EXHIBIT 2.3
__________________________________________
STOCK PURCHASE AGREEMENT
BY AND AMONG
COMPASS INTERNATIONAL SERVICES CORPORATION,
BRMC OF DELAWARE, INC.
THE STOCKHOLDERS OF BRMC OF DELAWARE, INC.
AND
CERTAIN OTHER PARTIES
DATED AS OF OCTOBER 3, 1997
__________________________________________
TABLE OF CONTENTS
ARTICLE I - THE PURCHASE AND SALE OF STOCK............................. 2
ARTICLE II - CONSIDERATION............................................. 2
2.1 Purchase Price and Exchange Value............................ 2
2.2 Exchange of Certificates for Consideration................... 3
2.3 Payment of Aggregate Cash Consideration...................... 3
2.4 Post-Closing Adjustment...................................... 3
ARTICLE III - THE CLOSING AND CLOSING DATE............................. 5
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS............................... 5
4.1 Organization and Qualification.............................. 5
4.2 Capitalization.............................................. 5
4.3 Company Subsidiaries........................................ 6
4.4 Authority; Non-Contravention; Approvals..................... 6
4.5 Financial Statements........................................ 7
4.6 Absence of Undisclosed Liabilities.......................... 8
4.7 Accounts and Notes Receivable............................... 8
4.8 Absence of Certain Changes or Events........................ 8
4.9 Litigation.................................................. 10
4.10 Compliance with Applicable Laws............................. 11
4.11 Licenses and Permits........................................ 11
4.12 Material Contracts.......................................... 11
4.13 Properties.................................................. 14
4.14 Intellectual Property....................................... 17
4.15 Minute Books and Stock Records.............................. 18
4.16 Taxes....................................................... 18
4.17 Employee Benefit Plans; ERISA............................... 19
4.18 Labor Matters............................................... 21
4.19 Environmental Matters....................................... 21
4.20 Insurance................................................... 22
4.21 Interest in Customers and Suppliers; Affiliate
Transactions................................................ 22
4.22 Business Relationships...................................... 22
4.23 Compensation................................................ 23
4.24 Bank Accounts............................................... 23
4.25 Deemed Earnings Estimate.................................... 23
4.26 Representations and Warranties Regarding the Company's
Subsidiary, Financial Claims Control, Inc................... 23
(i)
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF COMPASS.................. 23
5.1 Organization and Qualification............................... 23
5.2 Capitalization............................................... 24
5.3 No Subsidiaries.............................................. 24
5.4 Authority; Non-Contravention; Approvals...................... 24
5.5 Absence of Undisclosed Liabilities........................... 25
5.6 Litigation................................................... 26
5.7 Compliance with Applicable Laws.............................. 26
5.8 Other Agreements............................................. 26
ARTICLE VI - CERTAIN COVENANTS AND OTHER TERMS......................... 26
6.1 Conduct of Business Pending the Purchase..................... 26
6.2 No - Shop.................................................... 29
6.3 Schedules.................................................... 29
ARTICLE VII - ADDITIONAL AGREEMENTS.................................... 30
7.1 Access to Information........................................ 30
7.2 Registration Statement....................................... 31
7.3 Expenses and Fees............................................ 33
7.4 Agreement to Cooperate....................................... 33
7.5 Public Statements............................................ 33
7.6 Preparation and Filing of Tax Returns........................ 33
7.7 Registration Rights.......................................... 34
7.8 Rule 144 Reporting........................................... 36
7.9 Release of Guarantees........................................ 36
7.10 Lock-Up Agreement............................................ 37
7.11 Obligations of Stockholders.................................. 37
ARTICLE VIII - INDEMNIFICATION......................................... 37
8.1 Indemnification by the Stockholders and the Company.......... 37
8.2 Indemnification by Compass................................... 38
8.3 Indemnification Procedure for Third Party Claims............. 39
8.4 Direct Claims................................................ 41
8.5 Failure to Give Timely Notice................................ 41
8.6 Reduction of Loss............................................ 41
8.7 Limitation on Indemnities.................................... 42
8.8 Survival of Representations, Warranties and Covenants of the
Stockholders and the Company; Time Limits on Indemnification
Obligations.................................................. 43
8.9 Survival of Representations, Warranties and Covenants of
Compass; Time Limits on Indemnification Obligations.......... 44
8.10 Defense of Claims; Control of Proceedings.................... 44
8.11 Indemnification Exclusive Remedy............................. 44
8.12 Manner of Satisfying Indemnification Obligations............. 44
9.1 Conditions to Each Party's Obligation to Effect the Purchase 45
9.2 Conditions to Obligation of the Company to Effect the
Purchase..................................................... 45
9.3 Conditions to Obligations of Compass to Effect the
Purchase..................................................... 46
(ii)
ARTICLE X - TERMINATION, AMENDMENT AND WAIVER......................... 48
10.1 Termination................................................. 48
10.2 Effect of Termination....................................... 49
10.3 Amendment................................................... 49
10.4 Waiver...................................................... 49
ARTICLE XI - 1933 ACT REPRESENTATIONS AND
TRANSFER RESTRICTIONS................................................. 49
11.1 Economic Risk; Sophistication............................... 49
11.2 Transfer Restrictions....................................... 50
11.3 Compliance with Law......................................... 50
ARTICLE XII - NONCOMPETITION.......................................... 51
12.1 Prohibited Activities....................................... 51
12.2 Damages..................................................... 51
12.3 Reasonable Restraint........................................ 51
12.4 Severability; Reformation................................... 52
12.5 Independent Covenant........................................ 52
12.6 Materiality................................................. 52
ARTICLE XIII - NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............. 52
13.1 Stockholders' Covenant...................................... 52
13.2 Damages..................................................... 53
13.3 Survival.................................................... 53
ARTICLE XIV - GENERAL PROVISIONS...................................... 54
14.1 Brokers..................................................... 54
14.2 Notices..................................................... 54
14.3 Interpretation.............................................. 55
14.4 Certain Definitions......................................... 55
14.5 Entire Agreement; Assignment................................ 55
14.6 Applicable Law.............................................. 56
14.7 Counterparts................................................ 56
14.8 Parties in Interest......................................... 56
14.9 Severability................................................ 56
(iii)
LIST OF SCHEDULES
Schedule A Stockholders of Company
Schedule B Minority Shareholder
Schedule C Contingent Right Holders
Schedule 2.1 Consideration
Schedule 2.4(a)-1 Deemed Earnings Estimate and Procedure for Determining
Deemed Earnings Estimate and Deemed Earnings Actuals
Schedule 4.2 Company's Capitalization
Schedule 4.3 Company Subsidiaries; Jurisdictions of Incorporation;
Investments
Schedule 4.4.2 Required Consents
Schedule 4.4.3 Required Notices
Schedule 4.5.1 Financial Statements
Schedule 4.6 Liabilities of Company and Company Subsidiaries
Schedule 4.8 Certain Changes and Events
Schedule 4.9 Litigation
Schedule 4.10 Noncompliance with Applicable Laws - Company and Company
Subsidiaries
Schedule 4.11 Licenses and Permits
Schedule 4.12 Material Contracts
Schedule 4.13.1-1 Real Property
Schedule 4.13.1-2(a) Pending Proceedings to Reduce General Real Estate Taxes
Schedule 4.13.1-2(b) Matters Relating to Leased Property
Schedule 4.13.2 Tangible Personal Property; Liens
Schedule 4.14 Intellectual Property
(iv)
Schedule 4.15 Exceptions Regarding Corporate Records
Schedule 4.16.1 Tax Audits
Schedule 4.17.1 Exceptions Regarding Employee Plans
Schedule 4.17.2 Description of Unwritten Employee Plans
Schedule 4.17.4 Certain Liabilities
Schedule 4.18 Strikes and Other Labor Matters
Schedule 4.19 Exceptions Regarding Environmental Matters
Schedule 4.20 List and Description of Insurance Policies
Schedule 4.21 Interests in Customers and Suppliers; Affiliate
Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 5.2 Compass' Capitalization
Schedule 5.3 Compass Subsidiaries
Schedule 5.4.2 Required Consents
Schedule 5.5 Liabilities of Compass
Schedule 5.7 Noncompliance with Applicable Laws
Schedule 6.1 Conduct of Business
Schedule 7.9 Stockholders' Guarantees
Schedule 8.7.1-1 Major Stockholders
Schedule 8.7.1-2 Minor Stockholders
Schedule 11.1 Non-Accredited Investors
Schedule 14.1-1 Company's and Stockholders' Broker
(v)
Schedule 14.1-2 Compass' Broker
Schedule 14.2.3 Stockholders and their Counsel
(vi)
LIST OF EXHIBITS
Exhibit 6.1.2(a) Form of Compass' Amended and Restated Charter
Exhibit 9.2(c) Opinions of Compass' Counsel
Exhibit 9.2(e)-1 Employment Agreement of ▇▇▇▇▇▇▇
Exhibit 9.2(e)-2 Employment Agreement of ▇. ▇▇▇▇▇▇▇
Exhibit 9.2(e)-3 Employment Agreement of ▇. ▇▇▇▇▇▇▇
Exhibit 9.2(g) Stockholders Agreement
Exhibit 9.3(c) Opinions of Company's Counsel
Exhibit 9.3(i) Form of Stockholders' Release
(vii)
DEFINED TERMS
ADA Section 4.13.1(h)
Affiliate............................................ Section 14.4
Affiliate Transactions............................... Section 4.2.1
Aggregate Cash Consideration......................... Section 2.1
Aggregate Purchase Consideration..................... Section 2.1
Agreement............................................ Introduction
Business............................................. Section 4.12
Cap Amount........................................... Section 8.7.4
Claims............................................... Section 4.9.1
Closing.............................................. Article III
Closing Date......................................... Article III
Code................................................. Introduction
▇▇▇▇▇▇▇.............................................. Section 9.2(e)
Company.............................................. Introduction
Company Brokerage Fee................................ Section 14.1
Company Material Adverse Effect...................... Section 4.8(r)
Company Representatives.............................. Section 7.1.1
Company Stock........................................ Article I
Company Stockholders................................. Introduction
Company Subsidiaries................................. Section 4.1
Compass.............................................. Introduction
Compass Common Stock................................. Section 2.1
(viii)
Compass Indemnified Parties.......................... Section 8.1
Compass Indemnified Party............................ Section 8.1
Compass Material Adverse Effect...................... Section 5.4.3
Compass Representatives.............................. Section 7.1.1
Compass Required Statutory Approvals................. Section 5.4.3
Contingent Rights.................................... Section 1.3
Contingent Right Holders............................. Introduction
Contracts............................................ Section 4.12
Copyrights........................................... Section 4.14
Deemed Earnings Actuals.............................. Section 2.4(b)
Deemed Earnings Estimate............................. Section 2.4(a)
Deemed Earnings Excess............................... Section 2.4(f)
Deemed Earnings Shortfall............................ Section 2.4(g)
Defense Notice....................................... Section 8.3.1
Demand Registration.................................. Section 7.7.2
Direct Claim......................................... Section 8.4
Employee Plan........................................ Section 4.17.5(a)
Environmental and Safety Requirements................ Section 4.19
ERISA................................................ Section 4.17.5(b)
Excess Indemnity..................................... Section 8.12
Final Deemed Earnings Actuals........................ Section 2.4(e)
Financial Statements................................. Section 4.5.1
First Person......................................... Section 4.17.5(c)
Founding Companies................................... Introduction
(ix)
Governmental Authority............................... Section 4.4.2
Hazardous Materials.................................. Section 4.19
herein............................................... Section 14.3
hereof............................................... Section 14.3
hereunder............................................ Section 14.3
Indemnified Party.................................... Section 8.3.1
Indemnifying Party................................... Section 8.3.1
Insurance Policies................................... Section 4.20
Intellectual Property................................ Section 4.14
Intellectual Property Licenses....................... Section 4.14
IPO.................................................. Introduction
IT................................................... Introduction
ITG.................................................. Introduction
▇. ▇▇▇▇▇▇▇........................................... Section 9.2(e)
Latest Balance Sheet................................. Section 4.5.1
Laws................................................. Section 4.10
Leased Property...................................... Section 4.13.1
Licenses............................................. Section 4.11
Liens................................................ Section 4.2.1
Loss................................................. Section 8.1
Losses............................................... Section 8.1
▇. ▇▇▇▇▇▇▇........................................... Section 9.2(e)
Market Price......................................... Section 8.12
Marks................................................ Section 4.14
(x)
Major Stockholders................................... Section 8.7.1
Minor Stockholders................................... Section 8.7.1
Minority Shareholder................................. Introduction
Material Contracts................................... Section 4.12
Minimum Value........................................ Section 8.7.2
1933 Act............................................. Section 4.4.3
1934 Act............................................. Section 7.8(b)
Notice Period........................................ Section 2.4(c)
Other Agreements..................................... Introduction
Other Founding Companies............................. Section 8.1
Other Holders........................................ Introduction
Other Stock Purchase Agreements...................... Introduction
Other Purchases...................................... Introduction
Owned Property....................................... Section 4.13.1
Patents.............................................. Section 4.14
person............................................... Section 14.4
Plan Affiliate....................................... Section 4.17.5(c)
Prospectus........................................... Section 7.2.1
Purchase............................................. Introduction
Real Property........................................ Section 4.13.1
Registration Statement............................... Section 4.4.3
Representatives...................................... Section 7.1.1
Returns.............................................. Section 4.16.1
Schedules............................................ Section 6.3
(xi)
SEC Section 4.4.3
Stockholder Indemnified Party........................ Section 8.2
Stockholders......................................... Introduction
Stockholders Agreement............................... Section 9.2(h)
Stockholders Notice.................................. Section 2.4(c)
Substitute Rights.................................... Section 2.1(c)
Taxes................................................ Section 4.16.2
Territory............................................ Section 12.1(a)
Third Party Claim.................................... Section 8.3.1
Threshold Amount..................................... Section 8.7.2
to the knowledge of the Stockholders or the Company.. Section 14.4
Trade Secrets........................................ Section 4.14
Underwriters......................................... Section 7.1.1
(xii)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of October 3,
1997, by and among Compass International Services Corporation, a Delaware
corporation ("Compass"), BRMC of Delaware, Inc., a Delaware corporation (the
"Company"), and the stockholders of the Company identified on Schedule A to this
Agreement (the "Company Stockholders"), the holder of shares of Advance Credit
Services, Inc., a Delaware corporation (other than the Company) identified on
Schedule B to this Agreement (the "Minority Shareholder"), and the holders of
Contingent Rights (hereinafter defined) identified on Schedule C to this
Agreement (the "Contingent Right Holders") (the Minority Shareholder and the
Contingent Right Holders being referred to as the "Other Holders" and the
Company Stockholders and the Other Holders being referred to as the
"Stockholders").
WITNESSETH:
WHEREAS, the Stockholders desire to sell to Compass, and Compass desires to
purchase from the Stockholders, all of the issued and outstanding shares of
capital stock of the Company for the consideration and on the terms set forth in
this Agreement (the "Purchase");
WHEREAS, Compass is entering into other stock purchase agreements (the
"Other Stock Purchase Agreements", and together with the agreements entered into
in connection therewith, the "Other Agreements") substantially similar to this
Agreement with each of The Mail Box, Inc., a Texas corporation, Impact
Telemarketing Group, Inc., a New Jersey corporation ("ITG"), Impact
Telemarketing, Inc., a New Jersey corporation ("IT"), Mid-Continent Agencies,
Inc., an Illinois corporation, and National Credit Management Corp., a Maryland
corporation (which companies together with the Company are collectively referred
to herein as the "Founding Companies") and their respective stockholders, which
agreements provide for the purchase (collectively, the "Other Purchases") of all
of the issued and outstanding shares of capital stock of such companies
simultaneously with the Purchase;
WHEREAS, simultaneously with and as a condition to the consummation of the
Purchase, Compass will close an initial public offering (the "IPO") of Compass
Common Stock (hereinafter defined); and
WHEREAS, the parties intend the Purchase to qualify as a tax-free
transaction under the provisions of Section 351 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE PURCHASE AND SALE OF STOCK
1.1 Purchase of Company Stock. Upon the terms and subject to the
-------------------------
conditions of this Agreement, at the Closing (hereinafter defined), the Company
Stockholders shall sell to Compass, and Compass shall purchase from Company
Stockholders, all of the outstanding shares of capital stock of the Company,
consisting of 200 shares of Common Stock, no par value, of the Company (the
"Company Stock").
1.2 Purchase of Minority Interest. Upon the terms and subject to the
-----------------------------
conditions of this Agreement, at the Closing, the Minority Shareholder shall
sell to Compass, and Compass shall purchase from the Minority Shareholder, all
of the shares of the common stock of Advanced Credit Services, Inc., a Delaware
corporation, owned by the Minority Shareholder.
1.3 Exchange of Contingent Stock Rights. Upon the terms and subject
-----------------------------------
to the conditions of this Agreement, at the Closing, the Contingent Right
Holders shall transfer and convey to Compass, and Compass shall acquire from the
Contingent Right Holders, all of the contingent rights described in Schedule C
(the "Contingent Rights").
ARTICLE II
CONSIDERATION
2.1 Purchase Price and Exchange Value. The purchase price for the shares
---------------------------------
of Company Stock and Minority Interest and exchange value of the Contingent
Rights shall be as follows:
(a) At the Closing, for each share of Company Stock issued and
outstanding immediately prior to Closing, the Company Stockholders shall be
entitled to receive from Compass (i) that number of shares of Compass Common
Stock set forth in Schedule 2.1 and (ii) the amount of cash determined in
------------
accordance with Schedule 2.1, subject to adjustment as provided in Section 2.4.
