.12 is a complete and
accurate list and description of all policies of fire,
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<PAGE> 21
liability, errors and omissions, electronic data processing, workers
compensation, health and other forms of insurance presently in effect with
respect to the business and properties of Company, 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, retroactive date of
coverage, 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.
All such policies are valid, outstanding and enforceable policies and provide
insurance coverage for the properties, assets and operations of Company, of the
kinds, in the amounts and against the risks customarily maintained by
organizations similarly situated; and no such policy (nor any previous policy)
provides for or is subject to any currently enforceable retroactive rate or
premium adjustment, loss sharing arrangement or other actual or contingent
liability arising wholly or partially out of events arising prior to the date
hereof. 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, and neither Company nor any Shareholder has
knowledge of any act or omission of Company which could result in cancellation
of any such policy prior to its scheduled expiration date. Company 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 years. Company has duly and timely made all claims it has been entitled to
make under each policy of insurance. There is no claim by Company pending under
any such policies as to which coverage has been questioned, denied or disputed
by the underwriters of such policies, and neither Company nor any of the
Shareholders knows of any basis for denial of any claim under any such policy.
Company 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 Company with
all requirements of law and with the requirements of all material contracts to
which Company is a party. All general liability policies maintained by or for
the benefit of Company since its inception have been "occurrence" policies and
not "claims made" policies.
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3.13. Contracts and Commitments.
3.13.(a) Real Property Leases. Except as set forth in Schedule
3.11.(c), Company has no leases of real property.
3.13.(b) Personal Property Leases. Except as set forth in
Schedule 3.13.(b), Company has no leases of personal property involving
consideration or other expenditure in excess of $5,000 or involving
performance over a period of more than three months.
3.13.(c) Purchase Commitments. Company has no purchase
commitments for inventory items or supplies that, together with amounts
on hand, constitute in excess of three months normal usage, or which
are at an excessive price.
3.13.(d) Sales Commitments. Except as set forth in Schedule
3.13.(d), Company has no sales contracts or commitments to customers
which aggregate in excess of $ 25,000 to any one customer (or group of
affiliated customers). Company has no sales contracts or commitments
except those made in the ordinary course of business, at arm's length,
and no such contracts or commitments are for a sales price which would
result in a loss to the Company.
3.13.(e) Contracts With Affiliates and Certain Others. Company
has no agreement, understanding, contract or commitment (written or
oral) with any Affiliate or any employee, agent, consultant,
distributor, dealer or franchisee that is not immediately cancelable by
Company without liability, penalty or premium of any nature or kind
whatsoever.
3.13.(f) Powers of Attorney. The Company has not given a power
of attorney, which is currently in effect, to any person, firm or
corporation for any purpose whatsoever.
3.13.(g) Collective Bargaining Agreements. Except as set forth
in Schedule 3.13.(g), Company is not a party to any collective
bargaining agreements with any unions, guilds, shop committees or other
collective bargaining groups. Copies of all such agreements have
heretofore been delivered to Buyer.
3.13.(h) Loan Agreements. Except as set forth in Schedule
3.13.(h), Company is not obligated under any loan agreement, promissory
note, letter of credit, or other evidence of indebtedness as a
signatory, guarantor or otherwise.
3.13.(i) Guarantees. Except as disclosed on Schedule 3.13.(i),
Company has not guaranteed the payment or performance of any person,
firm or corporation, agreed to
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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.(j) Contracts Subject to Renegotiation. Company is not a
party to any contract with any governmental body which is subject to
renegotiation.
3.13.(k) Burdensome or Restrictive Agreements. Company is not
a party to nor is it bound by any agreement, deed, lease or other
instrument which is so burdensome as to materially affect or impair the
operation of Company. Without limiting the generality of the foregoing,
Company is not a party to nor is it bound by any agreement requiring
Company to assign any interest in any trade secret or proprietary
information, or prohibiting or restricting Company from competing in
any business or geographical area or soliciting customers or otherwise
restricting it from carrying on its business anywhere in the world.
3.13.(l) Other Material Contracts. Company has no lease,
contract or commitment of any nature involving consideration or other
expenditure in excess of $ 5,000, or involving performance over a
period of more than three months, or which is otherwise individually
material to the operations of Company, except as explicitly described
in Schedule 3.13.(l).
3.13.(m) No Default. Company is not in default under any
lease, contract or commitment, 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 Company's obligations or result in the creation of any Lien on any
of the assets owned, used or occupied by Company. No third party is in
default under any lease, contract or commitment to which Company is a
party, 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 give rise to an automatic termination, or the
right of discretionary termination, thereof.
3.14. Labor Matters. Except as set forth in Schedule 3.14, within
the last five years Company 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) Company 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 against Company pending or threatened; (c) there is
no labor strike, dispute, request for
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<PAGE> 24
representation, slowdown or stoppage actually pending or threatened against or
affecting Company nor any secondary boycott with respect to products of Company;
(d) no question concerning representation has been raised or is threatened
respecting the employees of Company; (e) no grievance which might have a
material adverse effect on Company, 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 Company 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, benefit, 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,
"golden parachutes," 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 or binding oral statements of policies,
practices or understandings relating to employment, which are provided
to, for the benefit of, or relate to, any persons employed by Company
or any persons who provide services to the Company pursuant to a
leasing arrangement with a third-party lessor (collectively, the
"Company Employees"). 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 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
neither the Company nor any third-party lessor through which the
Company obtains employees has
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ever contributed nor been obligated to contribute to any such
multiemployer plan.