------------ -----------
(b) At the Closing, for the Minority Interest, the Minority
Shareholder shall be entitled to received from Compass (i) that number of shares
of Compass Common Stock set forth in Schedule 2.1 and (ii) the amount of cash
------------
determined in accordance with Schedule 2.1, subject to adjustment as provided in
------------
Section 2.4.
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(c) At the Closing, for the Contingent Rights, the Contingent Rights
Holders shall be entitled to receive from Compass (i) options to purchase the
number of shares of Compass Common Stock determined in accordance with
Schedule 2.1 at an exercise price determined in accordance with Schedule 2.1
------------ ------------
(the "Substitute Rights") and (ii) subject to applicable withholding, the amount
of cash determined in accordance with Schedule 2.1, subject to adjustment as
------------
provided in Section 2.4.
-----------
2
The aggregate amount of cash so to be paid pursuant to the foregoing
Sections 2.1 (a), (b) and (c), as adjusted pursuant to Section 2.4, is herein
----------------------------- -----------
referred to as the "Aggregate Cash Consideration." The sum of (i) the Aggregate
Cash Consideration, (ii) the value (determined as set forth in Schedule 2.1) of
------------
all shares of Compass Common Stock so to be issued to the Company Stockholders
and the Minority Shareholder, and (iii) the value (determined as set forth in
Schedule 2.1) of the Substitute Rights to be issued by Compass to Contingent
------------
Rights Holders is herein referred to as the "Aggregate Purchase Consideration."
2.2 Exchange of Certificates for Consideration. At the Closing, the
------------------------------------------
Stockholders shall deliver to Compass the original certificates representing the
Company Stock, duly endorsed in blank by the Stockholders or accompanied by
blank stock powers, in exchange for (i) issuance and delivery by Compass to the
Stockholders of certificates representing the number of shares of Compass Common
Stock determined in accordance with Section 2.1, and (ii) payment by Compass of
-----------
the Aggregate Cash Consideration in accordance with the provisions of Section
-------
2.3 below. The Stockholders agree promptly to cure any deficiencies with
---
respect to the endorsement of the certificates or other documents of conveyance
with respect to such Company Stock. The certificates representing Compass
Common Stock to be delivered pursuant to this Article II shall bear a legend as
----------
provided in Section 11.2 below. At the Closing, all shares of Company Stock
------------
shall be transferred and delivered to Compass, and each of the Stockholders
holding a certificate representing any such shares of Company Stock shall cease
to have any rights with respect thereto, except the right to receive that number
of shares of Compass Common Stock to be issued and cash to be paid in
consideration therefor upon exchange of such certificates in accordance with
this Section 2.2.
-----------
2.3 Payment of Aggregate Cash Consideration. At the Closing, Compass
---------------------------------------
shall pay to the Stockholders, by certified check, cashier's check or wire
transfer of immediately available funds to a bank account or bank accounts
specified by Stockholders in writing at least three (3) business days prior to
the Closing Date, an amount equal to the Aggregate Cash Consideration.
2.4 Post-Closing Adjustment. The Aggregate Purchase Consideration shall
-----------------------
be subject to a post-closing adjustment as set forth in this Section 2.4.
-----------
(a) Attached hereto as Schedule 2.4(a)-1 is a good faith estimate
-----------------
of the Company's earnings for the calendar year ending on December 31, 1997,
calculated by the Company and the Stockholders in accordance with the
procedure set forth in Schedule 2.4(a)-1 (the "Deemed Earnings Estimate"), and
-----------------
utilized in calculating the Aggregate Purchase Consideration as set forth in
Schedule 2.1.
------------
(b) No later than February 28, 1998, the Company shall deliver to the
Stockholders a calculation of the Company's actual earnings for the calendar
year ended on December 31, 1997, prepared by Price Waterhouse in accordance
with the procedure set forth in Schedule 2.4(a)-1 (the "Deemed Earnings
-----------------
Actuals").
(c) If the Stockholders wish to assert in good faith that the
Deemed Earnings Actuals have not been determined in accordance with the
procedure set forth in Schedule 2.4(a)-1, the Stockholders shall notify Compass
-----------------
in writing thereof (the "Stockholders Notice") within fifteen (15) days after
delivery of the Deemed Earnings Actuals to the
3
Stockholders (the "Notice Period"). The Stockholders Notice shall set forth in
reasonable detail the alleged non-conformance and the disputed amount. If the
Stockholders do not deliver the Stockholders Notice within the Notice Period,
the Deemed Earnings Actuals shall become final and binding upon all parties.
(d) If the Stockholders Notice is delivered within the Notice Period,
the Stockholders and Compass shall attempt in good faith to resolve all
dispute(s). If Compass and the Stockholders are unable to resolve any disputed
item within twenty (20) days after receipt of the Stockholders Notice, such
disputed item(s), together with each party's calculation of the Company's Deemed
Earnings Actuals, shall be submitted to a nationally recognized "Big Six"
accounting firm or its successor (other than Price Waterhouse) chosen by lot,
which accounting firm shall be instructed to arbitrate such disputed item(s) and
to determine the Deemed Earnings Actuals within forty five (45) days of its
selection. The resolution of disputes by the accounting firm so selected shall
be set forth in writing and shall be conclusive and binding upon all parties.
The cost of such resolution by such accounting firm shall be borne: (a) by the
Stockholders, if the Deemed Earnings Actuals as initially calculated by Price
Waterhouse remain unchanged or are decreased or increased by five percent (5%)
or less, or (b) by Compass, if clause (a) does not apply.
(e) If the Deemed Earnings Actuals as determined in accordance with
Sections 2.4(b), (c) and (d) above (the "Final Deemed Earnings Actuals") are
--------------- --- ---
at least ninety five percent (95%) of the Deemed Earnings Estimate, but no more
than one hundred five percent (105%) of the Deemed Earnings Estimate, then no
further payments by Compass or the Stockholders shall be due pursuant to this
Section 2.4.
-----------
(f) If the Final Deemed Earnings Actuals are in excess of one hundred
five percent (105%) of the Deemed Earnings Estimate, then, within ten (10) days
of the determination of the Final Deemed Earnings Actuals, Compass shall pay
to the Stockholders, in the manner provided in Section 2.3 above, an amount
-----------
in cash equal to the Aggregate Purchase Consideration payable on account of the
Deemed Earnings Excess (hereinafter defined). The amount to be paid to the
Stockholders pursuant to this Section 2.4(f) shall be calculated by utilizing
--------------
the formulae set forth on Schedule 2.1. As used herein, "Deemed Earnings Excess"
------------
shall mean an amount equal to five (5) percent of the Deemed Earnings Estimate.
(g) If the Final Deemed Earnings Actuals fall short of ninety five
percent (95%) of the Deemed Earnings Estimate (the portion of such shortfall
below ninety five percent (95%) but not below eighty-five percent (85%) of the
Deemed Earnings Estimate herein referred to as "Deemed Earnings Shortfall"),
then, within ten (10) days of the determination of the Final Deemed Earnings
Actuals, the Stockholders shall pay to Compass an amount in cash equal to the
Aggregate Purchase Consideration paid on account of the Deemed Earnings
Shortfall. In no case shall the Stockholders' liability pursuant to this Section
2.4(g) exceed ten percent (10%) of the Aggregate Purchase Consideration.
4
ARTICLE III
THE CLOSING AND CLOSING DATE
The consummation of the Purchase and delivery of shares referred to in
Articles I and II hereof and the other transactions contemplated by this
---------- --
Agreement (the "Closing") shall take place at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ &
▇▇▇▇▇, Chicago, Illinois, contemporaneously with the closing of the IPO (the
"Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
Each of the Company and Stockholders hereby jointly and severally
represents and warrants to Compass, as of the date hereof and, subject to
Section 6.3, as of the date on which Compass and the Representatives
-----------
(hereinafter defined) execute and deliver an underwriting agreement in
connection with the IPO and as of the Closing Date, as follows:
4.1 Organization and Qualification. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of the Company's subsidiaries (collectively, the "Company
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation set forth on Schedule
--------
4.3. Except as set forth on Schedule 4.3, each of the Company and the Company
--- ------------
Subsidiaries has the requisite corporate power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted, and is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary. True,
accurate and complete copies of the Company's and each Company Subsidiary's
Certificate of Incorporation and By-laws, in each case as in effect on the date
hereof, including all amendments thereto, have heretofore been delivered to
Compass.
4.2 Capitalization.
--------------
4.2.1 The authorized capital stock of the Company consists of 1,500
shares of Company Stock, of which 200 shares are issued and outstanding.
All of such issued and outstanding shares are validly issued and are fully
paid, nonassessable and free of preemptive rights. The Stockholders own
beneficially and of record all of the issued and outstanding shares of the
Company Stock as set forth in Schedule 4.2, which constitute all of the
------------
outstanding shares of capital stock of the Company. Except as set forth on
Schedule 4.2, the Company Stock is in each case free and clear of all
------------
claims, liens, charges, encumbrances, pledges, conditional sales contracts,
equity charges, restrictions or security interests of any nature
(collectively, "Liens"), and each Stockholder has good and marketable title
to the Company Stock owned by such Stockholder.
4.2.2 Except as set forth on Schedule 4.2, there are no outstanding
------------
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights
5
or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the
capital stock of the Company or a Company Subsidiary or obligating the
Company or a Company Subsidiary to grant, extend or enter into any such
agreement or commitment or obligating the Stockholders to convey or
transfer an Company Stock. There are no voting trusts, proxies or other
agreements or understandings to which the Company or any Stockholder is a
party or is bound with respect to the voting of any shares of capital stock
of the Company.
4.3 Company Subsidiaries. Schedule 4.3 sets forth the name and
--------------------
jurisdiction of formation of each Company Subsidiary, the authorized capital
stock of each Company Subsidiary, the number of shares held by the Company, and
the names of all shareholders of each Company Subsidiary (other than the
Company) and the number of shares held by each said shareholder. The outstanding
capital stock of each Company Subsidiary which is owned by the Company is
validly issued, fully paid and non-assessable. Except as set forth on Schedule
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4.3, the Company does not, directly or indirectly, own, of record or
---
beneficially, or control any capital stock, securities convertible into capital
stock or any other equity interest in any corporation, partnership, joint
venture or limited liability company.
4.4 Authority; Non-Contravention; Approvals.
---------------------------------------
4.4.1 Each of the Stockholders and the Company has full right,
capacity, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been
approved by the Board of Directors of the Company and by the Stockholders,
and no other corporate proceedings on the part of the Company are necessary
to authorize the execution and delivery of this Agreement or the
consummation by the Company of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and the
Stockholders, and, assuming the due authorization, execution and delivery
hereof by Compass, constitutes a valid and legally binding agreement of the
Company and the Stockholders, enforceable against the Company and the
Stockholders in accordance with its terms, except that such enforcement may
be subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to enforcement of creditors'
rights generally and (ii) general equitable principles.
4.4.2 Except as set forth on Schedule 4.4.2, the execution and
--------------
delivery of this Agreement by each of the Company and the Stockholders do
not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any Lien
upon any of the properties or assets of the Company or any Company
Subsidiary under, any of the terms, conditions or provisions of (i) the
Certificate of Incorporation or By-laws of the Company or any Company
Subsidiary, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or federal,
state, provincial, local or foreign government, or any subdivision, agency
or authority of any thereof ("Governmental Authority") applicable to any
Stockholder, the Company, any
6
Company Subsidiary, or the business, properties or assets of the Company or
any Company Subsidiary, (iii) any note, bond, mortgage, indenture or deed
of trust, or (iv) any material license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which the Company, any Company Subsidiary or any of the Stockholders is a
party or by which any of the Stockholders, the Company, any Company
Subsidiary or any of the properties or assets of the Company or any Company
Subsidiary may be bound or affected. Except as set forth on Schedule 4.4.2,
--------------
the consummation by the Company and the Stockholders of the transactions
contemplated hereby will not result in a violation, conflict, breach, right
of termination or acceleration, or creation of Liens, under the terms,
conditions or provisions of the items described in clauses (i) through (iv)
of the preceding sentence, subject, in the case of the terms, conditions or
provisions of the items described in clauses (ii), (iii) and (iv) above, to
obtaining (prior to the Closing) consents required from, or giving notices
required to be provided to, commercial lenders, lessors or other third
parties, all of which required consents and notices are listed on Schedule
--------
4.4.2.
-----
4.4.3 Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission ("SEC") pursuant to the Securities Act
of 1933, as amended (the "1933 Act"), (ii) the declaration of the
effectiveness thereof by the SEC and, if required, filings with various
state blue sky authorities and (iii) any notices of change-in-control
required with respect to any Licenses (hereinafter defined), all of which
notices are listed on Schedule 4.4.3, no declaration, filing or
--------------
registration with, or notice to, or authorization, consent or approval of,
any Governmental Authority is necessary for the execution and delivery of
this Agreement by the Company and the Stockholders or the consummation by
the Company and the Stockholders of the transactions contemplated hereby.
4.5 Financial Statements.
--------------------
4.5.1 The Company has previously furnished to Compass copies of the
audited consolidated balance sheets of the Company and the Company
Subsidiaries as of December 31 in each of the years 1994 through 1996, and
the related audited consolidated statements of income, stockholders' equity
and cash flow for each of the fiscal years then ended, including all notes
thereto, and the unaudited consolidated balance sheet of the Company and
the Company Subsidiaries as of June 30, 1997 (the "Latest Balance Sheet")
and the related consolidated statement of income, stockholders equity and
cash flows for the six (6) months then ended (collectively, the "Financial
Statements"). Except as set forth on Schedule 4.5.1, each of the Financial
--------------
Statements is accurate and complete in all material respects, is consistent
with the books and records of the Company and the Company Subsidiaries
(which, in turn, are accurate and complete in all material respects), and
fairly presents the financial condition, assets and liabilities of the
Company and the Company Subsidiaries as of its date and the results of
operations and cash flows for the periods related thereto, in each case in
accordance with generally accepted accounting principles applied on a
consistent basis, subject, in the case of the unaudited interim financial
statements, to normal and customary year-end adjustments.
7
4.5.2 The Company and Company Subsidiaries, as a whole or on a
consolidated basis, have adequate net working capital to operate the
Business consistent with past practices.
4.6 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
---------------------------------- --------
4.6, neither the Company nor any Company Subsidiary had, as of the date of the
---
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent accrued or reserved for in the Financial Statements or
(ii) liabilities and obligations which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business and consistent with past custom
and practices.
4.7 Accounts and Notes Receivable. All of the accounts receivable of the
-----------------------------
Company and each Company Subsidiary reflected in the Latest Balance Sheet or
arising from the date thereof until the Closing have arisen in the ordinary
course of business and are not subject to any defense, counterclaim or setoff
(net of the allowance for doubtful accounts reflected on the Latest Balance
Sheet).
4.8 Absence of Certain Changes or Events. Except as set forth on Schedule
------------------------------------ --------
4.8, since the date of the Latest Balance Sheet, each of the Company and the
---
Company Subsidiaries has conducted its business only in the ordinary course
consistent with past custom and practices. Except as set forth on Schedule 4.8,
------------
since the date of the Latest Balance Sheet, there has not been any:
(a) material adverse change in the operations, condition (financial
or otherwise), operating results, assets, liabilities, employee, customer
or supplier relations or business prospects of the Company or any Company
Subsidiary;
(b) damage, destruction or loss of any property owned or leased by
the Company or any Company Subsidiary, whether or not covered by insurance,
having a replacement cost or fair market value in excess of $50,000.00 in
the aggregate;
(c) voluntary or involuntary sale, transfer, surrender, cancellation,
abandonment, waiver, release or other disposition of any kind by the
Company or any Company Subsidiary of any right, power, claim, debt, asset
or property (having a replacement cost or fair market value in excess of
$50,000.00 in the aggregate), except in the ordinary course of business
consistent with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union organizational
activity, allegation, charge, written complaint of employment
discrimination or other labor dispute or similar occurrence that might
reasonably be expected to adversely affect the Company, a Company
Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary to any
person, other than in the ordinary course of business consistent with past
custom and practices and travel and other business-related advances to
employees of the Company and Company Subsidiaries in the ordinary course of
business;
8
(f) notice (formal or otherwise) of any liability, potential
liability or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or other
distribution in respect of the Company's or a Company Subsidiary's capital
stock or any direct or indirect redemption, purchase, or other acquisition
of the Company's or any Company Subsidiary's capital stock, or the payment
of principal or interest on any note, bond, debt instrument or debt to any
Affiliate of the Company or any Company Subsidiary;
(h) incurrence by the Company or any Company Subsidiary of debts,
liabilities or obligations except current liabilities incurred in
connection with or for services rendered or goods supplied in the ordinary
course of business consistent with past custom and practices, liabilities
on account of taxes and governmental charges (but not penalties, interest
or fines in respect thereof), and obligations or liabilities incurred by
virtue of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any notes,
bonds, or other debt securities or any equity securities or securities
convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or material
amendment or termination of, any material commitment, contract, agreement,
or transaction, other than in the ordinary course of business and other
than expiration of contracts in accordance with their terms;
(k) loss or, to the knowledge of the Stockholders or the Company,
threatened loss of, or any material reduction or, to the knowledge of the
Stockholders or the Company, threatened material reduction in revenues
from, any client of the Company or any Company Subsidiary who accounted for
revenues during the last twelve months in excess of $250,000.00, or change
in the relationship of the Company or any Company Subsidiary with any
client or Governmental Authority which might reasonably be expected to
materially and adversely affect the Company, any Company Subsidiary or the
Business;
(l) change in accounting principles, methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) utilized by the Company or any Company Subsidiary;
(m) discharge or satisfaction by the Company or any Company
Subsidiary of any material liability or encumbrance or payment by the
Company or any Company Subsidiary of any material obligation or liability,
other than current liabilities paid in its ordinary course of business
consistent with past custom and practices;
(n) sale, lease or other disposition by the Company or any Company
Subsidiary of any tangible assets other than in the ordinary course of
business, or sale, assignment or transfer by the Company or any Company
Subsidiary of any trademarks, service marks, trade names, corporate names,
copyright registrations, trade secrets or
9
other intangible assets or disclosure of any proprietary confidential
information of the Company or any Company Subsidiary to any person other
than Compass, and the other Founding Companies and their respective
officers, employees and agents;
(o) capital expenditures or commitments therefor by the Company or
any Company Subsidiary in excess of $50,000.00 individually or $100,000.00
in the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the Company
or any Company Subsidiary or creation of any easements, Liens or other
interests against or on any of the Real Property (hereinafter defined);
(q) adoption, amendment or termination of any Employee Plan
(hereinafter defined) or increase in the benefits provided under any
Employee Plan, or promise or commitment to undertake any of the foregoing
in the future; or
(r) an occurrence or event not included in clauses (a) through (q)
that has resulted or is expected to result in a material adverse effect on
the business, operations, property, assets, condition (financial or
otherwise), operating results, liabilities, employee, customer or supplier
relations or business prospects of the Company or any Company Subsidiary (a
"Company Material Adverse Effect").
4.9 Litigation. Except as set forth on Schedule 4.9 (which shall disclose
---------- ------------
the parties to, nature of and relief sought for each matter to be disclosed on
Schedule 4.9):
------------
4.9.1 There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of the Stockholders or the Company,
threatened against the Company or any Company Subsidiary, or with respect
to any Employee Plan, or any fiduciary of any such plan (or pending or, to
the knowledge of the Stockholders or the Company, threatened against any of
the officers, directors or employees of the Company or any Company
Subsidiary with respect to the Business or currently proposed business
activities of the Company or any Company Subsidiary), or to which the
Company or any Company Subsidiary is otherwise a party, or which may have
or is likely to have a Company Material Adverse Effect, before any court,
or before any Governmental Authority or arbitrator (collectively,
"Claims"), other than collection actions by the Company or any Company
Subsidiary in the ordinary course of business (i) on its own behalf, none
of which is greater than $5,000.00 and which in the aggregate do not exceed
$25,000.00, and (ii) on behalf of third parties; nor, to the knowledge of
the Stockholders or the Company, is there any basis for any such Claim.
4.9.2 Neither the Company nor any Company Subsidiary is subject to
any unsatisfied or continuing judgment, order or decree of any court or
Governmental Authority, and, to the knowledge of the Stockholders or the
Company, neither the Company nor any Company Subsidiary is otherwise
exposed, from a legal standpoint, to any liability or disadvantage which
may be material to the Business. Neither the Company nor any Company
Subsidiary is engaged in any legal action to recover monies due it or for
damages sustained by it other than collection actions by the Company or any
10
Company Subsidiary in the ordinary course of business, none of which is
greater than $5,000.00 and which in the aggregate do not exceed $25,000.00,
and for which the amount in dispute is presently ascertainable with
certainty.
4.9.3 Except for collection actions by the Company or any Company
Subsidiary in the ordinary course of business (i) on its own behalf, none
of which is greater than $5,000.00 and which in the aggregate do not exceed
$25,000.00, and (ii) on behalf of third parties, and, in either case, for
which the amount in dispute is presently ascertainable with certainty,
Schedule 4.9 sets forth all closed litigation matters to which the Company
------------
or any Company Subsidiary was a party during the five (5) years preceding
the Closing Date, the date such litigation was commenced and concluded, and
the nature of the resolution thereof (including amounts paid in settlement
or judgment).
4.10 Compliance with Applicable Laws. Except as set forth on Schedules
------------------------------- ---------
4.10 and 4.19, each of the Company and the Company Subsidiaries has complied in
---- ----
all material respects with all laws, rules, regulations, writs, injunctions,
decrees, ordinances and orders (collectively, "Laws") applicable to it or to the
operation of the Business, and has not received any notice of any alleged claim
or threatened claim, violation of or liability or potential responsibility under
any such Law which has not heretofore been cured and for which there is no
remaining liability and, to the knowledge of the Stockholders or the Company, no
event has occurred or circumstances exist that (with or without notice or lapse
of time) may constitute or result in a violation in any material respect by the
Company or any Company Subsidiary of any Law or may give rise to any material
liability on the part of the Company or any Company Subsidiary under any Law.
4.11 Licenses and Permits. Attached as Schedule 4.11 is a true and
-------------------- -------------
complete list of all notifications, licenses, permits (including, without
limitation, environmental, construction and operation permits), franchises,
certificates, approvals, exemptions, classifications, registrations and other
similar documents and authorizations, and applications therefor (collectively,
the "Licenses") held by the Company or any Company Subsidiary and issued by, or
submitted by the Company or any Company Subsidiary to, any Governmental
Authority or other person or entity, which constitute all such Licenses used by
the Company and the Company Subsidiaries in the conduct of the Business. Except
as set forth on Schedule 4.11, each of the Company and the Company Subsidiaries
-------------
possesses all of the Licenses which are necessary to enable it to carry on the
Business as presently conducted. Except as set forth on Schedule 4.11, all such
-------------
Licenses are valid, binding and in full force and effect. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not adversely affect any such Licenses.
The Company and the Company Subsidiaries have taken all necessary action to
maintain such Licenses. No loss or expiration of any such License is pending
or, to the knowledge of the Stockholders or the Company, threatened or
reasonably anticipated.
4.12 Material Contracts. Except as listed or described on Schedule 4.12
------------------ -------------
(such contracts, or those which should have been listed on Schedule 4.12, are
-------------
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments
11
("Contracts") relating to or in any way affecting the operation or ownership of
the business of the Company and the Company Subsidiaries (the "Business") that
are of a type described below:
(a) any consulting agreement, employment agreement, change-in-control
agreement, and collective bargaining arrangement with any labor union and
any such agreements currently in negotiation or proposed;
(b) any Contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $50,000.00.
(c) any Contract for the purchase, maintenance or acquisition, or the
sale or furnishing, of materials, supplies, merchandise, machinery,
equipment, parts or other property or services (except if such Contract is
made in the ordinary course of business and requires aggregate future
payments of less than $50,000.00);
(d) any Contract, other than trade payables in the ordinary course of
business, relating to the borrowing of money, or the guaranty of another
person's borrowing of money, including, without limitation, any notes,
mortgages, indentures and other obligations, guarantees of performance,
agreements and instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(e) any Contract granting any person a Lien on all or any part of the
assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (hereinafter defined), the remediation
of any existing environmental liabilities or relating to the performance of
any environmental audit or study;
(g) any Contract granting to any person an option or a first refusal,
first-offer or similar preferential right to purchase or acquire any
material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative which
is not terminable by the Company or a Company Subsidiary upon ninety (90)
calendar days' or less notice without penalty;
(i) any Contract under which the Company or any Company Subsidiary is
(A) a lessee or sublessee of any machinery, equipment, vehicle or other
tangible personal property, or (B) a lessor of any tangible personal
property owned by the Company or any Company Subsidiary, in either case
having an original value in excess of $50,000.00;
(j) any Contract under which the Company or any Company Subsidiary has
granted or received a license or sublicense or under which it is obligated
to pay or has the right to receive a royalty, license fee or similar
payment;
(k) any Contract concerning an Affiliate Transaction (hereinafter
defined);
12
(l) any Contract providing for the indemnification or holding harmless
of any officer, director, employee or other person, other than as provided
in the by-laws of the Company or a Company Subsidiary;
(m) any Contract (A) for purchase or sale by the Company or any
Company Subsidiary of any real property on which the Company or any Company
Subsidiary conducts any aspect of the Business, (B) granting any options to
lease or purchase all or any portion of the Real Property, (C) providing
for labor, services or materials to the Real Property (including, without
limitation, brokerage or management services) involving aggregate future
payments of more than $50,000.00;
(n) any Contract limiting, restricting or prohibiting the Company or
any Company Subsidiary from conducting business anywhere in the United
States or elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to the
Leased Property (hereinafter defined);
(q) any material Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the Company or
any Company Subsidiary (all such Contracts being clearly identified on
Schedule 4.4.2); or
--------------
(r) any other Contract, whether or not made in the ordinary course of
business, which involves future payments in excess of $50,000.00.
The Company and the Stockholders have provided Compass with a true and
complete copy of each written Material Contract and a true and complete summary
of each oral Material Contract, in each case including all amendments or other
modifications thereto. Except as set forth on Schedule 4.12, each Material
-------------
Contract is a valid and binding obligation of, and enforceable in accordance
with its terms against, the Company or a Company Subsidiary, as applicable, and,
to the knowledge of the Stockholders or the Company, the other parties thereto,
and is in full force and effect, subject only to bankruptcy, reorganization,
receivership and other laws affecting creditors' rights generally. Except as
set forth on Schedule 4.12, the Company or one of the Company Subsidiaries, as
-------------
applicable, has performed all obligations required to be performed by it as of
the date hereof and will have performed all obligations required to be performed
by it as of the Closing Date under each Material Contract and neither the
Company or Company Subsidiary, as applicable, nor, to the knowledge of the
Stockholders or the Company, any other party to any Material Contract is in
breach or default thereunder, and, to the knowledge of the Stockholders or the
Company, there exists no condition which would, with or without the lapse of
time or the giving of notice, or both, constitute a breach or default
thereunder. The Company has not been notified that any party to any Material
Contract intends to cancel, terminate, not renew, or exercise an option under
any Material Contract, whether in connection with the transactions contemplated
hereby or otherwise.
13
4.13 Properties.
----------
4.13.1 Schedule 4.13.1-1 is a correct and complete list, and a brief
-----------------
description of, all real estate in which the Company or any of the Company
Subsidiaries has an ownership interest (the "Owned Property") and all real
property leased by the Company (the "Leased Property"), and all facilities
thereon. Except as lessee of Leased Property, neither the Company nor any
Company Subsidiary is a lessee under or otherwise a party to any lease,
sublease, license, concession or other agreement, whether written or oral,
pursuant to which another person or entity has granted to the Company or
any Company Subsidiary the right to use or occupy all or any portion of any
real property.
The Company or one of the Company Subsidiaries has good and marketable
fee simple title to the Owned Property and, assuming good title in the
Landlord, a valid leasehold interest in the Leased Property (the Owned
Property and the Leased Property being sometimes referred to herein as
"Real Property"), in each case free and clear of all Liens, assessments or
restrictions (including, without limitation, inchoate liens arising out of
the provision of labor, services or materials to any such real estate)
other than (a) mortgages shown on the Financial Statements as securing
specified liabilities or obligations, with respect to which no default (or
event that, with notice or lapse of time or both, would constitute a
default) exists, (b) Liens for current taxes not yet due, and (c) (i) minor
imperfections of title, including utility and access easements depicted on
subdivision plats for platted lots that do not impair the intended use of
the property, if any, none of which is substantial in amount, materially
detracts from the value or impairs the use of the property subject thereto,
or impairs the operations of the Company, and (ii) zoning laws and other
land use restrictions or restrictive covenants that do not materially
impair the present use of the property subject thereto. The Real Property
constitutes all real properties reflected on the Financial Statements or
used or occupied by the Company or any Company Subsidiary in connection
with the Business or otherwise.
With respect to the Owned Property, except as reflected on Schedule
--------
4.13.1-2(a):
-----------
(a) the Company or one of the Company Subsidiaries is in exclusive
possession thereof and no easements, licenses or rights are necessary to
conduct the Business thereon in addition to those which exist as of the
date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority materially
adverse to the Owned Property and, to the knowledge of the Stockholders or
the Company, there is no threatened condemnation or proceeding with respect
thereto;
(c) the buildings, plants, improvements, structures and fixtures
owned, leased or used by the Company or one of the Company Subsidiaries at
the Owned Property, including, without limitation, heating, ventilation and
air conditioning systems, roofs, foundations and floors, are in good
operating condition and repair; the Owned Property is properly zoned for
its use by the Company or one of the Company Subsidiaries (without being a
legal nonconforming use or subject to a conditional use permit), and is
14
not, to the knowledge of the Stockholders or the Company, in violation of
any zoning, subdivision, health, safety, landmark preservation, wetlands
preservation, building, environmental, land use or other ordinances, laws,
codes or regulations or any covenants, restrictions or other documents of
record; nor has any notice of any claimed violation of any such ordinances,
laws, codes or regulations or any covenants, restrictions or other
documents of record been served on the Company or any Company Subsidiary;
and neither the Company nor any Company Subsidiary has received notice of,
and to the knowledge of the Stockholders or the Companies there has not
been, any change in such zoning, subdivision, health, safety, landmark
preservation, wetlands preservation, building, environmental, land use or
other ordinances, laws, codes or regulations that affects the Company's or
any Company Subsidiary's use of such Owned Property (without regard to any
non-conforming use or other so-called "grandfather" provision);
(d) since January 1, 1997, neither the Company nor any Company
Subsidiary has received notice of any increase in the assessed valuation of
the Owned Property nor notice of any contemplated special assessment;
Schedule 4.13.1-2(a) contains a true and correct description of all pending
--------------------
proceedings to reduce the general real estate taxes against the Owned
Property; none of the Owned Property is located in a special service
district, special service area, tax increment financing district or similar
district or area, or to the knowledge of the Stockholders or the Company,
subject to a threatened special assessment; and, to the knowledge of the
Stockholders or the Company, none of the Owned Property is located in an
area for which federal flood risk insurance is necessary;
(e) all facilities located on any parcel of the Owned Property are
supplied with utilities and other third-party services, such as water,
sewer, electricity, gas, roads, rail service and garbage collection,
necessary for the current operation of such facilities, all of which
services are adequate to conduct that portion of the Business conducted at
each of such facilities and such facilities are, to the knowledge of the
Stockholders or the Company, maintained in accordance with all laws,
ordinances, rules and regulations applicable to the Company, any Company
Subsidiary or the Owned Property;
(f) none of the Stockholders, the Company or the Company Subsidiaries
is a party to any written or oral agreements or undertakings with owners or
users of properties adjacent to any facility located on any parcel of the
Owned Property relating to the use, operation or maintenance of such
facility or any adjacent real property;
(g) neither the Company nor any Company Subsidiary is a lessor under
or otherwise a party to any lease, sublease, license, concession or other
agreement, whether written or oral, pursuant to which the Company or
Company Subsidiary has granted to any party or parties the right to use or
occupy all or any portion of the Owned Property;
(h) to the knowledge of the Stockholders or the Company, all
alterations, rehabilitations, structures, or improvements comply with the
provisions of the Americans with Disabilities Act, 42 USCA 1210, et seq.
and 28 CFR Part 36 (the "ADA"), after giving effect to applicable
"grandfather" provisions;
15
(i) there are no material defects in any improvements on or to the
Owned Property;
(j) to the knowledge of the Stockholders or the Company, the
buildings, plants, improvements, structures, and fixtures on the Owned
Property are free from regulated quantities of asbestos;
(k) no portion of any parcel of the Owned Property is subject to any
roll-back tax, dual or exempt valuation tax, or contains any omitted
parcel;
(l) all assessments and taxes currently due and payable on such Owned
Property have been paid; and
(m) the buildings, plants, and structures on the Owned Property are
free from flooding and leaks.
With respect to the Leased Property, except as reflected on Schedule
--------
4.13.1-2(b):
-----------
(i) the Company or one of the Company Subsidiaries is in
exclusive possession thereof and, to the knowledge of the Stockholders or
the Company, no easements, licenses or rights are necessary to conduct the
Business thereon in addition to those which exist as of the date hereof;
(ii) to the knowledge of the Stockholders or the Company, no
portion thereof is subject to any pending condemnation proceeding or
proceeding by any public or quasi-public authority materially adverse to
the Leased Property and there is no threatened condemnation or proceeding
with respect thereto;
(iii) to the knowledge of the Stockholders or the Company, the
buildings, plants, improvements, structures and fixtures at the Leased
Property, including, without limitation, heating, ventilation and air
conditioning systems, roofs, foundations and floors, are in good operating
condition and repair; the Leased Property is not, to the knowledge of the
Stockholders or the Company, in violation of any health, safety, building,
or environmental ordinances, laws, codes or regulations; nor has any notice
of any claimed violation of any such ordinances, laws, codes or regulations
been served on the Company or any Company Subsidiary;
(iv) the Leased Property is supplied with utilities and other
third-party services, such as water, sewer, electricity, gas, roads, rail
service and garbage collection, necessary for the current operation of the
Business, and such Leased Property is, to the knowledge of the Stockholders
or the Company, maintained in all material respects in accordance with all
Laws applicable to the Company, any Company Subsidiary or the Leased
Property;
(v) none of the Stockholders, the Company or the Company
Subsidiaries is a party to any written or oral agreement or undertaking
with owners or
16
users of properties adjacent to the Leased Property relating to the use,
operation or maintenance of such facility or any adjacent real property;
(vi) neither the Company nor any Company Subsidiary is a party
to any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which the Company or Company Subsidiary has
granted to any party or parties the right to use or occupy all or any
portion of the Leased Property;
(vii) to the extent that the Company or any Company Subsidiary
has responsibility under the lease(s) for the Leased Property for
compliance with the provisions of the ADA, to the knowledge of the
Stockholders or the Company, all alterations, rehabilitations, structures,
or improvements in the Leased Property comply with the ADA after giving
effect to applicable "grandfather" provisions;
(viii) to the knowledge of the Stockholders or the Company,
there are no material defects in any improvements on or to the Leased
Property;
(ix) to the knowledge of the Stockholders or the Company, the
Leased Property is free from regulated quantities of asbestos; and
(x) to the knowledge of the Stockholders or the Company, the
Leased Property is free from flooding and leaks.