3.15.(b) Terminations, Proceedings, Penalties, etc. With
respect to each employee benefit plan (including, without limitation,
the Employee Plans/Agreements) that is subject to the provisions of
Title IV of ERISA and with respect to which the Company 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 Company 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 Company 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 Company 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.
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3.15.(c) Prohibited Transactions, etc. There have been no
"prohibited transactions" within the meaning of Section 406 or 407 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 no event or omission has occurred in connection
with which the Company or any of its assets or any Employee
Plan/Agreement, directly or indirectly, could be subject to any
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 Company 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 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 Company's actuaries in connection with the
funding of such Employee Plan/Agreement).
3.15.(e) Controlled Group; Affiliated Service Group; Leased
Employees. Company is not and never has been a member of a controlled
group of corporations as defined in Section 414(b) of the Code or in
common control with any unincorporated trade or business as determined
under Section 414(c) of the Code. Company is not and never has been a
member of an "affiliated service group" within the meaning of Section
414(m) of the Code. Company has no liability, actual or contingent,
under Title IV of ERISA.
3.15.(f) Payments and Compliance. With respect to each
Employee Plan/Agreement, (i) all payments due from Company to date have
been made and all amounts properly accrued to date as liabilities of
Company which have not been paid have been properly recorded on the
books of Company and are reflected in the Recent Balance Sheet; (ii)
Company 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 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
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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. No Employee Plan/Agreement
provides benefits, including, without limitation, death or medical
benefits (whether or not insured) with respect to current or former
Company employees beyond their retirement or other termination of
service other than (i) coverage mandated by applicable law, (ii) death
or retirement benefits under any Employee Plan/Agreement that is an
employee pension benefit plan, (iii) deferred compensation benefits
accrued as liabilities on the books of Company (including the Recent
Balance Sheet), (iv) disability benefits under any Employee Plan/
Agreement that is an employee welfare benefit plan and which have been
fully provided for by insurance or otherwise or (v) benefits in the
nature of severance pay.
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 Company to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement, (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
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is embodied entirely in an insurance policy to which Company
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. Company 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.
3.16. Employment Matters.
3.16.(a) Compensation. Schedule 3.16 contains a true and
correct list of all persons (whether employees of Company or employees leased
from third-party lessors) to whom Company is paying, directly or indirectly,
compensation, including bonuses and incentives, at an annual rate in excess of
Ten Thousand Dollars ($10,000) for services rendered or otherwise; and in the
case of salaried persons such list identifies the current annual rate of
compensation for each such person and in the case of hourly or commission
persons identifies certain reasonable ranges of rates and the number of persons
falling within each such range.
3.16.(b) Leasing Matters. With respect to any persons who
provide services to the Company pursuant to a leasing arrangement between the
Company and a third-party lessor:
(i) Company does not have any liabilities,
commitments or obligations (secured or unsecured, and whether
accrued, absolute, contingent, direct, indirect or otherwise)
with respect to such persons or the services rendered by such
persons, or to the third-party lessor with respect to such
persons or services, other than payment of the normal leasing
fee charged by the third party lessor in the ordinary course
of business and consistent with past practice and which
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will not have a material adverse effect on the business,
financial condition or result of operations of Company.
(ii) Company is not obligated, pursuant to the
terms of a written contract or other understanding, to
continue to obtain services through an employee leasing
arrangement with a third-party lessor, and Company may
terminate any such employee leasing arrangement at any time
without liability, penalty or further (including retroactive)
assessments other than payment of the normal leasing fee for
services performed through the termination date as charged by
the third-party lessor in the ordinary course of business and
consistent with past practice and which will not have a
material adverse effect on the business, financial condition
or result of operations of Company.
3.17. Trade Rights. Schedule 3.17 lists all Trade Rights (as defined
below) in which Company now has any interest, specifying whether such Trade
Rights are owned, controlled, used or held (under license or otherwise) by
Company, 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 of Company, as such
is currently being conducted or proposed to be conducted, Company does not
require any Trade Rights that it does not already have. Company is not
infringing and has not infringed any Trade Rights of another in the operation of
the business of Company, nor is any other person infringing the Trade Rights of
Company. Company has not granted any license or made any assignment of any Trade
Right listed on Schedule 3.17, nor does Company 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 Company's right, title and
interest with respect to its continued use and right to preclude others from
using any Trade Rights of Company. All Trade Rights of Company are valid,
enforceable and in good standing, and there are no equitable defenses to
enforcement based on any act or omission of Company. The consummation of the
transactions contemplated hereby will not alter or impair any Trade Rights owned
or used by Company. As used herein, the term "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
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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 and Suppliers.
3.18.(a) Major Customers. Schedule 3.18.(a) contains a list of
the twenty (20) largest customers of Company for each of the two (2)
most recent fiscal years (determined on the basis of the total dollar
amount of net sales) showing the total dollar amount of net sales to
each such customer during each such year. Neither Company nor any
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.(a) will not continue to be customers of the business of
Company after the Closing at substantially the same level of purchases
as heretofore.
3.18.(b) Major Suppliers. Schedule 3.18.(b) contains a list of
the ten (10) largest suppliers to Company for each of the two (2) most
recent fiscal years (determined on the basis of the total dollar amount
of purchases) showing the total dollar amount of purchases from each
such supplier during each such year. Neither Company nor any
Shareholder has any knowledge or information of any facts indicating,
nor any other reason to believe, that any of the suppliers listed on
Schedule 3.18.(b) will not continue to be suppliers to the business of
Company after the Closing and will not continue to supply the business
with substantially the same quantity and quality of goods at
competitive prices.