4.13.2 The Latest Balance Sheet and/or Schedule 4.13.2 reflects all
---------------
material tangible personal property owned by the Company or any Company
Subsidiary, except as sold or otherwise disposed of or acquired in the
ordinary course of business. Except as set forth on Schedule 4.13.2, the
---------------
Company or one of the Company Subsidiaries has good and marketable title
to, or a valid leasehold interest in, such personal property (including,
without limitation, machinery, equipment and computers), in each case free
and clear of any Liens, and each such asset is in good working order and
has been well maintained and does not contain, to the knowledge of the
Stockholders or the Company, any material defect. Except as set forth in
Schedule 4.13.2, no personal property used by the Company or any Company
---------------
Subsidiary in connection with the Business is held under any lease,
security agreement, conditional sales contract or other title retention or
security arrangement or is located other than on the Real Property.
4.14 Intellectual Property. The (i) patents, patent applications,
---------------------
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered trademarks, trade names, company names,
fictional business names and service marks (collectively, the "Marks"), (iii)
copyrights (the "Copyrights"), and (iv) know how, trade secrets, confidential
information, customer lists, software, technical information, data, process
technology, plans and drawings (collectively, the "Trade Secrets") owned, used
or licensed by the Company or any Company Subsidiary (collectively, the
"Intellectual Property") are all those necessary to enable the Company and the
Company Subsidiaries to conduct and to continue to conduct the Business as it is
currently conducted. Schedule 4.14 contains a complete and accurate list of all
-------------
material Patents, Marks and Copyrights and a description of all material Trade
Secrets owned or used by the Company or any Company Subsidiary, and a list of
all
17
material license agreements and arrangements with respect to any of the
Intellectual Property to which the Company or any Company Subsidiary is a party,
whether as licensee, licensor or otherwise (the "Intellectual Property
Licenses"). Except as set forth on Schedule 4.14, (i) all of the Intellectual
-------------
Property is owned, or used under a valid Intellectual Property License, by the
Company or one of the Company Subsidiaries, and, is free and clear of all Liens
and other adverse claims; (ii) to the knowledge of the Stockholders or the
Company, neither the Company nor any Company Subsidiary has infringed on or
misappropriated, is now infringing on or misappropriating, or has received any
notice that it is infringing on, misappropriating, or otherwise conflicting with
the intellectual property rights of any third parties; (iii) there is no claim
pending or, to the knowledge of the Stockholders or the Company, threatened
against the Company or any Company Subsidiary with respect to the alleged
infringement or misappropriation by the Company or Company Subsidiary, or a
conflict with, any intellectual property rights of others; (iv) to the knowledge
of the Stockholders or the Company, the operation of any aspect of the Business
in the manner in which it has heretofore been operated or is presently operated
does not give rise to any such infringement or misappropriation; and (v) to the
knowledge of the Stockholders or the Company, there is no infringement or
misappropriation of the Intellectual Property by a third party or claim, pending
or threatened, against any third party with respect to the alleged infringement
or misappropriation of the Intellectual Property by such third party.
4.15 Minute Books and Stock Records. Except as set forth on Schedule 4.15,
------------------------------ -------------
(i) the minute books and stock records of the Company and each Company
Subsidiary, accurate copies of which have been made available to Compass, are
complete, true and correct, and (ii) in all material respects, the minute books
of the Company and each Company Subsidiary contain accurate and complete records
of (A) the minutes of each meeting and (B) all written consents of the board of
directors and stockholders of the Company or Company Subsidiary, as applicable.
4.16 Taxes.
-----
4.16.1 Each of the Company and the Company Subsidiaries has timely
and accurately prepared and filed or will timely and accurately prepare and
file all federal, state, local and foreign returns, declarations and
reports, information returns and statements (collectively, "Returns") for
Taxes (hereinafter defined) required to be filed by or with respect to the
Company or the Company Subsidiaries on or before the Closing Date, and has
paid or caused to be paid, or has made adequate provision or set up an
adequate accrual or reserve for the payment of, all Taxes required to be
paid or accrued in respect of the periods prior to the Closing. All such
Returns are or will be true and correct and are not or will not be subject
to adjustment by the applicable taxing authority. The Company has
delivered to Compass true and complete copies of all Returns referred to in
the first sentence of this Section 4.16.1 (including any amendments
--------------
thereof) for the five (5) most recent taxable years. Neither the Company
nor any Company Subsidiary is delinquent in the payment of any Tax, and no
deficiencies for any Tax, assessment or governmental charge have been
threatened, claimed, proposed or assessed, in each case in writing received
by the Company or Company Subsidiary. No waiver or extension of time to
assess any Taxes has been given or requested. No written claim, or any
other claim, by any taxing authority in any jurisdiction where the Company
or any Company
18
Subsidiary does not file Tax returns is pending pursuant to which the
Company or Company Subsidiary, as applicable, is subject to taxation by
that jurisdiction. The Company's and the Company Subsidiaries' Returns
were last audited by the Internal Revenue Service or comparable state,
local or foreign agencies on the dates set forth on Schedule 4.16.1.
---------------
4.16.2 For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, withholdings, fees, levies, penalties, additions,
interest or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, employment, withholding, social
security, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, windfall
profits, severance, customs, import, export, employment or similar taxes,
charges, fees, levies or other assessments, imposed by the United States,
or any state, local, foreign or provincial government or subdivision or any
agency thereof, whether computed on a separate, consolidated, unitary,
combined or any other basis.
4.17 Employee Benefit Plans; ERISA.
-----------------------------
4.17.1 Except as described in Schedule 4.17.1, neither the Company
---------------
nor any Company Subsidiary has or could have any liability (including
contingent liability) whether direct or indirect (and regardless of whether
it would be derived from a current or former Plan Affiliate (hereinafter
defined)) with respect to any of the following (whether written, unwritten
or terminated): (i) any employee welfare benefit plan, as defined in
Section 3(1) of "ERISA", including, but not limited to, any medical plan,
life insurance plan, short-term or long-term disability plan or dental
plan; (ii) any "employee pension benefit plan," as defined in Section 3(2)
of ERISA, including, but not limited to, any excess benefit plan, top hat
plan or deferred compensation plan or arrangement, nonqualified retirement
plan or arrangement, qualified defined contribution or defined benefit
arrangement; or (iii) any other benefit plan, policy, program, arrangement
or agreement, including, but not limited to, any material fringe benefit
plan or program, personnel policy, bonus or incentive plan, stock option,
restricted stock, stock bonus, holiday pay, vacation pay, sick pay, bonus
program, service award, moving expense, reimbursement program, deferred
bonus plan, salary reduction agreement, change-of-control agreement,
employment agreement or consulting agreement.
4.17.2 A complete copy of each written Employee Plan as amended
together with audited financial statements for the three (3) most recent
plan years, if any; a copy of each trust agreement or other funding vehicle
with respect to each such plan; a copy of any and all determination
letters, rulings or notices issued by a Governmental Authority with respect
to such plan; a copy of the Form 5500 Annual Report for the three (3) most
recent plan years; and a copy of each and any general explanation or
communication which was required to be distributed or otherwise provided to
participants in such plan and which describes all or any relevant aspect of
each plan, including summary plan descriptions and/or summary of material
modifications, have been made available to Compass. A description of each
unwritten Employee Plan, including a description of eligibility,
participation, benefits, funding arrangements and assets or other relevant
aspects of the obligation, is set forth in Schedule 4.17.2.
---------------
19
4.17.3 Except as could not give rise to any liability (including
contingent liability), whether direct or indirect, to the Company or any
Company Subsidiary, each Employee Plan (i) has been and is operated and
administered in compliance with its terms; (ii) has been and is operated,
administered, maintained and funded in compliance with the applicable
requirements of the Code in such a manner as to qualify, where appropriate
and intended, for both federal and state purposes, for income tax
exclusions, tax-exempt status, and the allowance of deductions and credits
with respect to contributions thereto; (iii) where appropriate, has
received a favorable determination letter from the Internal Revenue Service
upon which the sponsor of the plan may currently rely; (iv) has been and
currently complies in form and in operation in all respects with all
applicable requirements of ERISA and the Code and any applicable reporting
and disclosure requirements of Federal and state laws, including but not
limited to the requirement of Part 6 of subtitle B of Title I of ERISA and
Section 4980B of the Code. With respect to each Employee Plan, no person
has: (i) entered into any nonexempt "prohibited transaction," as such
terms are defined in ERISA or the Code; (ii) breached a material fiduciary
obligation, or (iii) any liability for any failure to act or comply in
connection with the administration or investment of the assets of such
plan; and no Employee Plan has any liability and there is no liability in
connection with any Employee Plan, other than a liability (i) which is
expressly and adequately reflected in the Latest Balance Sheets, (ii) which
is discretionary or terminable at will by the Company or one of the Company
Subsidiaries without incurring any such liability, or (iii) which is
adequately funded under a funding arrangement separate from the assets of
the Company or the Company Subsidiaries (and only to the extent of such
funding). Any contribution made or accrued with respect to any Employee
Plan is fully deductible by the Company, Company Subsidiary or a Plan
Affiliate.
4.17.4 Except as described in Schedule 4.17.4, neither the Company
---------------
nor any Company Subsidiary or Plan Affiliate has ever sponsored,
maintained, contributed to or been required to contribute to, or has any
liability, whether direct or indirect, with respect to any Employee Plan
which is or has ever been (i) a "multiemployer plan" as defined in Section
4001 of ERISA, (ii) a "multiemployer plan" within the meaning of Section
3(37) of ERISA, (iii) a "multiple employer plan" within the meaning of Code
Section 413(c), (iv) a "multiple employer welfare arrangement" within the
meaning of Section 3(40) of ERISA, (v) subject to the funding requirements
of Section 412 of the Code or to Title IV of ERISA, (vi) provides for post-
retirement medical, life insurance or other welfare-type benefits, or (vii)
any arrangement or agreement which could give rise to a "parachute payment"
subject to an excise tax under Section 4999 of the Code or as defined in
Section 280G of the Code.
4.17.5 As used in this Agreement, the following terms shall have the
following respective meanings:
(a) the term "Employee Plan" shall mean any plan, policy,
program, arrangement or agreement described in Section 4.17.1, whether
--------------
or not scheduled;
(b) the term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended; and
20
(c) with respect to any person or entity ("First Person"), the
term "Plan Affiliate" shall mean any other person or entity with whom
the First Person constitutes or has constituted all or part of a
controlled group, or which would be treated or have been treated with
the First Person as under common control or whose employees would be
or have been treated as employed by the First Person, under Section
414 of the Code or Section 4001(b) of ERISA and any regulations,
administrative rulings and case law interpreting the foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no, and
------------- -------------
within the last three (3) years neither the Company nor any Company Subsidiary
has experienced any, strike, picketing, boycott, work stoppage or slowdown or
other labor dispute, union organizational activity or charge, or, to the
knowledge of the Stockholders or the Company, allegation or complaint, of unfair
labor practice, employment discrimination or other matters relating to the
employment of labor pending or, to the knowledge of the Stockholders or the
Company, threatened against the Company or any Company Subsidiary, nor, to the
knowledge of the Stockholders or the Company, is there any basis for any such
allegation, charge, or complaint. There is no request for union representation
pending and, to the knowledge of the Stockholders or the Company, no question
concerning union representation has been raised. There is no grievance pending
which might have a Company Material Adverse Effect nor any arbitration
proceeding arising out of a union agreement. To the knowledge of the
Stockholders or the Company, no key employee and no group of employees has any
plans to terminate employment with the Company or any Company Subsidiary. Each
of the Company or any Company Subsidiary has complied in all material respects
with all applicable Laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes. Neither the
Company nor any Company Subsidiary is liable for any arrears of wages or any
taxes or penalties for failure to comply with any such Laws.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19, (i)
--------------------- -------------
each of the Company and the Company Subsidiaries is operating and has operated
its business in compliance in all material respects with all applicable
Environmental and Safety Requirements (hereinafter defined); (ii) there are no
Hazardous Materials at, on or under the Owned Property or, to the knowledge of
the Stockholders or the Company, the Leased Property (other than those present
in normal and customary office supplies and cleaning/maintenance materials) that
could cause or give rise to liabilities or response obligations under any
Environmental and Safety Requirements; (iii) each of the Company and the Company
Subsidiaries has disposed of all waste materials generated by the Company or
such Company Subsidiary at the Real Property or at any other facilities formerly
owned or operated by the Company or such Company Subsidiary in compliance in all
material respects with applicable Environmental and Safety Requirements; and
(iv) to the knowledge of the Stockholders or the Company, there are and have
been no facts, events, occurrences or conditions at or related to the Real
Property or any other facility formerly owned or operated by the Company or any
Company Subsidiary that could cause or give rise to liabilities or response
obligations under any Environmental and Safety Requirements. The term
"Environmental and Safety Requirements" means any federal, state and local laws,
statutes, regulations or other requirements relating to the protection,
preservation or conservation of the environment or worker health and safety, all
as amended or reauthorized. The term "Hazardous Materials" means "hazardous
substances", as defined by the Comprehensive Environmental
21
Response, Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq., "hazardous
wastes", as defined by the Resource Conservation Recovery Act, 42 U.S.C. (S)
6901 et seq., asbestos in any form or condition, polychlorinated biphenyls and
any other material, substance or waste to which liability or standards of
conduct may be imposed under any Environmental and Safety Requirement.
4.20 Insurance. The Company has made available to Compass correct and
---------
complete copies of all insurance policies (including "self-insurance" programs)
now maintained by the Company or any Company Subsidiary (the "Insurance
Policies"). To the knowledge of the Stockholders or the Company, the coverage
provided by the Insurance Policies is adequate to cover all Claims. Schedule
--------
4.20 is a correct and complete list and description of Insurance Policies and
----
all general liability policies and environmental impairment liability insurance
policies maintained during the past three (3) years by the Company or any
Company Subsidiary. The Insurance Policies are fully paid and in full force and
effect, neither the Company nor any Company Subsidiary is in default under any
of them and no material claim for coverage thereunder has been denied with
respect to any matter. Except as set forth on Schedule 4.20, neither the
-------------
Company nor any Company Subsidiary is required to provide any bonding or other
financial security arrangements in any material amount in connection with any
transactions with any of its clientele or suppliers.
4.21 Interest in Customers and Suppliers; Affiliate Transactions. Except
-----------------------------------------------------------
as described on Schedule 4.21 ("Affiliate Transactions"), no Stockholder,
-------------
Affiliate (hereinafter defined) of a Stockholder or Affiliate of the Company or
any Company Subsidiary (i) possesses, directly or indirectly, any financial
interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company or any Company
Subsidiary, (ii) owns, directly or indirectly, in whole or in part, or has any
interest in any material tangible or intangible property used in the conduct of
the Business, or (iii) is a party to an agreement or relationship, that involves
the receipt by such person of compensation or property from the Company or any
Company Subsidiary other than through a customary employment relationship.
Except as disclosed on Schedule 4.21, each Affiliate Transaction was effected on
-------------
terms substantially equivalent to those which would have been established in an
arm's-length transaction. As of the Closing Date, all amounts owed by a
Stockholder, any Affiliate of a Stockholder or any Affiliate of the Company or
any Company Subsidiary to the Company or any Company Subsidiary, and all amounts
owed by the Company or any Company Subsidiary to a Stockholder, any Affiliate of
a Stockholder or any Affiliate of the Company or any Company Subsidiary, shall
have been settled and satisfied.
4.22 Business Relationships. Schedule 4.22 contains an accurate list of
---------------------- -------------
all clients of the Company and each Company Subsidiary, representing the top ten
(10) gross revenue producing clients of the respective Company or Company
Subsidiary, as applicable, for the twelve (12) months ended December 31, 1996
and for the period commencing on January 1, 1997 and ending on the date of the
Latest Balance Sheet. Except as set forth on Schedule 4.22, since the date of
-------------
the Latest Balance Sheet, none of such clients has canceled or substantially
reduced its business with the Company or Company Subsidiary, as applicable, nor,
to the knowledge of the Stockholders or the Company, are any of such clients
threatening or expected to do so. To the knowledge of the Stockholders or the
Company, no client or supplier of the
22
Company or any Company Subsidiary will cease to do business with, or
substantially reduce its business with, the Company or Company Subsidiary, as
applicable, after the consummation of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
------------ -------------
names and current total compensation, including, without limitation, salary and
bonuses, of each individual employed by the Company and each Company Subsidiary
as of the date hereof, who earned in 1996 or who is expected to earn in 1997
total compensation in excess of $75,000. Except as set forth in Schedule 4.23,
-------------
no person listed thereon has received any bonus or increase in compensation and
there has been no "general increase" in the compensation or rate of compensation
payable to any employees of the Company or any Company Subsidiary since the date
of the Latest Balance Sheet, nor since that date has there been any oral or
written promise to employees of any bonus or increase in compensation. The term
"general increase" as used herein means any increase generally applicable to a
class or group of employees, but does not include increases granted to
individual employees for merit, length of service or change in position or
responsibility made on the basis of an established policy of the Company or any
Company Subsidiary. Schedule 4.23 includes the date and amount of the last
-------------
bonus or increase in compensation for each listed employee.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each bank
------------- -------------
in which the Company or any Company Subsidiary has an account or safe deposit
box, the number of each such account or box, and the names of all persons
authorized to draw thereon or to have access thereto.
4.25 Deemed Earnings Estimate. The Deemed Earnings Estimate attached
------------------------
hereto as Schedule 2.4(a)-1 is a good faith estimate of the Company's earnings
-----------------
for the calendar year ending on December 31, 1997, calculated in accordance with
the procedure set forth on Schedule 2.4(a)-2.
-----------------
4.26 Representations and Warranties Regarding the Company's Subsidiary,
------------------------------------------------------------------
Financial Claims Control, Inc. The Company closed on the purchase of all of the
------------------------------
issued and outstanding stock of Financial Claims Control, Inc., on September 4,
1997. The Company's and the Stockholders' representations and warranties
hereunder regarding such Company Subsidiary are based upon and limited to the
due diligence information and the representations and warranties provided to the
Company by the sellers of such Company Subsidiary stock.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COMPASS
Compass represents and warrants to the Company and the Stockholders as
follows:
5.1 Organization and Qualification.
------------------------------
5.1.1 Compass is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business
23
as it is now being conducted. True, accurate and complete copies of each
of Compass's Certificate of Incorporation and By-laws, as in effect on the
date hereof, including all amendments thereto, have heretofore been
delivered to the Company.
5.2 Capitalization.
--------------
5.2.1 The authorized capital stock of Compass consists of 20,000
shares of Compass Common Stock, of which 15,000 shares were issued and
outstanding as of the date of this Agreement. All of the issued and
outstanding shares of Compass Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights. Immediately prior to
the Closing Date, the authorized capital stock of Compass will consist of
50,000,000 shares of Compass Common Stock, of which the number of shares
set forth in the Registration Statement will be issued and outstanding, and
10,000,000 shares of Preferred Stock, par value $0.01 per share, none of
which will be issued and outstanding. Other than (i) shares of Compass
Common Stock issued pursuant to a split of the shares outstanding as of the
date of this Agreement and (ii) shares of Compass Common Stock issued in
accordance with the Purchase and the Other Purchases, no shares of Compass
Common Stock will be issued prior to the consummation of the IPO.
5.2.2 Except as set forth on Schedule 5.2, and as required upon the
------------
consummation of the transactions described in this Agreement and the Other
Stock Purchase Agreements, there are no outstanding subscriptions, options,
calls, contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement obligating Compass to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of Compass or obligating Compass to
grant, extend or enter into any such agreement or commitment. There are no
voting trusts, proxies or other agreements or understandings to which
Compass is a party or is bound with respect to the voting of any shares of
capital stock of Compass. The shares of Compass Common Stock to be issued
to the Stockholders pursuant to this Agreement and to be issued to the
stockholders of the Other Founding Companies in the Other Purchases will as
of the Closing be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights and Liens (other than Liens, if
any, due to acts of the Stockholders).
5.3 No Subsidiaries. Except as set forth on Schedule 5.3, Compass does
--------------- ------------
not own any capital stock of any corporation or any interest in any partnership,
joint venture or limited liability company.
5.4 Authority; Non-Contravention; Approvals.
---------------------------------------
5.4.1 Compass has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been approved by the Board of Directors and
stockholders of Compass, and no other corporate proceedings on the part of
Compass are necessary to authorize the execution and delivery of this
Agreement or the consummation by Compass of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by
24
Compass, and, assuming the due authorization, execution and delivery hereof
by the Company and the Stockholders, constitutes a valid and legally
binding agreement of Compass, enforceable against Compass in accordance
with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and
(ii) general equitable principles.
5.4.2 The execution and delivery of this Agreement by Compass does
not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any Lien
upon any of the properties or assets of Compass under any of the terms,
conditions or provisions of (i) the Certificate of Incorporation or By-laws
of Compass, as applicable, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of
any court or Governmental Authority applicable to Compass or any of its
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Compass is now a
party or by which Compass or any of its properties or assets, may be bound
or affected. The consummation by Compass of the transactions contemplated
hereby will not result in any violation, conflict, breach, right of
termination or acceleration or creation of liens under any of the terms,
conditions or provisions of the items described in clauses (i) through
(iii) of the preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (ii) above, to
obtaining (prior to the Closing) Compass Required Statutory Approvals
(hereinafter defined) and, in the case of the terms, conditions or
provisions of the items described in clause (iii) above, to obtaining
(prior to the Closing) consents required from commercial lenders, lessors
or other third parties, all of which required consents are listed on
Schedule 5.4.2.
--------------
5.4.3 Except for (i) the filing of the Registration Statement the SEC
pursuant to the 1933 Act, and (ii) the declaration of the effectiveness
thereof by the SEC and, if required, filings with various state blue sky
authorities, (the filings and approvals referred to in clauses (i) and (ii)
are collectively referred to as the "Compass Required Statutory Approvals")
no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body
or authority is necessary for the execution and delivery of this Agreement
by Compass or the consummation by Compass of the transactions contemplated
hereby, other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as
the case may be, would not, in the aggregate, have a material adverse
effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of Compass (a
"Compass Material Adverse Effect").
5.5 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
---------------------------------- --------
5.5, Compass has not incurred any liabilities or obligations (whether known or
---
unknown, absolute, contingent, direct, indirect, perfected, inchoate,
unliquidated or otherwise) of any nature, except those
25
incurred in connection with the Purchase, this Agreement, the Other Stock
Purchase Agreements and the IPO. Except as contemplated by the foregoing,
Compass has not engaged in any business activities of any type or kind
whatsoever, nor entered into any agreements nor is either of them bound by any
obligation or undertaking.
5.6 Litigation. There is no suit, action, proceeding, investigation,
----------
claim or order pending or, to the knowledge of Compass, threatened against
Compass or which may affect its assets or business, before any court,
Governmental Authority or any arbitrator that seek to restrain or enjoin the
consummation of the Purchase or the IPO or which is likely, either alone or in
the aggregate with all such claims, actions or proceedings, to have a Compass
Material Adverse Effect.
5.7 Compliance with Applicable Laws. Except as set forth on Schedule 5.7,
------------------------------- ------------
Compass has complied with all Laws applicable to it, and has not received any
notice of any alleged claim or threatened claim, violation of or liability or
potential responsibility under any such Law which has not heretofore been cured
and for which there is no remaining liability and, to the knowledge of Compass,
no event has occurred or circumstances exist that (with or without notice or
lapse of time) may constitute or result in a violation by Compass of any Law or
may give rise to any Liability on the part of the Compass under any Law.
Without limiting the generality of the foregoing, except as set forth on
Schedule 5.7, Compass has complied in all respects with all applicable federal,
------------
state and local Laws relating to antitrust and trade regulations.
5.8 Other Agreements. True and correct copies of the Other Stock
----------------
Purchase Agreements have been delivered to the Stockholders and the Company.
Compass will not agree to any material amendment of or waive any material right
or waive any material condition to its obligations under any of the Other Stock
Purchase Agreements without the written consent of a majority of the Founding
Companies whose agreements have not been and will not be amended in a similar
manner. For purposes of determining a majority of the Founding Companies under
this Section 5.8, IT and ITG, collectively, shall only be counted as one (1)
-----------
Founding Company.
ARTICLE VI
CERTAIN COVENANTS AND OTHER TERMS
6.1 Conduct of Business Pending the Purchase.
----------------------------------------
6.1.1 Except as otherwise contemplated by this Agreement, and except
as set forth on Schedule 6.1, after the date hereof and prior to the
------------
Closing or earlier termination of this Agreement, unless Compass shall
otherwise agree in writing (which agreement shall not be unreasonably
withheld), the Company shall, and shall cause each Company Subsidiary to:
(a) conduct its businesses in the ordinary and usual course and
consistent with past practices;
26
(b) not (i) amend its charter or by-laws, (ii) split, combine or
reclassify its outstanding capital stock or (iii) declare, set aside
or pay any dividend or distribution payable in cash, stock, property
or otherwise;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
options, warrants or rights of any kind to acquire any shares of, its
capital stock of any class, (ii) any debt with voting rights or (iii)
any debt or equity securities convertible into or exchangeable for, or
any rights, warrants, calls, subscriptions, or options to acquire, any
such capital stock, debt with voting rights or convertible securities;
(d) not (i) incur or become contingently liable with respect to
any indebtedness for borrowed money other than (A) borrowings in the
ordinary course of business or (B) borrowings to refinance existing
indebtedness on terms comparable with or more favorable than those at
the date hereof, (ii) redeem, purchase, acquire or offer to purchase
or acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible
into or exchangeable for its capital stock, (iii) sell, pledge,
dispose of or encumber any assets or businesses other than
dispositions in the ordinary course of business or (iv) enter into any
contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(e) use all reasonable efforts to preserve intact its business
organizations and goodwill, keep available the services of its present
officers and key employees, and preserve the goodwill and business
relationships with clients and others having business relationships
with it and not engage in any action, directly or indirectly, with the
intent to adversely impact the transactions contemplated by this
Agreement;
(f) confer as reasonably required by Compass with one or more
representatives of Compass to report material operational matters and
the general status of ongoing operations;
(g) not, (i) increase in any manner the base compensation of, or
enter into any new bonus or incentive agreement or arrangement with,
any of its employees, except as consistent with past practices of the
Company or Company Subsidiary, as applicable, (ii) pay or agree to pay
any additional pension, retirement allowance or other employee benefit
under any Employee Plan to any such employee, whether past or present,
other than as required pursuant to the terms thereof, (iii) enter into
any new employment, severance, consulting, or other compensation
agreement with any of its existing employees, (iv) amend or enter into
a new Employee Plan (except as required by Law) or amend or enter into
a new collective bargaining agreement, or (v) engage in any new
Affiliate Transaction;
(h) comply in all material respects with all applicable Laws;
27
(i) not make any material investment in, directly or indirectly,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any businesses or any
corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any
assets not in the ordinary course of business in each case which are
material to it;
(j) not sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, license, encumber or otherwise dispose of,
any of its assets other than in the ordinary course of business;
(k) maintain with its current insurance carriers (or with
comparable carriers) insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice; and
(l) maintain adequate net working capital to operate the Business
consistent with past practices.
6.1.2 Except as otherwise contemplated by this Agreement, the Other
Stock Purchase Agreements and with respect to the IPO, after the date
hereof and prior to the Closing or earlier termination of this Agreement,
unless the Company shall otherwise agree in writing (which agreement shall
not be unreasonably withheld), Compass shall:
(a) not (i) amend its charter or by-laws (provided, however, that
Compass shall prior to the Closing, file an amended and restated
charter in substantially the form attached hereto as Exhibit
-------
6.1.2(a)), (ii) split, combine or reclassify its outstanding capital
---------
stock or (iii) declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise;
(b) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
option, warrants or rights of any kind to acquire any shares of, its
capital stock of any class, (ii) any debt with voting rights or (iii)
any debt or equity securities convertible into or exchangeable for, or
any rights, warrants, calls, subscriptions, or options to acquire, any
such capital stock, debt with voting rights or convertible securities;
(c) not (i) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible
into or exchangeable for its capital stock, (ii) sell, pledge, dispose
of or encumber any assets or businesses other than dispositions in the
ordinary course of business or (iii) enter into any contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
(d) comply in all material respects with all applicable Laws; and
28
(e) not make any material investment in, directly or indirectly,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any businesses or any
corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any
assets not in the ordinary course of business in each case which are
material to it.
6.1.3 Notwithstanding the fact that such action might otherwise be
permitted pursuant to this Article VI, none of the parties hereto shall
----------
take, or permit any of their respective subsidiaries to take, any action
that would or is reasonably likely to result in any of the respective
representations or warranties of the parties hereto set forth in this
Agreement being untrue or in any of the conditions to the consummation of
the transactions contemplated hereunder set forth in Article IX not being
----------
satisfied.
6.2 No - Shop.
---------
(a) After the date hereof and prior to the Closing or earlier
termination of this Agreement, the Company and the Stockholders shall (i)
not, and the Company shall use its best efforts to cause the Company
Subsidiaries and any officer, director or employee of, or any attorney,
accountant, investment banker, financial advisor or other agent retained by
the Company or any Company Subsidiary not to, initiate, solicit, negotiate,
encourage, or provide non-public or confidential information to facilitate,
any proposal or offer to acquire all or any substantial part of the
business and properties of the Company or any Company Subsidiary, or any
capital stock of the Company or any Company Subsidiary, whether by merger,
purchase of stock or assets or otherwise, whether for cash, securities or
any other consideration or combination thereof, or enter into any joint
venture or partnership or similar arrangement, and (ii) promptly advise
Compass of the terms of any communications the Stockholders or the Company
may receive or become aware of relating to any bid for part or all of the
Company or any Company Subsidiary.
(b) The Company and the Stockholders (i) acknowledge that a breach of
any of their covenants contained in this Section 6.2 will result in
-----------
irreparable harm to Compass which will not be compensable in money damages;
and (ii) agree that such covenant shall be specifically enforceable and
that specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
6.3 Schedules. Each party hereto agrees that with respect to the
---------
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement, amend or add and deliver to the other parties all of their
respective schedules to this Agreement (the "Schedules") to correct any matter
which would constitute a breach of any such party's representations and
warranties herein; provided, that no amendment, supplement to or addition of a
Schedule that constitutes or reflects a Company Material Adverse Effect or
affects Schedules 4.2, 4.3 or 7.9 may be made unless Compass and a majority of
------------- --- ---
the other Founding Companies consent to such amendment,
29
supplement or addition, and no amendment, supplement to or addition of a
Schedule that constitutes or reflects a Compass Material Adverse Effect or
affects Schedule 5.2 may be made unless a majority of the Founding Companies
------------
consent to such amendment, supplement or addition. For all purposes of this
Agreement, including, without limitation, for purposes of determining whether
the conditions set forth in Sections 9.2 and 9.3 have been fulfilled, the
------------ ---
Schedules hereto shall be deemed to be the Schedules as amended, supplemented or
added pursuant to this Section 6.3. In the event that (i) one of the other
-----------
Founding Companies seeks to amend, supplement or add a Schedule pursuant to
Section 6.3 of one of the Other Stock Purchase Agreements, (ii) such amendment,
-----------
supplement or addition constitutes or reflects a material adverse effect on the
business, operations, property, assets, condition (financial or otherwise),
operating results, liabilities, employee, customer or supplier relations or
business prospects of such other Founding Company or any of its subsidiaries or
affects Schedules 4.2, 4.3 or 7.9 of such Other Stock Purchase Agreement, and
------------- --- ---
(iii) Compass and a majority of the Founding Companies (other than the Founding
Company providing such amended, supplemented or added Schedule) consent to such
amendment, supplement or addition, but the Company and the Stockholders do not,
or if any Other Stock Purchase Agreement is terminated by any party thereto
pursuant to Section 6.3 of such Other Stock Purchase Agreement or otherwise, the
-----------
Company and the Stockholders may terminate this Agreement at any time prior to
the Closing Date. In the event that (i) the Company seeks to amend, supplement
or add a Schedule pursuant to this Section 6.3, (ii) such amendment, supplement
-----------
or addition constitutes or reflects a Company Material Adverse Effect or affects
Schedules 4.2, 4.3 or 7.9, and (iii) Compass and a majority of the Founding
------------- --- ---
Companies do not consent to such amendment, supplement or addition, this
Agreement shall be deemed terminated as set forth in Section 10.1 hereof. No
------------
party to this Agreement shall be liable to any other party if this Agreement
shall be terminated pursuant to the provisions of this Section 6.3, unless this
-----------
Agreement is so terminated in connection with an amendment of, supplement to or
addition of a Schedule relating to a breach of a representation or warranty as
of the date of this Agreement. No amendment of, supplement to or addition of a
Schedule shall be made later than five (5) business days prior to the
anticipated effectiveness of the Registration Statement. For purposes of
determining a majority of the Founding Companies under this Section 6.3, IT and
-----------
ITG, collectively, shall only be counted as one (1) Founding Company.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access to Information.
---------------------
7.1.1 The Company shall and shall cause the Company Subsidiaries to
afford to Compass and its accountants, counsel, financial advisors and
other representatives, including, without limitation, ▇▇▇▇▇▇▇▇▇▇
Securities, Inc. and ▇▇▇▇▇▇ Brothers, as representatives (collectively, the
"Representatives") of the underwriters engaged in connection with the IPO
(the "Underwriters") and counsel for the Underwriters (collectively, the
"Compass Representatives"), and to the other Founding Companies and their
accountants, counsel, financial advisors and other representatives, and
Compass shall afford to the Stockholders and the Company and their
accountants, counsel, financial advisors and other representatives
(collectively, the "Company Representatives")
30
full access during normal business hours throughout the period prior to the
Closing to all of their respective properties, books, contracts,
commitments and records (including, but not limited to, financial
statements and Tax Returns) and, during such period, shall furnish promptly
to one another all due diligence information requested by the other party.
Compass shall hold and shall use its reasonable best efforts to cause the
Compass Representatives to hold, and the Stockholders and the Company shall
hold and shall use their reasonable best efforts to cause the Company
Representatives to hold, in strict confidence all non-public information
furnished to it in connection with the transactions contemplated by this
Agreement or any of the Other Agreements, except that each of Compass, the
Stockholders and the Company may disclose any information that it is
required by law or judicial or administrative order to disclose, provided
it gives prior prompt written notice to the other party. In addition,
Compass will cause each of the other Founding Companies and their
stockholders to enter into a provision similar to this Section 7.1
-----------
requiring each such Founding Company to keep confidential and to use their
reasonable best efforts to cause their respective accountants, counsel,
financial advisors and other representatives to keep confidential any
information obtained by such Founding Company in connection with the
transactions contemplated by this Agreement or any of the Other Agreements.