3.18.(c) Sales Representatives. Schedule 3.18.(c) contains a
list of all sales representatives of Company, together with true,
correct and complete copies of all sales representative contracts and
policy statements, and a description of all substantial modifications
or exceptions.
3.19. Service Warranty and Liability. Schedule 3.19 contains a true,
correct and complete copy of Company's standard warranty or warranties for sales
of Services (as defined below) and, except as stated therein, there are no
warranties, commitments or obligations with respect to the provision of such
Services. Schedule 3.19 sets forth the estimated aggregate annual cost to
Company of meeting warranty or liability obligations or commitments for
customers for each of the five (5) preceding fiscal years. Schedule 3.19
contains a description of all liability claims and similar Litigation relating
to services rendered, which are presently
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pending or which to Company's or any Shareholder's knowledge are threatened, or
which have been asserted or commenced against Company within the last five (5)
years, in which a party thereto either requests injunctive relief or alleges
damages (whether or not covered by insurance). The provision of such services by
the Company meets and complies with all governmental laws and regulations
currently in effect. As used in this Section 3.19, the term "Services" means any
and all services currently or at any time previously rendered, provided or sold
by Company, or by any predecessor of Company under any brand name or mark under
which services are or have been rendered, provided or sold by Company.
3.20. Bank Accounts. Schedule 3.20 sets forth the names and
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which the Company 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.
3.21. Affiliates' Relationships to Company.
3.21.(a) Contracts With Affiliates. All leases, contracts,
agreements or other arrangements between Company and any Affiliate are
described on Schedule 3.21.(a).
3.21.(b) No Adverse Interests. No Affiliate has any direct or
indirect interest in (i) any entity which does business with Company or
is competitive with Company's business, or (ii) any property, asset or
right which is used by Company in the conduct of its business.
3.21.(c) Obligations. All obligations of any Affiliate to
Company, and all obligations of Company to any Affiliate, are listed on
Schedule 3.21.(c).
3.22. Assets Necessary to Business. Company presently has and at the
Closing will have good, valid and marketable title to all property and assets,
tangible and intangible, and all leases, licenses and other agreements,
necessary to permit Buyer to carry on the business of Company as presently
conducted.
3.23. No Brokers or Finders. Neither Company 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.
3.24. Year 2000 Compliance. Except as set forth in Schedule 3.24. to
the best of Shareholders' knowledge: (a) the computer
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source codes, programs and other software of the Company (including machine
readable code, printed listings of code, databases, documentation and related
property and information of Company used or under development for use in the MMA
Business) (collectively, "Software") accurately determine chronological dates
and accurately perform all calculations, data manipulations, sorting and
transmission of date data regardless of whether the date represents or
references different centuries (For example, when the actual date changes from
12/31/1999 to 1/1/2000, the Software will accurately determine that 1/1/2000 is
the new date and determine that an individual born in 1948 is 52 years old and
not -48 [i.e., 00-48 = -48], or otherwise incorrectly perform the age
calculation); (b) the Software provides that all date related user interface
functionalities and data fields permit the entry of a four digit year (i.e., the
years 1965, 2065 and 3065 could all be entered by the user without the need of a
manual override) and such date data will result in accurate calculations, data
manipulations, sorting and transmission of all data, including the date data;
(c) the entry of a date equal to or greater than 01/01/2000 into the Software
will not affect any calculation that produces or uses time spans such that the
results of the calculation are incorrect (i.e., such as an interest
calculation); and (d) the integrity of calculations performed utilizing the
Software will not be affected by date data for dates on or after 01/02/2000, and
calculations using previously generated data (on or before 12/31/1999) will also
maintain calculation integrity.
3.25. Systems Performance. The Software and related systems owned or
used by Company perform in accordance with the written specifications previously
delivered to Buyer. The Software and related system components are capable of
interconnecting and/or interfacing with each other, and they deliver the
functionality needed to meet the information systems requirements of the MMA
Business as they are presently conducted. No Shareholder will cause any
unplanned interruption of the operations of, or accessibility to, the Software
or related systems (or any system component) through any device, method or means
including, without limitation, the use of any "virus," "lockup," "time bomb" or
"key lock" device or program, or disabling code, which has the potential or
capability of causing any unplanned interruption of the operations of, or
accessibility of, the Software or related systems (or any system component) to
Buyer, or any user authorized by Buyer, or which could alter, destroy or inhibit
the use of the Software or related systems (or any system component), or the
data contained therein (collectively, "Disabling Devices"), which could block
access to or prevent the use of the Software or any system (or system component)
by Buyer or any authorized user. No Shareholder has placed, nor is any
Shareholder aware of, any Disabling Device on any Software or system component
owned or used by Company.
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3.26. Disclosure. No representation or warranty by Company and/or
the Shareholders in this Agreement, nor any statement, certificate, schedule,
document or exhibit hereto furnished or to be furnished by or on behalf of
Company or Shareholders pursuant to this Agreement or in connection with
transactions contemplated hereby, contains or shall contain any untrue statement
of material fact or omits or shall omit a material fact necessary to make the
statements contained therein not misleading. All statements and information
contained in any certificate, instrument, Disclosure Schedule or document
delivered by or on behalf of Company and/or Shareholders shall be deemed
representations and warranties by the Company and the Shareholders.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to the
Shareholders, each of which was true and correct on the Effective Date (other
than Section 4.2), remains true as of the Closing Date, shall be unaffected by
any investigation hereafter made by Shareholders or any notice to Shareholders,
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 other documents and
instruments to be executed and delivered by Buyer and to carry out the
transactions contemplated hereby and thereby.
4.2. Authority. The execution and delivery of this Agreement and
the other documents and instruments to be executed and delivered by Buyer
pursuant hereto 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 other documents and instruments to
be executed and delivered by Buyer pursuant hereto or the consummation of the
transactions contemplated hereby and thereby. This Agreement constitutes, and
when executed and delivered, the other documents and instruments to be executed
and delivered by Buyer pursuant hereto will constitute, valid and binding
agreements of Buyer, enforceable in accordance with their respective terms,
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 Broadview Associates LLC,
neither Buyer nor any of its directors, officers, employees or agents has
retained, employed or used any broker or finder in connection with the
transaction provided for herein or in connection with the negotiation thereof.
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 or shall
contain any untrue statement of material fact or omits or shall omit a material
fact necessary to make the statements contained therein not misleading.
4.5. Investment Intent. The Shares are being acquired by Buyer for
investment only and not with the view to resale or other distribution.
5. COVENANTS
5.1. Employment and Noncompetition Agreements; Consulting
Agreement. Contemporaneously with the execution of this Agreement, Shareholders
shall cause each of Steven R. Matthews and Michael J. Malone to execute and
deliver to Company an Employment and Noncompetition Agreement, substantially in
the form of Exhibit A hereto, and Alan Gold to execute and deliver to Company a
Consulting Agreement, substantially in the form of Exhibit B hereto.
5.2. 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 the business of Company 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 5.1 hereof, each Shareholder hereby covenants and agrees as follows:
5.2.(a) Covenant Not to Compete. For a period of three (3)
years (two (2) years in the case of Steven R. Matthews and one (1) year
in the case of Alan Gold) from the Closing Date, no Shareholder will
directly or indirectly:
(i) engage in, continue in or carry on any
business which competes with Company or the MMA Business or is
substantially similar thereto, including owning or controlling
any financial interest in any corporation, partnership, firm
or other form of business organization which is so engaged;
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(ii) consult with, advise or assist in any way,
whether or not for consideration, any corporation,
partnership, firm or other business organization which is now
or becomes a competitor of Company or Buyer (or any of its
subsidiaries) in any aspect with respect to the MMA Business,
including, but not limited to, advertising or otherwise
endorsing the products of any such competitor; soliciting
customers or otherwise serving as an intermediary for any such
competitor; 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 such
competitor;
(iii) offer employment to an employee of Company
or the MMA Business, 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 the Company or the
MMA 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 extent to and cover the following states:
Arizona. The parties agree that a Buyer may sell, assign or otherwise
transfer this covenant not to compete, in whole or in part, to any
subsidiary of Buyer or to any person, corporation, firm or entity that
purchases all or part of the business of the Company. In the event a
court of competent jurisdiction determines that the provisions of this
covenant not to compete are excessively broad as to duration,
geographical scope or activity, it is expressly agreed that this
covenant not to compete shall be construed so that the remaining
provisions shall not be affected, but shall remain in full force and
effect, and any such over broad provisions shall be deemed, without
further action on the part of any person, to be modified, amended
and/or limited but only to the extent necessary to render the same
valid and enforceable in such jurisdiction.
5.2.(b) Covenant of Confidentiality. No Shareholder shall at
any time subsequent to the Closing, except as explicitly requested by
Buyer, (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 Company. For purposes
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hereof, "confidential information" shall mean and include, without
limitation, all Trade Rights in which Company has an interest, all
customer lists and customer information, and all other information
concerning Company's processes, apparatus, equipment, packaging,
products, marketing and distribution methods, not previously disclosed
to the public directly by Company.
5.2.(c) Equitable Relief for Violations. Each Shareholder
agrees that the provisions and restrictions contained in this Section
5.2 are necessary to protect the legitimate continuing interests of
Buyer in acquiring the 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 5.2.
5.3. General Releases. Contemporaneously with the execution of this
Agreement, each Shareholder shall deliver a general release to Buyer, in
substantially the form attached hereto as Exhibit C.
5.4. Credited Service. In the event Company's employees or leased
employees become eligible to participate in Buyer's 401(k) plan and health and
welfare benefit programs, Buyer covenants and agrees that the persons set forth
in Schedule 3.16 shall receive credit for their years of service with Company
(as an employee or leased employee) with respect to such participation.
5.5. Capital Contribution. Contemporaneously with the execution of
this Agreement, Steven R. Matthews will make a contribution of capital to
Company in the amount of $43,356 by forgiving indebtedness in such amount
reflected on the Recent Balance Sheet.
6. INDEMNIFICATION
6.1. By Shareholders. Subject to the terms and conditions of this
Article 6, each Shareholder, jointly and severally, hereby agrees to indemnify,
defend and hold harmless Buyer, its directors, officers, employees and
controlled and controlling persons (hereinafter "Buyer's Affiliates") and the
Company from and against all Claims asserted against, resulting to, imposed
upon, or incurred by Buyer, Buyer's Affiliates or the Company, directly or
indirectly, by reason of, arising out of or resulting from (a) the
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inaccuracy or breach of any representation or warranty of any Shareholder or
Company contained in or made pursuant to this Agreement, (b) the breach of any
covenant of any Shareholder or the Company contained in this Agreement, (c) the
litigation matters referred to in Schedule 3.9, or (d) the conduct of the MMA
Business or operations of the Company prior to the Closing. Regardless of the
foregoing, however, breaches of representations and warranties contained in
Section 3.2 hereof shall be subject only to several indemnification by the
respective Shareholders who shall have made and breached such representations
and warranties. As used in this Article 6, the term "Claim" shall include (i)
all debts, liabilities and obligations; (ii) all losses, damages (including,
without limitation, 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, whether
or not ultimately determined to be valid.