7.1.2 In the event that this Agreement is terminated in accordance
with its terms, each party shall promptly return to the disclosing party
all written material provided pursuant to this Section 7.1 or pursuant to
-----------
the Other Agreements and shall not retain any copies, extracts or other
reproductions of such written material. In the event of such termination,
all documents, memoranda, notes and other writings prepared by and/or in
the possession of Compass or the Company based on the information obtained
pursuant to this Agreement or any of the Other Agreements shall be
destroyed (and Compass and the Company shall use their respective
reasonable best efforts to cause their advisors and representatives to
similarly destroy their documents, memoranda and notes), and such
destruction (and reasonable best efforts) shall be certified in writing by
an authorized officer supervising such destruction.
7.2 Registration Statement.
----------------------
7.2.1 Subject to the reasonable discretion of Compass as advised by
the Representatives, Compass shall file with the SEC as soon as is
reasonably practicable after the date hereof the Registration Statement and
shall use all reasonable efforts to have the Registration Statement
declared effective by the SEC as promptly as practicable. Compass shall
also take any action required to be taken under applicable state blue sky
or securities laws in connection with the issuance of Compass Common Stock.
Compass, the Company and the Stockholders shall promptly furnish to each
other all information, and take such other actions, as may reasonably be
requested in connection with making such filings. Without limiting the
generality of the foregoing, the Company and the Stockholders shall furnish
or cause to be furnished to Compass and the Representatives all of the
information concerning the Company, the Company Subsidiaries and the
Stockholders required for inclusion in, the Registration Statement and the
prospectus included therein (the "Prospectus"); including, without
limitation, audited consolidated balance sheets of the Company as of
September 30, 1997, and the related audited
31
consolidated statements of income, stockholders' equity and cash flow for
the nine (9) months then ended (including all notes thereto), which shall
be furnished to Compass and the Underwriters no later than November 1,
1997. The Company and the Stockholders will cooperate with Compass and the
Representatives in the preparation of the Registration Statement and the
Prospectus. All financial statements provided by the Company for inclusion
in the Registration Statement and Prospectus shall (i) be accurate and
complete in all material respects, (ii) be consistent with the books and
records of the Company and the Company Subsidiaries (which, in turn, shall
be accurate and complete in all material respects), and (iii) fairly
present the financial condition, assets and liabilities of the Company and
Company Subsidiaries as of their respective dates and the results of
operations and cash flows for the respective period, in accordance with
generally accepted accounting principles applied on a consistent basis.
All information provided and to be provided by Compass and the Company,
respectively, for use in the Registration Statement (including, without
limitation, financial statements and schedules and financial and
statistical data) shall be true and correct in all material respects
without omission of any material fact which is required to make such
information not false or misleading as of the date thereof and in light of
the circumstances under which given or made. The Company and the
Stockholders agree promptly to advise Compass if at any time during the
period in which a prospectus relating to the offering is required to be
delivered under the 1933 Act, any information contained in the prospectus
concerning the Company, the Company Subsidiaries or the Stockholders
becomes incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy or remedy such incompletion.
Insofar as the information relates solely to the Company, the Company
Subsidiaries or the Stockholders, each of the Company and the Stockholders
represents and warrants that the Registration Statement as of its effective
date, and the final prospectus, as of its date, will not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statement therein, in light of
the circumstances in which they were made, not misleading; provided,
however, that this representation does not extend to any untrue statement
of a material fact if such untrue statement was made in or an omission
occurred in any preliminary prospectus and (i) the Company or Stockholders
provided, in writing, corrected information to Compass or its counsel for
inclusion in the final prospectus prior to distributing such prospectus,
and such information was not so included, or (ii) Compass did not provide
the Company and its counsel with the information required to be provided
pursuant to Section 7.2.2, and such information is the basis for the untrue
-------------
statement or omission (or alleged untrue statement or omission).
7.2.2 Compass agrees that it will provide to the Company and its
counsel copies of drafts of the Registration Statement containing any
material changes to the information relating to the Company, the Company
Subsidiaries or the Stockholders as they are prepared and will not (i) file
with the SEC, (ii) request the acceleration of the effectiveness of or
(iii) circulate any prospectus forming a part of, the Registration
Statement (or any amendment thereto) unless the Company and its counsel (x)
have had at least two days to review such revised information and (y) have
not objected to the substance of the information contained therein. Any
objections posed by the Company or its counsel shall be in writing and
state with specificity the material in question, the reason for the
objection, and the Company's proposed alternative. If the objection is
32
founded upon a rule promulgated under the 1933 Act, the objection shall
cite the rule. Notwithstanding the foregoing, during the three (3)
business days immediately preceding the filing of the initial Registration
Statement and any amendment thereto, the Company and its counsel shall be
obligated to respond to the proposed changes electronically transmitted to
them within two (2) hours from the time of the completion of the
transmission of the proposed changes to the Company's counsel, provided
that Compass has provided to the Company or Company's counsel reasonably
adequate advance notice of the need for the Company and its counsel to
respond to such proposed changes.
7.3 Expenses and Fees. Compass shall pay the fees and expenses of the
-----------------
independent public accountants and legal counsel to Compass and all filing,
printing and other reasonable, documented fees and expenses associated with the
IPO. Neither the Company nor the Stockholders will be liable for any portion of
the above expenses in the event the IPO is not closed. Compass shall also pay
(i) the underwriting discounts and commissions payable in connection with the
registration, offering and sale of Compass Common Stock in the IPO, (ii) the
fees of Price Waterhouse incurred in connection with the audit of the Financial
Statements, and (iii) the fees and expenses incurred in delivering the tax
opinion set forth in Section 9.2(d). All other costs and expenses incurred in
--------------
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses.
7.4 Agreement to Cooperate. Subject to the terms and conditions herein
----------------------
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
7.5 Public Statements. Except as may be required by law, no party hereto
-----------------
shall issue any press release or any written public statement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of Compass and the Company.
7.6 Preparation and Filing of Tax Returns.
-------------------------------------
7.6.1 Compass shall be responsible for causing the filing of the
final pre-Closing Returns for the Company and the Company Subsidiaries.
Each party hereto shall, and shall cause its Affiliates to, provide to each
of the other parties hereto such cooperation and information as any of them
reasonably may request in filing any return, amended return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or
in conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies at no cost to
the requesting party of all relevant portions of relevant returns, together
with relevant accompanying schedules and relevant work papers, relevant
documents relating to rulings or other determinations by taxing authorities
and relevant records concerning the ownership and tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis, at its cost, to
provide explanation of any documents or information so provided. Subject
to the preceding sentence, each party
33
required to file returns pursuant to this Agreement shall bear all costs of
filing such returns.
7.6.2 Each of the Company, Compass and the Stockholders shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction as
subject to the provisions of Section 351 of the Code.
7.7 Registration Rights.
-------------------
7.7.1 At any time following the first anniversary of the Closing
Date, whenever Compass proposes to register any Compass Common Stock for
its own account or the account of others under the 1933 Act for a public
offering for cash other than a registration relating to employee benefit
plans, Compass will give each of the Stockholders prompt written notice of
its intent to do so. Upon the written request of any of the Stockholders
given within thirty (30) days after receipt of such notice, Compass will
use its best efforts to cause to be included in such registration all of
the Compass Common Stock which any such Stockholder requests, provided that
Compass shall have the right to reduce the number of shares included in
such registration to the extent that inclusion of such shares could, in the
opinion of tax counsel reasonably acceptable to the stockholders of the
Founding Companies, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free reorganization. In
addition, if Compass is advised in writing in good faith by any managing
underwriter of the securities being offered pursuant to any registration
statement under this Section 7.7 that the number of shares to be sold by
-----------
persons other than Compass is greater than the number of such shares which
can be offered without adversely affecting the offering, Compass may reduce
pro rata the number of shares offered for the accounts of such persons
(based upon the number of shares held by such person) to a number deemed
satisfactory by such managing underwriter, provided that such reduction
shall be made first by reducing the number of shares to be sold by persons
other than Compass and the stockholders of the Founding Companies, and
thereafter, if a further reduction is required, by reducing pro rata the
number of shares to be sold by the stockholders of the Founding Companies.
7.7.2 For one hundred eighty (180) days after the date which is
twenty (20) months after the Closing Date, the holders of an aggregate of
1,715,402 shares of Compass Common Stock issued to the stockholders of the
Founding Companies at Closing pursuant to this Agreement and the Other
Stock Purchase Agreements may request in writing that Compass file a
registration statement under the 1933 Act covering the registration of the
shares of Compass Common Stock so issued and then held by such stockholders
(a "Demand Registration"). Such request shall specify the intended method
of disposition of the shares. Within ten (10) days of the receipt of such
request, Compass shall give written notice of such request to all other
stockholders of the Founding Companies and shall use its best efforts to
effect as soon as practicable a registration under the 1933 Act that will
permit the disposition of the shares in accordance with the method
specified in the request. Compass shall be obligated to effect only one
Demand Registration pursuant to this Section 7.7.2. Compass may
-------------
34
register in the same process other unregistered, previously issued Compass
Common Stock; provided, however, that the registration of such other
unregistered, previously issued Compass Common Stock shall not reduce the
number of shares of Compass Common Stock of stockholders of the Founding
Companies requested to be registered pursuant to this Section 7.7.2.
-------------
If, at the time of any request by the stockholders of the Founding
Companies for a Demand Registration, Compass has fixed plans to file within
sixty (60) days after such request for the sale of any of its securities in
a public offering under the 1933 Act, no registration of such stockholders'
Compass Common Stock shall be initiated under this Section 7.7.2 until
-------------
ninety (90) days after the effective date of such registration unless
Compass is no longer proceeding diligently to effect the right to
participate in such public offering pursuant to, and subject to, Section
-------
7.7.1 hereof.
-----
7.7.3 Except for underwriting commissions and discounts, all expenses
incurred in connection with the registrations under this Section 7.7
-----------
(including all registration, filing, qualification, legal, printer and
accounting fees) shall be paid by Compass. In connection with registrations
under this Section 7.7, Compass shall:
-----------
(a) use its best efforts to prepare and file with the SEC as
soon as reasonably practicable, a registration statement with respect
to the Compass Common Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of
at least one hundred twenty (120) days (or such shorter period during
which holders shall have sold all Compass Common Stock which they
requested to be registered);
(b) use its best efforts to register and qualify the Compass
Common Stock covered by such registration statement under applicable
state securities laws as the holders shall reasonably request for the
distribution for the Compass Common Stock; and
(c) take such other actions as are reasonable and necessary to
comply with the requirements of the 1933 Act and the regulations
thereunder.
7.7.4 In connection with each registration pursuant to this Section
-------
7.7 covering an underwritten registration public offering, Compass and each
---
participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
reasonable and customary in the securities business for such an arrangement
between such managing underwriters and companies of Compass' size and
investment stature, including indemnification.
7.7.5 Compass shall not be obligated to register shares of Compass
Common Stock held by any Stockholder at any time when (i) the Company
Common Stock is listed on a recognized national or regional securities
exchange or traded in the NASDAQ national market, and (ii) the resale
provisions of Rule 144(k) promulgated under the 1933 Act are available to
such Stockholder.
35
7.7.6 In consideration of the granting to the Stockholders of the
registration rights under this Section 7.7, and subject to the provisions
-----------
of Section 7.10 with respect to the transfer of shares of Compass Common
------------
Stock following the IPO, the Stockholders agree to enter into an agreement
with the Underwriters in connection with an underwritten registration to
the effect that they will not sell, transfer or otherwise dispose of,
including, without limitation, through put or short sale arrangements,
shares of Compass Common Stock in the ten (10) days prior to the
effectiveness of any registration of Compass Common Stock for sale to the
public and for up to ninety (90) days following the effectiveness of such
registration (except with respect to Compass Common Stock which is
registered pursuant to such registration), provided that all directors,
executive officers and holders of more than five percent (5%) of the
outstanding Compass stock agree to the same restrictions; and further
provided that, with respect to the first public offering of shares of the
Compass Common Stock within three (3) years following the IPO, the
Stockholders shall have been afforded a meaningful opportunity to include
shares in such registration after any reduction by reason of underwriters'
written advice.
7.8 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the SEC that may permit the sale of Compass
Common Stock to the public without registration, Compass agrees to use its best
efforts to:
(a) make and keep public information regarding Compass available as
those terms are understood and defined in Rule 144 under the 1933 Act, at
all times from and after ninety (90) days following the effective date of
the first registration under the 1933 Act filed by Compass for an offering
of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of Compass under the 1933 Act and the Securities and
Exchange Act of 1934 (the "1934 Act") at any time after it has become
subject to such reporting requirements; and
(c) so long as a Stockholder owns any restricted Compass Common Stock,
furnish to each Stockholder forthwith upon written request a written
statement by Compass as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement filed by Compass for an
offering of its securities to the general public), and of the 1933 Act and
the 1934 Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Compass, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
7.9 Release of Guarantees. Compass shall use all commercially reasonable
---------------------
efforts and good faith to have the Stockholders released from any and all
guarantees on any indebtedness that they personally guaranteed for the benefit
of the Company set forth on Schedule 7.9, with all such guarantees on
------------
indebtedness being assumed by Compass, if necessary to achieve such releases.
In the event that Compass cannot obtain such releases from the lenders of any
such
36
guaranteed indebtedness, Compass will defend, indemnify and hold harmless the
Stockholders against any and all claims made by lenders under such guarantees
which arise as a result of Compass' failure to cause such guarantees to be
released, including, without limitation, if a Claim for payment is made with
respect to such guarantee subsequent to the Closing.
7.10 Lock-Up Agreement. Each Stockholder agrees, and agrees to enter into
-----------------
an agreement with the Representatives on or prior to the date on which
preliminary Prospectuses are delivered to the effect that, such Stockholder will
not offer, sell, contract to sell or otherwise dispose of any shares of Compass
Common Stock, or any Securities convertible into or exercisable or exchangeable
for Compass Common Stock, for a period of 180 days after the date of the final
Prospectus without the prior written consent of ▇▇▇▇▇▇▇▇▇▇ Securities, Inc.
except for shares of Compass Common Stock disposed of as bona fide gifts,
subject to any remaining portion of the 180-day period applying to any shares so
disposed of.
7.11 Obligations of Stockholders. At or prior to the Closing, the
---------------------------
Stockholders shall cause the Company to perform all of the obligations and
agreements of the Company required to be performed by the Company at or prior to
the Closing.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by the Stockholders and the Company. The Stockholders
---------------------------------------------------
and the Company agree to indemnify, defend and save the Compass Indemnified
Parties (hereinafter defined), and each of them, harmless from and against, and
to promptly pay to a Compass Indemnified Party or reimburse a Compass
Indemnified Party for, any and all Losses (hereinafter defined) sustained or
incurred by any Compass Indemnified Party relating to, resulting from, arising
out of or otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made herein or in any certificate, schedule, document, exhibit or other
instrument delivered hereunder by the Company or the Stockholders or any
action, demand or claim by any third party against or affecting any Company
Indemnified Party which, if successful, would give rise to a breach of any
such representation or warranty;
(b) any failure by the Company or the Stockholders to observe or
perform any of their covenants and agreements set forth herein; and
(c) any liability under the 1933 Act, the 1934 Act or other federal
or state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to the Company or the Stockholders, contained in any
preliminary prospectus relating to the IPO, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission to state
therein a material fact relating to the Company or the Stockholders
required to be stated therein or necessary to make the statements therein
not misleading, and not provided to Compass or its counsel by the Company
or the Stockholders; provided, however, that
37
such indemnity shall not inure to the benefit of any Compass Indemnified
Party to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and (i) the Company or Stockholders provided, in
writing, corrected information to Compass or its counsel for inclusion in
the final prospectus prior to distributing such prospectus, and such
information was not so included, or (ii) Compass did not provide the
Company and its counsel with the information required to be provided
pursuant to Section 7.2.2, and such information is the basis for the untrue
-------------
statement or omission (or alleged untrue statement or omission) giving rise
to the liability under this Section 8.1(c).
--------------
As used herein, the "Compass Indemnified Parties" shall mean Compass, the
Founding Companies other than the Company (the "Other Founding Companies"), and
their respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other person dealing with any such plans;
provided, however, that the Other Founding Companies, and each of their
respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other persons dealing with any such plans,
shall cease to be a "Compass Indemnified Party" for all purposes hereunder as of
the Closing, and thereafter such entities and persons shall have no further
rights and remedies under this Article VIII (except to the extent a person is an
------------
officer, director, employee or agent of Compass as a result of the consummation
of the transactions contemplated under the Other Stock Purchase Agreements).
Accordingly, for purposes of this Article VIII and subject to the limitations
------------
set forth in this Article VIII, the Other Founding Companies, and each of their
------------
respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other persons dealing with any such plans,
shall be deemed to be third party beneficiaries of this Agreement.
As used herein, "Losses" shall mean the following: (i) in the event the
Agreement is terminated pursuant to Section 10.1 and the Closing does not occur,
------------
any and all out-of-pocket costs and expenses (including reasonable fees and
expenses of the attorneys, accountants and other experts), or (ii) subsequent to
the Closing, any and all liabilities (whether contingent, fixed or unfixed,
liquidated or unliquidated, or otherwise), obligations, deficiencies, demands,
claims, suits, actions, or causes of action, assessments, losses, costs,
expenses, interests, fines, penalties, actual or punitive damages or costs or
expenses of any and all investigations, proceedings, judgments, orders,
environmental analyses, remediations, settlements and compromises (including
reasonable fees and expenses of the attorneys, accountants and other experts).