6.2. By Buyer. Subject to the terms and conditions of this Article
6, Buyer hereby agrees to indemnify, defend and hold harmless each Shareholder
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 from whom indemnification is sought (the "Indemnifying
Party") prompt written notice of any such Claim, and the Indemnifying
Party will undertake the defense thereof by representatives chosen by
it. Failure to give such notice shall not affect the Indemnifying
Party's duty or obligations under this Article 6, except to the extent
the Indemnifying Party is prejudiced thereby. So long as the
Indemnifying Party is defending any such Claim actively and in good
faith, the Indemnified Party shall not settle such Claim. The
Indemnified Party shall make available to the Indemnifying Party or its
representatives all records and other materials required by them and in
the possession or under the control of the Indemnified Party, for the
use of the Indemnifying Party and its representatives in defending any
such Claim, and shall in other respects give reasonable cooperation in
such defense.
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<PAGE> 38
6.3.(b) Failure to Defend. If the Indemnifying Party, within
a reasonable time after notice of any such Claim, fails to defend 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 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 Section
6.3 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,
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, which payment may be
accomplished in whole or in part, at the option of the Indemnified Party, by the
Indemnified Party setting off any amount owed to the Indemnifying Party by the
Indemnified Party. To the extent set-off is made by an Indemnified Party in
satisfaction or partial satisfaction of an indemnity obligation under this
Article 6 that is disputed by the Indemnifying Party, upon a subsequent
determination by final judgment not subject to appeal that all or a portion of
such indemnity obligation was not owed to the Indemnified Party, the Indemnified
Party shall pay the Indemnifying Party the amount which was set-off and not owed
together with interest from the date of set-off until the date of such payment
at an annual rate equal to the average annual rate in effect as of the date of
the set-off, on those three maturities of United States Treasury obligations
having a remaining life, as of such date, closest to the period from the date of
the set-off to the date of such judgment. 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. If the Indemnifying Party desires
to appeal from an adverse judgment, then the
34
<PAGE> 39
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. Limitations on Indemnification. Except for any willful or
knowing breach or misrepresentation, as to which claims may be brought without
limitation as to time or amount:
6.5.(a) Time Limitation. No claim or action shall be brought
under this Article 6 for breach of a representation or warranty after
the lapse of three (3) years following the Closing. Regardless of the
foregoing, however, or any other provision of this Agreement:
(i) There shall be no time limitation on claims
on actions brought for breach of any representation or
warranty made by Shareholders or Company in or pursuant to
Sections 3.1, 3.2, 3.9, 3.10, 3.12 and 3.17, and Shareholders
hereby waive all applicable statutory limitation periods with
respect thereto.
(ii) Any claim or action brought for breach of
any representation or warranty made by Shareholders with
respect to tax or ERISA matters may be brought at any time
until the underlying tax or ERISA obligation is barred by the
applicable period of limitation under federal and state laws
relating thereto (as such period may be extended by waiver).
(iii) Any claim made by a party hereunder by
delivering written notice of the claim to the Indemnifying
Party or Parties, by filing a suit or action in a court of
competent jurisdiction or a court reasonably believed to be of
competent jurisdiction or by a demand for arbitration in
accordance with Article 9 hereof for breach of a
representation or warranty prior to the termination of the
survival period for such claim shall be preserved despite the
subsequent termination of such survival period.
(iv) If any act, omission, disclosure or failure
to disclosure shall form the basis for a claim for breach of
more than one representation or warranty, and such claims have
different periods of survival hereunder, the termination of
the survival period of one claim shall not affect a party's
right to make a claim based on the breach of representation or
warranty still surviving.
35
<PAGE> 40
6.5.(b) Amount Limitations.
(i) Basket. Buyer, Buyer's Affiliates and
Company shall not be entitled to indemnification under this
Article 6 for breach of representation or warranty unless the
aggregate of the Shareholders' indemnification obligations to
Buyer, Buyer's Affiliates and Company pursuant to this Article
6 (but for this Section 6.5.(b)) exceeds $25,000; but in such
event, Buyer, Buyer's Affiliates and Company shall be entitled
to indemnification in full for all breaches of representations
and/or warranties.
(ii) Cap. The aggregate amount of the
indemnification obligations of Shareholders pursuant to this
Article 6 shall not exceed the aggregate Purchase Price
(including any Contingent Payment) as set forth in Section
2.1.; provided, further, that the aggregate indemnification
obligation of a particular Shareholder pursuant to this
Article 6 shall not exceed the portion of the aggregate
Purchase Price (including the Contingent Payment, if any)
payable to such Shareholder as determined in accordance with
Sections 2.1 and 2.2 hereto.
6.6. 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, and regardless of
whether such breach, violation or failure is deemed to be "material" for
purposes of Section 9.2.
7. CLOSING
The closing of this transaction ("the Closing") shall take place
contemporaneously with the execution and delivery of this agreement at the
offices of Ehmann & Hiller, P.C., 2525 East Camelback Road, Tower B, Suite 720,
Phoenix, Arizona, at 2:00 P.M. on February 27, 1998, or at such other hour and
place as the parties hereto shall agree upon in writing. The date hereof is
referred to in this Agreement as the "Closing Date". Unless otherwise indicated,
the transactions contemplated hereby shall be deemed for all purposes to be
effective as of February 1, 1998, which date shall be referred to herein as the
"Effective Date."
7.1. Documents to be Delivered by Company and Shareholders. At the
Closing, Company and Shareholders shall deliver to Buyer the following
documents, in each case duly executed or otherwise in proper form:
36
<PAGE> 41
7.1.(a) Stock Certificate(s). Stock certificates representing
the Shares, duly endorsed for transfer or with duly executed stock
powers attached, in either case as of the Effective Date.
7.1.(b) Opinion of Counsel. A written opinion of Ehmann &
Hiller, P.C., counsel to Company and Shareholders, dated as of the
Closing Date, addressed to Buyer, substantially in the form of Exhibit
D hereto.
7.1.(c) Consents and Approvals. Executed originals of all
approvals, consents and waivers that are required to effect the
transactions contemplated hereby.
7.1.(d) Estoppel Certificates. An estoppel certificate or
status letter from the landlord under each lease of Real Property,
which estoppel certificate or status letter will certify: (i) the lease
is valid and in full force and effect; (ii) the amounts payable by
Company 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.(e) Employment and Noncompetition Agreements; Consulting
Agreement. The Employment and Noncompetition Agreements and Consulting
Agreement referred to in Section 5.1, duly executed by the persons
referred to in such Section.
7.1.(f) Certified Resolutions. Certified copies of the
resolutions of the Board of Directors and the Shareholders of Company,
authorizing and approving this Agreement and the consummation of the
transactions contemplated by this Agreement.
7.1.(g) Articles; By-Laws. A copy of the By-Laws of Company
certified by the secretary of Company, and a copy of the Articles of
Incorporation of Company certified by the Secretary of State of the
state of incorporation of Company.
7.1.(h) 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.(i) General Releases. The General Releases referred to in
Section 5.3, duly executed by the persons referred to in such Section.
37
<PAGE> 42
7.1.(j) Resignations. The resignations of Steven R. Matthews,
Michael J. Malone and Alan Gold as officers of the Company, and Steven
R. Matthews, Michael J. Malone and Alan Gold as directors of the
Company, effective as of the Closing and in form satisfactory to
Buyer's counsel.
7.1.(k) Affidavit. An affidavit from Company and each
Shareholder in form and substance satisfactory to Buyer, to the effect
that Company is not a "foreign person," "foreign corporation," "foreign
partnership," "foreign trust" or "foreign estate" under Section 1445 of
the Code, and containing all such other information as is required to
comply with the requirements of such Section.
7.1.(l) Other Documents. All other documents, instruments or
writings required to be delivered to Buyer at the Closing pursuant to
this Agreement and such other certificates of authority and documents
as Buyer may reasonably request.
7.2. Documents to be Delivered by Buyer. At the Closing, Buyer
shall deliver to Shareholders the following documents, in each case duly
executed or otherwise in proper form:
7.2.(a) Cash Purchase Price. To Shareholders, bank checks (or
wire transfers) as required by Section 2.2(a) hereof.
7.2.(b) Opinion of Counsel. A written opinion of Foley &
Lardner, counsel to Buyer, dated as of the Closing Date, addressed to
Company, in substantially the form of Exhibit E hereto.
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 by this Agreement.
7.2.(d) Incumbency Certificate. Incumbency certificates
relating to each person executing any document executed and delivered
to Company or Shareholders by Buyer pursuant to the terms hereof.
7.2.(e) Other Documents. All other documents, instruments or
writings required to be delivered to Company at the Closing pursuant to
this Agreement and such other certificates of authority and documents
as Company may reasonably request.
7.3. Delivery of Buyer Loan. At the Closing, Buyer shall deliver to
Company the Buyer Loan as provided in Section 2.1.(d).
38
<PAGE> 43
8. TERMINATION
This Agreement may be terminated without further liability of any party
at any time prior to the Closing: (a) by mutual written agreement of Buyer and
all of the Shareholders; or (b) by Buyer or any Shareholder (i) if the Closing
shall not have occurred by 11:59 p.m. Eastern time on the date hereof, provided
the terminating party has not, through breach of a representation, warranty or
covenant, prevented the Closing from occurring at or before such time, or (ii)
if any Government Entity shall have issued a final and non-appealable Order
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement.
9. RESOLUTION OF DISPUTES
9.1. Arbitration.
9.1.(a) Any dispute, controversy or claim arising out of or
relating to this Agreement or any contract or agreement entered into
pursuant hereto or the performance by the parties of its or their terms
shall be settled by binding arbitration held in Maricopa County,
Arizona in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except as specifically
otherwise provided in this Article 9. 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 any Shareholder under Section 5.2 of this
Agreement, or any covenants of confidentiality or covenants not to
compete contained in any Employment and Noncompetition Agreement or
Consulting Agreement delivered pursuant to Section 5.1 hereof.
9.1.(b) No party shall be required to submit to arbitration
hereunder unless all persons who are not parties to this Agreement, but
who are necessary parties to a complete resolution of the controversy,
submit to the arbitration process on the same terms as the parties
hereto. Without limiting the generality of the foregoing, no claim
under Article 6 for the indemnification of a third-party claim shall be
subject to arbitration under this Article 9 unless the third party
bringing such claim against the indemnitee shall agree in writing to
the application of this Article 9 to the resolution of such claim.
9.2. Arbitrators. If the matter in controversy (exclusive of
attorney fees and expenses) shall appear, as at the time of the demand for
arbitration, to exceed $250,000, then the panel to be appointed shall consist of
three neutral arbitrators; otherwise, one neutral arbitrator.