8.2 Indemnification by Compass. Compass agrees to indemnify, defend and
--------------------------
save each of the Stockholders and their respective Affiliates, and their
Affiliates' respective officers, directors, employees and agents (each, a
"Stockholder Indemnified Party"), and each of them, forever harmless from and
against, and to promptly pay to a Stockholder Indemnified Party or reimburse a
Stockholder Indemnified Party for, any and all Losses sustained or incurred by
any Stockholder Indemnified Party relating to, resulting from, arising out of or
otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made herein or in any certificate, schedule, document, exhibit or other
instrument delivered
38
hereunder by Compass or any action, demand or claim by any third party
against or affecting any Stockholder Indemnified Party which, if
successful, would give rise to a breach of any such representation or
warranty;
(b) any failure by Compass to observe or perform any of their
covenants and agreements set forth herein or in any document delivered
hereunder;
(c) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to Compass or any of the Founding Companies other than the
Company contained in any preliminary prospectus relating to the IPO, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon
any omission or alleged omission to state therein a material fact relating
to Compass or any of the Founding Companies other than the Company required
to be stated therein or necessary to make the statements therein not
misleading; and
(d) any liability under the 1933 Act, the 1934 Act, or other
federal or state law or regulation, at common law or otherwise, arising out
of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the Company or the Stockholders, contained in any
preliminary prospectus relating to IPO, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission to state therein a
material fact relating to the Company or the Stockholders required to be
stated therein or necessary to make the statements therein not misleading,
to the extent such untrue statement (or alleged untrue statement) was made
in, or omission (or alleged omission) occurred in, any preliminary
prospectus and (i) the Company or Stockholders provided, in writing,
corrected information to Compass or its counsel for inclusion in the final
prospectus prior to distributing such prospectus, and such information was
not so included, or (ii) Compass did not provide the Company and its
counsel with the information required to be provided pursuant to Section
-------
7.2.2, and such information is the basis for the untrue statement or
-----
omission (or alleged untrue statement or omission) giving rise to the
liability under this Section 8.2(d).
--------------
8.3 Indemnification Procedure for Third Party Claims.
------------------------------------------------
8.3.1 In the event any person or entity entitled to indemnification
under this Agreement (an "Indemnified Party") receives notice of the
assertion of any claim, issuance of any order or the commencement of any
action or proceeding by any person who is not a party to this Agreement or
an Affiliate of a party, including, without limitation, any domestic or
foreign court or Governmental Authority (a "Third Party Claim"), against
such Indemnified Party, against which a party to this Agreement is required
to provide indemnification under this Agreement (an "Indemnifying Party"),
the Indemnified Party shall give written notice thereof together with a
statement of any available information regarding such claim to the
Indemnifying Party within thirty (30) days after learning of such claim (or
within such shorter time as may be necessary, in the Indemnified Party's
reasonable judgment, to give the Indemnifying Party a reasonable
39
opportunity to respond to and defend such claim); provided, however, that
the failure to give such notice shall not affect the right to indemnity
hereunder except to the extent the Indemnifying Party is prejudiced by such
delay. The Indemnifying Party shall have the right, upon written notice to
the Indemnified Party (the "Defense Notice") within thirty (30) days after
receipt from the Indemnified Party of notice of such claim, to conduct at
its expense the defense against such claim in its own name, or if necessary
in the name of the Indemnified Party; provided, however, that the
Indemnified Party shall have the right to approve the defense counsel
selected by the Indemnifying Party, which approval shall not be
unreasonably withheld, and in the event the Indemnifying Party and the
Indemnified Party cannot agree upon such counsel within ten (10) days after
the Defense Notice is provided, then the Indemnifying Party shall propose
an alternate defense counsel, who shall be subject again to the Indemnified
Party's approval.
8.3.2 In the event that the Indemnifying Party shall fail to timely
give the Defense Notice, it shall be deemed to have elected not to conduct
the defense of the subject claim, and in such event the Indemnified Party
shall have the right to conduct such defense in good faith and to
compromise and settle the claim only with the prior consent of the
Indemnifying Party (which consent shall not be unreasonably withheld or
delayed) and the Indemnifying Party will be liable for all costs, expenses,
settlement amounts or other Losses paid or incurred in connection
therewith.
8.3.3 In the event that the Indemnifying Party does elect to conduct
the defense of the subject claim, the Indemnified Party will cooperate with
and make available to the Indemnifying Party such assistance and materials
as may be reasonably requested by it, all at the expense of the
Indemnifying Party, and the Indemnified Party shall have the right at its
expense to participate in the defense assisted by counsel of its own
choosing, provided that the Indemnified Party shall have the right to
compromise and settle the claim only with the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. Without the prior written consent of the Indemnified Party, the
Indemnifying Party will not enter into any settlement of any Third Party
Claim or cease to defend against such claim, if pursuant to or as a result
of such settlement or cessation, (i) injunctive or other equitable relief
would be imposed against the Indemnified Party, or (ii) such settlement or
cessation would lead to liability or create any financial or other
obligation on the part of the Indemnified Party for which the Indemnified
Party is not entitled to indemnification hereunder, or (iii) such
settlement includes a written admission of guilt. The Indemnifying Party
shall not be entitled to control, and the Indemnified Party shall be
entitled to have sole control over, the defense or settlement of any claim
(A) to the extent that claim seeks an order, injunction or other equitable
relief against the Indemnified Party which, if successful, could materially
interfere with the business, operations, assets, condition (financial or
otherwise) or prospects of the Indemnified Party or (B) in a proceeding to
which the Indemnifying Party is also a party and the Indemnified Party
determines in good faith that joint representation would be inappropriate
(and in each case the cost of such defense shall constitute an amount for
which the Indemnified Party is entitled to indemnification hereunder);
provided, however, that the Indemnifying Party shall have the right to
settle such claim only with the prior written consent of the Indemnifying
Party, which consent shall not be unreasonably withheld or delayed. If an
offer is made to settle a Third Party
40
Claim which all parties to such Third Party Claim (including the
Indemnifying Party) are prepared to settle and which offer the Indemnifying
Party is permitted to settle under this Section 8.3.2 only upon the prior
-------------
written consent of the Indemnified Party, the Indemnifying Party will give
prompt written notice to the Indemnified Party to that effect. If the
Indemnified Party fails to consent to such firm offer within (30) calendar
days after its receipt of such notice, the Indemnified Party may continue
to contest or defend such Third Party Claim and, in such event, the maximum
liability of the Indemnifying Party as to such Third Party Claim will not
exceed the amount of such settlement offer, plus costs and expenses paid or
incurred by the Indemnified Party through the end of such (30) day period.
8.3.4 Any judgment entered, order issued or settlement agreed upon in
the manner provided herein shall be binding upon the Indemnifying Party,
and shall conclusively be deemed to be an obligation with respect to which
the Indemnified Party is entitled to prompt indemnification hereunder.
8.4 Direct Claims. It is the intent of the parties hereto that all direct
-------------
claims by an Indemnified Party against a party hereto not arising out of Third
Party Claims shall be subject to and benefit from the terms of this Article
-------
VIII. Any claim under this Article VIII by an Indemnified Party for
---- ------------
indemnification other than indemnification against a Third Party Claim (a
"Direct Claim") will be asserted by giving the Indemnifying Party reasonably
prompt written notice thereof, together with a statement of any available
information regarding such claim, and the Indemnifying Party will have a period
of thirty (30) calendar days within which to satisfy such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such claim, in
which event the Indemnified Party will be free to pursue such remedies as may be
available to the Indemnified Party under this Article VIII.
------------
8.5 Failure to Give Timely Notice. A failure by an Indemnified Party to
-----------------------------
give timely, complete or accurate notice as provided in Section 8.3 or 8.4 will
----------- ---
not affect the rights or obligations of any party hereunder except and only to
the extent that, as a result of such failure, any party entitled to receive such
notice was deprived of its right to recover any payment under any applicable
insurance coverage, or deprived of its right to assert any claim because of
expiration of the applicable statute of limitations, or was otherwise directly
and materially damaged as a result of such failure to give timely notice.
8.6 Reduction of Loss. To the extent any Loss of an Indemnified Party is
-----------------
reduced by receipt of payment (i) under insurance policies (net of any
retroactive adjustment or other reimbursement to the insurer in respect of such
payment), or (ii) from third parties not affiliated with the Indemnified Party,
such payments (net of the expenses of the recovery thereof) shall be credited
against such Loss. The pendency of such payments shall not delay or reduce the
obligation of the Indemnifying Party to make payment to the Indemnified Party in
respect of such Loss, and the Indemnified Party shall have no obligation,
hereunder or otherwise, to pursue payment under or from any insurer or third
party in respect of such Loss. The Indemnified Party shall cooperate, at no
expense to the Indemnified Party, in any reasonable efforts of the Indemnifying
Party in pursuing such payments, including expressly acknowledging the
Indemnifying Party's right and standing to pursue such payments, and the
Indemnified Party will
41
use its customary efforts short of litigating with an insurer or third party to
collect amounts due from such insurer or third party. If any insurance or third
party reimbursement is obtained subsequent to payment by an Indemnifying Party
in respect of a Loss, such reimbursement (to the extent of amounts theretofore
paid by the Indemnifying Party on account of such Loss) shall be promptly paid
over to the Indemnifying Party. The liability of the Indemnifying Party with
respect to any Direct Claim or Third Party Claim shall be reduced by the income
tax benefit actually realized by the Indemnified Party as a result of any Losses
upon which such Direct Claim or Third Party Claim is based. An income tax
benefit shall only be treated as realized if a Loss is deductible in the income
tax return for the taxable year of such Loss and if such deduction produces an
actual reduction of taxes paid for such year. Calculation of the income tax
benefit shall be made by a comparison of the income taxes actually due with the
tax returns and the income taxes that would be due if the Loss was not
deductible.
8.7 Limitation on Indemnities.
-------------------------
8.7.1 Liability Among the Stockholders and the Company. The Company
------------------------------------------------
shall have no liability pursuant to Section 8.1 after the Closing. Prior to
-----------
the Closing, the Stockholders set forth on Schedule 8.7.1-1 (the "Major
----------------
Stockholders") and the Company shall be jointly and severally liable for
all of the Losses pursuant to Section 8.1. Subsequent to the Closing, each
-----------
of the Major Stockholders shall be jointly and severally liable for all of
the Losses pursuant to Section 8.1, up to the amount of Aggregate Purchase
-----------
Consideration received by such Major Stockholder. Prior to and subsequent
to the Closing, each of the Stockholders set forth on Schedule 8.7.1-2 (the
----------------
"Minor Stockholders") shall be severally liable for all of the Losses
pursuant to Section 8.1 in proportion to the percentages set forth opposite
-----------
such Minor Stockholder name on Schedule 8.7.1-2, up to the amount of
----------------
Aggregate Purchase Consideration received by such Minor Stockholder.
8.7.2 Threshold for the Stockholders and the Company. With respect
----------------------------------------------
to representations and warranties, the Stockholders and the Company shall
not have any liability pursuant to Section 8.1(a) hereof unless and until
--------------
and only to the extent that the aggregate amount of Losses accrued pursuant
to Section 8.1(a) exceeds the Threshold Amount (hereinafter defined);
--------------
provided, however, that this threshold shall not apply to Losses arising
out of breaches of representations or warranties contained in Sections 4.2,
------------
4.4.1, 4.16, 4.17 and 4.25, and the Stockholders shall indemnify the
----- ---- ---- ----
Compass Indemnified Parties for any Losses accruing thereunder in
accordance with this Article VIII without regard to such threshold. As
------------
used herein, "Threshold Amount" shall mean the following amounts (as
applicable): (i) in the event the Agreement is terminated pursuant to
Section 10.1 and the Closing does not occur, one percent (1%) of the
------------
"Minimum Value" as set forth on Schedule 2.1 (the "Minimum Value"), or (ii)
------------
subsequent to the Closing, one percent (1%) of the Aggregate Purchase
Consideration.
8.7.3 Threshold for Compass. With respect to representations and
---------------------
warranties, Compass shall not have any liability pursuant to Section 8.2(a)
--------------
hereof unless and until and only to the extent that the aggregate amount of
the Losses accrued pursuant to Section 8.2(a) exceeds the Threshold Amount;
--------------
provided, however that this threshold shall not apply to Losses arising out
of the breach of representations or warranties contained
42
in Sections 5.2 and 5.4.1 and Compass shall indemnify the Stockholder
------------ -----
Indemnified Parties from any Losses occurring thereunder in accordance
with this Article VIII without regard to such threshold.
------------
8.7.4 Limitations on Claims Against the Stockholders and the Company.
--------------------------------------------------------------
The Stockholders' and the Company's liability for misrepresentations and
breaches of representations and warranties under Section 8.1(a) shall be
--------------
limited to the Cap Amount (hereinafter defined) in the aggregate; provided,
however that this limitation shall not apply to Losses arising out of
breaches of representations or warranties contained in Sections 4.2, 4.4.1,
------------ -----
4.16, 4.17 and 4.25, and any Losses accruing thereunder shall not count
---- ---- ----
towards such limitation. As used herein, "Cap Amount" shall mean the
following amounts (as applicable): (i) in the event the Agreement is
terminated pursuant to Section 10.1 and the Closing does not occur, twenty
------------
percent (20%) of the Minimum Value, or (ii) subsequent to the Closing, the
Aggregate Purchase Consideration.
8.7.5 Limitation on Claims Against Compass. The liability of Compass
------------------------------------
under Section 8.2(a) shall be limited to the Cap Amount in the aggregate;
--------------
provided, however that this limitation shall not apply to Losses arising
out of breaches of representations or warranties in Sections 5.2 and 5.4.1
------------ -----
and any Losses accruing thereunder shall not count towards such limitation.
8.7.6 Limitations Relating to Post-Closing Adjustment. In the event
-----------------------------------------------
a Deemed Earnings Shortfall occurs as a result of a breach of a
representation and warranty hereunder made by the Company or the
Stockholders, the Company and the Stockholders shall not have any liability
for the amount of Losses pursuant to Section 8.1(a) arising out of such
--------------
breach and the amount of such Losses shall not be included in the
calculation of the Threshold Amount under Section 8.7.2.
-------------
8.8 Survival of Representations, Warranties and Covenants of the
------------------------------------------------------------
Stockholders and the Company; Time Limits on Indemnification Obligations.
------------------------------------------------------------------------
Notwithstanding any right of Compass and the Other Founding Companies to fully
investigate the affairs of the Stockholders, the Company and the Business, and
notwithstanding any knowledge of facts determined or determinable by Compass and
the Other Founding Companies pursuant to such investigation or right of
investigation, Compass and the Other Founding Companies have the right to rely
fully upon the representations, warranties, covenants and agreements of the
Stockholders and the Company contained in this Agreement or in any certificate
delivered pursuant to any of the foregoing. All such representations,
warranties, covenants and agreements of the Stockholders and the Company shall
survive the execution and delivery of this Agreement and the Closing hereunder;
provided, however, (i) that the Stockholders' obligations pursuant to Sections
--------
8.1(a), (b) and (c), other than those relating to covenants and agreements to be
-------------------
performed by the Stockholders after the Closing and other than with respect to
obligations for which a claim is made as provided in Section 8.3 or 8.4 hereof
------------------
within the applicable time period as specified below, shall expire one (1) year
after the Closing Date, except with respect to the Stockholders' obligations
arising under or relating to (A) Section 4.16 hereof, which shall survive until
------------
the expiration of the applicable periods (including any extensions) of the
respective statutes of limitation applicable to the payment of the Taxes and (B)
Section 4.2 hereof, which shall survive indefinitely; and (ii) solely to the
-----------
extent that Compass actually incurs liability under the 1933
43
Act or the 1934 Act, the obligations under Section 8.1(e) above shall survive
--------------
until the expiration of any applicable statute of limitations with respect to
such claims.
8.9 Survival of Representations, Warranties and Covenants of Compass; Time
----------------------------------------------------------------------
Limits on Indemnification Obligations. All representations, warranties,
-------------------------------------
covenants and agreements of Compass shall survive the execution and delivery of
this Agreement and the Closing hereunder; provided, however, (i) that Compass'
obligations under Sections 8.2 (a) and (b), other than those relating to
------------------------
covenants and agreements to be performed by Compass after the Closing and other
than with respect to the obligations for which a claim is made as provided in
Section 8.3 or 8.4 hereof within the applicable time period as specified below,
------------------
shall expire one (1) year after Closing Date, except with respect to obligations
arising under or relating to Section 5.2 hereof which shall survive
-----------
indefinitely; and (ii) solely to the extent that the Stockholders actually incur
liability under the 1933 Act or the 1934 Act, the obligations under Section
-------
8.2(c) above shall survive until the expiration of any applicable statute of
------
limitations with respect to such claims.
8.10 Defense of Claims; Control of Proceedings. Notwithstanding anything
-----------------------------------------
in this Agreement to the contrary, to the extent any Loss subject to
indemnification hereunder would exceed the Indemnifying Party's indemnity
obligations under this Agreement, the Indemnified Party shall be entitled to
control the defense of such claim or management of such proceeding with respect
to such excess Loss.
8.11 Indemnification Exclusive Remedy. Except for remedies based upon
--------------------------------
fraud and except for equitable remedies, the remedies provided in this Article
-------
VIII constitute the sole and exclusive remedies for recovery of Losses against a
----
party to this Agreement.