39
<PAGE> 44
9.3. Procedures; No Appeal. The arbitrator(s) shall allow such
discovery as the arbitrator(s) 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 arbitrator(s). The
arbitrator(s) 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 arbitrator(s) 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.
9.4. Authority. The arbitrator(s) shall have authority to award relief
under legal or equitable principles, including interim or preliminary relief,
and to allocate responsibility for the costs of the arbitration and to award
recovery of attorneys fees and expenses in such manner as is determined to be
appropriate by the arbitrator(s).
9.5. Entry of Judgment. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and subject matter
jurisdiction. Buyer and each Shareholder hereby submit to the in personam
jurisdiction of the Federal and State courts in Florida, for the purpose of
confirming any such award and entering judgment thereon.
9.6. Confidentiality. All proceedings under this Article 9 and all
evidence given or discovered pursuant hereto, shall be maintained in confidence
by all parties.
9.7. Continued Performance. The fact that the dispute resolution
procedures specified in this Article 9 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, subject to any rights to terminate
this Agreement that may be available to any party and to the right of setoff
provided in Section 6.4 hereof.
9.8. Tolling. All applicable statutes of limitation shall be tolled
while the procedures specified in this Article 9 are pending. The parties will
take such action, if any, required to effectuate such tolling.
10. MISCELLANEOUS
10.1. Disclosure Schedule. The Schedules have been compiled in a bound
volume (the "Disclosure Schedule"), executed by Shareholders and dated and
delivered to Buyer on the date of this Agreement. Information set forth in the
Disclosure Schedule
40
<PAGE> 45
specifically refers to the article and section of this Agreement to which such
information is responsive and such information shall not be deemed to have been
disclosed with respect to any other article or section of this Agreement or for
any other purpose. 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.
10.2. Further Assurance. From time to time, at Buyer's request and
without further consideration, Company and Shareholders 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.
10.3. Disclosures and Announcements. Announcements concerning the
transactions provided for in this Agreement by Buyer, Company or Shareholders
shall be subject to the approval of the other parties in all essential respects,
except that approval of the Shareholders or Company 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
stockholders or be required to make pursuant to any rule or regulation of the
Securities and Exchange Commission or Nasdaq, or otherwise required by law.
10.4. Assignment; Parties in Interest.
10.4.(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, (i) merge Company with and into Buyer
and/or any subsidiary of Buyer, or (ii) 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
Shareholders hereunder.
10.4.(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 any
right or remedy under or by reason of this Agreement.
41
<PAGE> 46
10.5. Law Governing Agreement. This Agreement may not be modified or
terminated orally, and shall be construed and interpreted according to the
internal laws of the State of Arizona, excluding any choice of law rules that
may direct the application of the laws of another jurisdiction.
10.6. Amendment and Modification. Buyer and Shareholders may amend,
modify and supplement this Agreement in such manner as may be agreed upon in
writing between Buyer and all the Shareholders personally.
10.7. 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, Florida 34684-2116
Attention: James E. MacDougald
Chairman of the Board,
President and
Chief Executive Officer
Facsimile: (813) 789-3857
(with a copy to)
Foley & Lardner
100 North Tampa Street, Suite 2700
Tampa, Florida 33602-5804
Attention: Todd B. Pfister
Facsimile: (813) 221-4210
or to such other person or address as Buyer shall furnish to Shareholders in
writing.
(b) If to Shareholders, to:
Steven R. Matthews
1425 West Port Au Prince
Phoenix, Arizona 85023
Facsimile: (602) 381-1632
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<PAGE> 47
Michael J. Malone
3639 East Orange Drive
Phoenix, Arizona 85018
Facsimile: (602) 381-1632
Alan Gold
6272 East Evans Drive
Scottsdale, Arizona 85254
Facsimile: (602) 382-1632
(with a copy to)
John F. Daniels III
Ehmann & Hiller, P.C.
Tower B, Suite 720
2525 East Camelback Road
Phoenix, Arizona 85016-4229
Facsimile: (602) 468-9775
or to such other person or address as any Shareholder shall furnish to Buyer and
the remaining Shareholders in writing.
(c) If to Company, to:
Matthews, Malone & Associates, Ltd.
5050 N. 40th Street, Suite 300
Phoenix, Arizona 85016
Attention: President
Facsimile: (602) 381-1632
(with a copy to)
Todd B. Pfister
Foley & Lardner
100 N. Tampa Street, Suite 2700
Tampa, Florida 33601-3391
Facsimile: (813) 229-2300
Any notice to Company given after Closing shall also be given in the same manner
to Buyer.
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
43
<PAGE> 48
party to this Agreement may change its address for the purposes of this
Agreement by giving notice thereof in accordance with this Section.
10.8. Expenses.
10.8.(a) Brokerage. Except as to Broadview Associates LLC,
which shall be compensated by Buyer, Shareholders 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 Shareholders represent and warrant that there
is no broker involved on behalf of Company) 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.
10.8.(b) Expenses to be Paid by Shareholders. Shareholders
shall pay, and shall indemnify, defend and hold Buyer and Company
harmless from and against, 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.
10.8.(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.
10.8.(d) Costs of Litigation or Arbitration. The parties agree
that (subject to the discretion, in an arbitration proceeding, of the
arbitrator as set forth in Section 10.4) 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 attorneys' fees and prejudgment interest.
10.9. 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 agreements, representations
or warranties between the parties other than those set forth or provided for
herein.
10.10. Counterparts; Facsimile Signatures. 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. This
Agreement and the Ancillary Instruments may be effective upon the execution and
delivery by any party of facsimile copies of signature pages hereto and thereto
44
<PAGE> 49
duly executed by such party; provided, however, that any party delivering a
facsimile signature page covenants and agrees to deliver promptly after the date
hereto two (2) original copies to the other parties hereto.
10.11. Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
10.12. Glossary of Terms. The following sets forth the location of
certain definitions of capitalized terms defined in the body of this Agreement:
"Act" - Section 3.26
"Affiliate" - Section 3.7.(k)
"Ancillary Instruments" - Section 3.2.(a)
"Buyer's Affiliates" - Section 6.1
"Buyer Shares" - Section 2.2(b)
"CERCLA" - Section 3.10.(c)
"Claim" - Section 6.1
"Closing" - Preamble to Article 9
"Closing Date" - Section 7
"Code" - Section 3.5.(e)
"Common Stock" - Section 2.2(b)
"Company Employees" - Section 3.15.(a)
"Contingent Payment" - Section 2.1
"Disclosure Schedule" - Article 10
"Employee Plans/Agreement(s)" - Section 3.15.(a)
"Environmental Laws" - Section 3.10.(c)
"ERISA" - Section 3.15.(a)
"Facilities" - Second Recital
"Government Entities" - Section 3.3
"Indemnified Party" - Section 6.3.(a)
"Indemnifying Party" - Section 6.3.(a)
"Laws" - Section 3.3
"Lien" - Section 3.11.(a)
"Litigation" - Section 3.9
"Orders" - Section 3.3
"PBGC" - Section 3.15.(b)(ii)
"Purchase Price" - Section 2.1
"Real Property" - Section 3.11.(c)
"Recent Balance Sheet" - Section 3.4
"Services" - Section 3.19
"Settlement Date" - Section 2.2.(c)
"Shares" - First Recital
"Trade Rights" - Section 3.17
"Waste" - Section 3.10.(c)
Where any group or category of items or matters is defined collectively in the
plural number, any item or matter within such definition may be referred to
using such defined term in the singular number.
45
<PAGE> 50
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
BUYER:
ABR INFORMATION SERVICES, INC.,
a Florida corporation
By:
---------------------------------------
Title:
--------------------------------------
COMPANY:
MATTHEWS, MALONE & ASSOCIATES, LTD.,
an Arizona corporation
By:
---------------------------------------
Title:
---------------------------------
SHAREHOLDERS:
--------------------------------------------
Steven R. Matthews, Individually
--------------------------------------------
Michael J. Malone, Individually
--------------------------------------------
Alan Gold, Individually
46
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ABR INFORMATION SERVICES INC. FOR THE 6 MONTHS ENDED
JANUARY 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JAN-31-1998
<EXCHANGE-RATE> 1
<CASH> 34,513,809
<SECURITIES> 107,553,794
<RECEIVABLES> 10,614,289
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 155,706,227
<PP&E> 43,259,254
<DEPRECIATION> 0
<TOTAL-ASSETS> 237,506,214
<CURRENT-LIABILITIES> 29,883,315
<BONDS> 0
0
0
<COMMON> 274,035
<OTHER-SE> 201,563,805
<TOTAL-LIABILITY-AND-EQUITY> 237,506,214
<SALES> 31,946,082
<TOTAL-REVENUES> 31,946,082
<CGS> 18,177,322
<TOTAL-COSTS> 5,988,527
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 11,723,811
<INCOME-TAX> 4,071,876
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<NET-INCOME> 7,651,935
<EPS-PRIMARY> .28
<EPS-DILUTED> .27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ABR
INFORMATION SERVICES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q 3RD QUARTER 1997.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
<CASH> 30,448,880
<SECURITIES> 128,418,412
<RECEIVABLES> 7,235,800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 168,368,713
<PP&E> 23,777,191
<DEPRECIATION> 0
<TOTAL-ASSETS> 217,797,814
<CURRENT-LIABILITIES> 25,262,394
<BONDS> 0
0
0
<COMMON> 273,745
<OTHER-SE> 190,317,275
<TOTAL-LIABILITY-AND-EQUITY> 217,797,814
<SALES> 35,292,409
<TOTAL-REVENUES> 35,292,409
<CGS> 19,897,658
<TOTAL-COSTS> 7,055,227
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,504,243)
<INCOME-PRETAX> 13,843,767
<INCOME-TAX> 5,111,354
<INCOME-CONTINUING> 8,732,413
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 8,732,413
<EPS-PRIMARY> .32
<EPS-DILUTED> .31
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ABR
INFORMATION SERVICES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ANNUAL 10-K.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 33,322,734
<SECURITIES> 108,499,196
<RECEIVABLES> 8,295,884
<ALLOWANCES> 0
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<PP&E> 27,790,354
<DEPRECIATION> 0
<TOTAL-ASSETS> 222,016,848
<CURRENT-LIABILITIES> 24,873,848
<BONDS> 0
0
0
<COMMON> 273,763
<OTHER-SE> 193,821,994
<TOTAL-LIABILITY-AND-EQUITY> 222,016,848
<SALES> 50,078,842
<TOTAL-REVENUES> 50,078,842
<CGS> 28,178,925
<TOTAL-COSTS> 9,765,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,081,238)
<INCOME-PRETAX> 19,215,655
<INCOME-TAX> 6,987,003
<INCOME-CONTINUING> 12,228,652
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,228,652
<EPS-PRIMARY> .45
<EPS-DILUTED> .44
</TABLE>