8.12 Manner of Satisfying Indemnification Obligations. Subsequent to the
------------------------------------------------
Closing, to the extent the aggregate amount of Losses accrued pursuant to
Section 8.1 exceeds the Aggregate Cash Consideration (such excess, the "Excess
-----------
Indemnity"), the Stockholders may satisfy their respective obligations for the
Excess Indemnity (i) by tendering to the Compass Indemnified Parties shares of
Compass Common Stock, such shares to be valued at the Market Price (hereinafter
defined), or (ii) notwithstanding any restrictions set forth herein with respect
to the transfer and sale of the Stockholders' shares of Compass Common Stock
(other than the restrictions under the 1933 Act or other applicable state laws
and rules), with the proceeds of the sale of such shares to third parties;
provided, however, that if such transfer or sale to a third party occurs prior
to the termination of the restrictions with respect thereto set forth herein,
the transfer or sale shall not to be for a consideration in excess of the amount
of the Excess Indemnity. As used herein, "Market Price" shall mean the average
closing (last) price for a share of Compass Common Stock (as reported on the
exchange or market on which such shares are then listed or traded) for the most
recent twenty (20) days that such shares have traded ending on the date two (2)
days prior to the date tendered pursuant to clause (i) of the preceding
sentence, or, if such shares are not then listed or traded on an exchange or
other market, the fair market value of such shares as determined by an appraiser
reasonably agreed to by the parties.
44
ARTICLE IX
CLOSING CONDITIONS
9.1 Conditions to Each Party's Obligation to Effect the Purchase. The
------------------------------------------------------------
respective obligations of each party to effect the Purchase shall be subject
to the fulfillment at or prior to the Closing of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have been
executed and the closing of the sale of Compass Common Stock to the
Underwriters pursuant thereto shall have occurred simultaneously with the
Closing hereunder;
(b) the closings of the transactions contemplated under the Other
Stock Purchase Agreements shall have occurred simultaneously with the
Closing hereunder;
(c) the Registration Statement shall have become effective in
accordance with the provisions of the 1933 Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect
and no proceeding for that purpose shall have been instituted by the SEC or
any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or decree
by any federal or state court which prevents the consummation of the IPO or
the Purchase or any of the Other Purchases shall have been issued and
remain in effect ;
(e) the price to the public in the IPO shall be sufficient for the
total consideration received by the Stockholders (valuing the shares of
Compass Common Stock received by the Stockholders at such IPO price) to be
at least the Minimum Value, plus the additional amounts promised by Compass
under the Other Stock Purchase Agreements;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the
consummation of the Purchase or any of the Other Purchases or make the
consummation of the Purchase or any of the Other Purchases illegal; and
(g) all material governmental and third party waivers, consents and
stockholders approvals required for the consummation of the Purchase or any
of the Other Purchases and the transactions contemplated hereby and by the
Other Stock Purchase Agreements shall have been obtained and be in effect.
9.2 Conditions to Obligation of the Company to Effect the Purchase.
--------------------------------------------------------------
Unless waived by the Company, the obligation of the Company to effect the
Purchase shall be subject to the fulfillment at or prior to the Closing of the
following additional conditions:
(a) Compass and each of the Other Founding Companies shall have
performed in all material respects their agreements contained in this
Agreement and each Other
45
Stock Purchase Agreement required to be performed on or prior to the
Closing Date and the representations and warranties of Compass contained in
this Agreement and each Other Stock Purchase Agreement shall be true and
correct in all material respects on and as of the date made and on and as
of the Closing Date as if made at and as of such date, and the Company
shall have received a certificate of the Chief Executive Officer or
President of Compass to that effect;
(b) no governmental authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations,
would materially impair the value to the Stockholders of the Purchase;
(c) the Company and the Stockholders shall have received an opinion
from ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, dated as of the Closing Date, containing the
substantive opinions set forth on Exhibit 9.2(c), the final form of such
--------------
opinion to be in form and substance acceptable to counsel for the Company
and Stockholders;
(d) the Company and the Stockholders shall have received an opinion
from ▇▇▇▇▇▇ ▇▇▇▇▇▇ & Zavis, dated as of the Closing Date, customary for
transactions of this nature, that the receipt by the Stockholders of
Compass Common Stock to be issued to the Stockholders pursuant to this
Agreement will not be taxable pursuant to Section 351 of the Code;
(e) ▇. ▇. ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), ▇▇▇▇ ▇▇▇▇▇▇▇ ("▇. ▇▇▇▇▇▇▇") and ▇▇▇▇
▇▇▇▇▇▇▇ ("▇. ▇▇▇▇▇▇▇") shall have been afforded the opportunity to enter
into an employment agreement in the forms attached hereto as Exhibits
--------
9.2(e)-1, 9.2(e)-2 and 9.2(e)-3, respectively;
-------- -------- --------
(f) Compass shall have delivered to the Company and the Underwriters
a certificate, dated as of a date no later than ten (10) days prior to the
Closing Date, duly issued by the Secretary of State of the State of
Delaware, showing that Compass is in good standing;
(g) each of the Stockholders, the stockholders of the other Founding
Companies who are to receive shares of Compass Common Stock pursuant to the
Other Stock Purchase Agreements, and the other stockholders of Compass
other than those acquiring stock in the IPO shall have entered into a
stockholders agreement (the "Stockholders Agreement") in the form attached
hereto as Exhibit 9.2(g); and
--------------
(h) all conditions to the Other Purchases, on substantially the same
terms as provided herein, shall have been satisfied or waived by the
applicable party thereto.
9.3 Conditions to Obligations of Compass to Effect the Purchase. Unless
-----------------------------------------------------------
waived by Compass, the obligations of Compass to effect the Purchase shall be
subject to the fulfillment at or prior to the Closing of the additional
following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and
46
the representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on and as of
the date made and on and as of the Closing Date as if made at and as of
such date, and Compass and the Underwriters shall have received a
Certificate of the Chief Executive Officer or President of the Company to
that effect;
(b) the Stockholders shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of the
Stockholders contained in this Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the Closing
Date as if made at and as of such date, and Compass and the Underwriters
shall have received a Certificate of each Stockholder to that effect;
(c) Compass and the Underwriters shall have received an opinion from
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel to the Company and the Stockholders,
dated the Closing Date, in the form attached hereto as Exhibit 9.3(c);
--------------
(d) ▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇ and ▇. ▇▇▇▇▇▇▇ shall have executed and
delivered employment agreements referred to in Sections 9.2(e) and 9.2(f);
--------------- ------
(e) Compass and the Underwriters shall have received "Comfort"
letters in customary form from the Company's independent public
accountants, dated the effective date of the Registration Statement and the
Closing Date (or such other date reasonably acceptable to Compass), with
respect to certain financial statements and other financial information
included in the Registration Statement and any subsequent changes in
specified balance sheet and income statement items, including total assets,
working capital, total stockholders' equity, total revenues and the total
and per share amounts of net income;
(f) the Company shall have delivered to Compass and the Underwriters
a certificate, dated as of a date no later than ten (10) days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's and Company Subsidiary's state of incorporation and in each state
in which the Company or any Company Subsidiary is authorized to do
business, showing the Company or Company Subsidiary (as applicable) is in
good standing;
(g) no Governmental Authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations,
would materially impair the value to Compass of the Purchase;
(h) the Stockholders shall have executed the Stockholders Agreement;
(i) the Stockholders shall have delivered to Compass an instrument
in the form attached hereto as Exhibit 9.3(i), dated the Closing Date,
--------------
releasing the Company (including its subsidiaries) from any and all claims
of the Stockholders against the Company (including its subsidiaries) and
obligations of the Company (including its subsidiaries) to the
Stockholders;
47
(j) all amounts owed by a Stockholder, any Affiliate of a
Stockholder or any Affiliate of the Company or any Company Subsidiary to
the Company or any Company Subsidiary, and all amounts owed by the Company
or any Company Subsidiary to a Stockholder, any Affiliate of a Stockholder
or any Affiliate of the Company or any Company Subsidiary, shall have been
settled and satisfied; and
(k) the directors of the Company immediately prior to the Closing
shall have delivered to Compass their resignations as directors of the
Company.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
(a) pursuant to Section 6.3;
-----------
(b) by the Company or the Stockholders,
(i) if the Purchase is not completed by March 31, 1998, other
than on account of delay or default on the part of the Company or the
Stockholders or any of their affiliates or associates;
(ii) if the Purchase is enjoined by a final, unappealable
court order not entered at the request or with the support of the
Company or any of the Stockholders or any of their affiliates or
associates;
(iii) if Compass (A) fails to perform in any material respect
any of its material covenants in this Agreement or the Other Stock
Purchase Agreements (with respect to the Other Stock Purchase
Agreements, other than such defaults which have been waived) and (B)
does not cure such default in all material respects within thirty (30)
days after written notice of such default is given to Compass; or
(c) by Compass,
(i) if the Purchase is not completed by March 31, 1998, other
than on account of delay or default on the part of Compass or any of
its stockholders or any of their affiliates or associates;
(ii) if the Purchase is enjoined by a final, unappealable
court order not entered at the request or with the support of Compass
or any of its 5% stockholders or any of their affiliates or
associates;
(iii) if the Company (A) fails to perform in any material
respect any of its material covenants in this Agreement and (B) does
not cure such default in all
48
material respects within thirty (30) days after written notice of such
default is given to the Company by Compass;
(iv) if the Stockholders (A) fail to perform in any material
respect any of their material covenants in this Agreement and (B) do
not cure such default in all material respects within thirty (30) days
after written notice of such default is given to the Stockholders by
Compass; or
(d) by mutual written consent of the parties hereto.
10.2 Effect of Termination. In the event of termination of this Agreement
---------------------
by either Compass or the Company, as provided in Section 10.1, this Agreement
------------
shall forthwith become void and there shall be no further obligation on the part
of the Company, the Stockholders, Compass or their respective officers or
directors (except the obligations set forth in this Section 10.2 and in Sections
------------ --------
7.1, 7.3 and 7.5 and Article VIII, all of which shall survive the termination).
--- --- --- ------------
10.3 Amendment. This Agreement may not be amended except by written
---------
consent of the parties hereto.
10.4 Waiver. At any time prior to the Closing, the parties hereto may (a)
------
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant thereto and
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE XI
1933 ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The Stockholders acknowledge that the shares of Compass Common Stock to be
delivered to the Stockholders pursuant to this Agreement have not been and will
not be registered under the 1933 Act and therefore may not be resold without
compliance with the 1933 Act. The Compass Common Stock to be acquired by each
of the Stockholders pursuant to this Agreement is being acquired solely for such
Stockholder's own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution.
11.1 Economic Risk; Sophistication. Except as set forth on Schedule 11.1,
----------------------------- -------------
each of the Stockholders represents and warrants to Compass that he or she is an
"accredited investor" as defined in Regulation D promulgated under the 1933 Act;
that he or she is able to bear the economic risk of an investment in the Compass
Common Stock acquired pursuant to this Agreement and can afford to sustain a
total loss of such investment and has such knowledge and experience in financial
and business matters that he or she is capable of evaluating the merits and
risks of the proposed investment in the Compass Common Stock; and that he or she
has had an adequate opportunity to ask questions and receive answers from the
officers of Compass
49
concerning all matters relating to the transactions described herein including,
without limitation, the background and experience of the current and proposed
officers and directors of Compass, and the plans for of operations of the
business of Compass.
11.2 Transfer Restrictions. Except for transfers to immediate family
---------------------
members who agree to be bound by the restrictions set forth in this Section 11.2
------------
(or trusts for the benefit of the Stockholders or family members, the trustees
of which so agree), and subject to the provisions of Section 7.10, for a period
------------
of one (1) year from the Closing Date, the Stockholders shall not (a) sell,
assign, exchange, transfer, encumber, pledge, distribute or otherwise dispose of
(i) any shares of Compass Common Stock received by the Stockholders pursuant to
this Agreement, or (ii) any interest (including, without limitation, an option
to buy or sell) in any such shares of Compass Common Stock, in whole or in part,
and no such attempted transfer shall be treated as effective for any purpose; or
(b) engage in any transaction, whether or not with respect to any shares of
Compass Common Stock or any interest therein, the intent or effect of which is
to reduce the risk of owning the shares of Compass Common Stock acquired
pursuant to Article II hereof (including, without limitation, engaging in put,
----------
call, short-sale, straddle or similar market transactions). The certificates
evidencing the Compass Common Stock delivered to the Stockholders pursuant to
Article II of this Agreement shall bear a legend substantially in the form set
----------
forth below and containing such other information as Compass may deem necessary
or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION OR OTHER DISPOSITION, PRIOR TO [INSERT FIRST
ANNIVERSARY OF CLOSING DATE]. UPON THE WRITTEN REQUEST OF
THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
11.3 Compliance with Law. The Stockholders covenant, warrant and represent
-------------------
that none of the shares of Compass Common Stock issued to such Stockholders will
be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. All certificates
evidencing Company Common Stock delivered to the Stockholders pursuant to
Article II of this Agreement shall bear the following legend in addition to the
----------
legend required under Section 11.2 of this Agreement:
------------
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE
SOLD OR OTHERWISE
50
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND
THE APPLICABLE SECURITIES LAW.
ARTICLE XII
NONCOMPETITION
12.1 Prohibited Activities. ▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇ and ▇. ▇▇▇▇▇▇▇, for a
---------------------
period of five (5) years following the Closing Date, and the Stockholders other
than ▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇ and ▇. ▇▇▇▇▇▇▇, for a period of one (1) year following
the Closing Date, will not, other than for the benefit of Compass, directly or
indirectly, for themselves or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business in competition with the Business, as
conducted as of the Closing Date, within any business market where Compass,
the Company or any Founding Company conducted or conducts a similar
business at any time (the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of Compass (including the subsidiaries thereof) in a managerial
capacity for the purpose or with the intent of enticing such employee away
from or out of the employ of Compass (including the subsidiaries thereof),
or hire such person, provided that any Stockholder shall be permitted to
call upon and hire any member of his or her immediate family;
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter so long as the Stockholder
does not consult with or is not employed by such competitor.
12.2 Damages. Because of the difficulty of measuring economic losses to
-------
Compass as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Compass for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Compass in the event of breach by such Stockholders,
by injunctions and restraining orders.
12.3 Reasonable Restraint. It is agreed by the parties hereto that the
--------------------
foregoing covenants in this Article XII impose a reasonable restraint on the
-----------
Stockholders in light of the activities and business of Compass (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of Compass; but it is also the intent of Compass and the
Stockholders that such covenants be construed and enforced in accordance with
the changing activities and business of Compass (including the subsidiaries
thereof) throughout the term of this covenant.
51
It is further agreed by the parties hereto that, in the event that any
Stockholder who has entered into an employment agreement with Compass and/or any
subsidiary thereof as set forth herein shall thereafter cease to be employed
thereunder, and such Stockholder shall enter into a business or pursue other
activities not in competition with Compass and/or any subsidiary thereof, or
similar activities or business in locations the operations of which, under such
circumstances, does not violate this Article XII and in any event such new
-----------
business, activities or location are not in violation of this Article XII or of
-----------
such Stockholder's obligations under this Article XII, such Stockholder shall
-----------
not be chargeable with a violation of this Article XII if Compass and/or any
-----------
subsidiary thereof shall thereafter enter the same, similar or a competitive (i)
business, (ii) course of activities or (iii) location, as applicable.
12.4 Severability; Reformation. The covenants in this Article XII are
------------------------- -----------
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
12.5 Independent Covenant. All of the covenants in this Article XII shall
-------------------- -----------
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Compass (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Compass of such covenants. It is specifically agreed that the period of five
(5) years stated at the beginning of this Article XII, during which the
-----------
agreements and covenants of each Stockholder made in this Article XII shall be
-----------
effective, shall be computed by excluding from such computation any time during
which such Stockholder is in violation of any provision of this Article XII.
-----------
The covenants contained in Article XII shall not be affected by any breach of
-----------
any other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
12.6 Materiality. The Company and the Stockholders hereby agree that this
-----------
covenant is a material and substantial part of this transaction.
ARTICLE XIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 Stockholders' Covenant. The Stockholders recognize and acknowledge
-----------------------
that they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the other Founding
Companies, the Company Subsidiaries and/or Compass, such as strategic plans,
systems, operational policies, marketing plans, and pricing and cost policies
that are valuable, special and unique assets of the Company's, the other
Founding Companies', the Company Subsidiaries' and/or Compass' respective
businesses. The Stockholders agree that they will not disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except
52
(a) to authorized representatives of Compass,
(b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties to
Compass,
(c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this
Section 13.1,
------------
(d) such information becomes known to the public generally through
no fault of the Stockholders,
(e) disclosure is required by law or the order of any governmental
authority under color of law, provided that prior to disclosing any
information pursuant to this clause (ii), the Stockholder shall, if
possible, give prior written notice thereof to Compass and provide Compass
with the opportunity to contest such disclosure,
(f) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, or
(g) pursuant to this Agreement or the Other Stock Purchase
Agreements.
In the event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section 13.1, Compass shall be entitled to an injunction
------------
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Compass from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
13.2 Damages. Because of the difficulty of measuring economic losses as a
-------
result of the breach of the foregoing covenants in Section 13.1, and because of
------------
the immediate and irreparable damage that would be caused for which they would
have no other adequate remedy, the parties hereto agree that, in the event of a
breach by any of them of the foregoing covenants, the covenant may be enforced
against the other parties by injunction and restraining orders.
13.3 Survival. The obligations of the parties under this Article XIII
-------- ------------
shall survive the termination of this Agreement.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Brokers. The Company and the Stockholders, jointly and severally,
-------
represent and warrant that no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee (except for the fee described in Schedule
--------
14.1-1, hereinafter referred to as the "Company Brokerage Fee") or commission in
------
connection with the Purchase or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company or the Stockholders.
Compass represents and warrants that no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee (except for the fee described
in
53
Schedule 14.1-2, hereinafter referred to as the "Compass Brokerage Fee") or
---------------
commission in connection with the Purchase or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Compass or its
stockholders (other than underwriting discounts and commission to be paid in
connection with the IPO). Compass acknowledges and agrees that it shall be
liable for and pay the Company Brokerage Fee, the Compass Brokerage Fee and any
and all other similar fees and commissions based upon arrangements made by or on
behalf of Compass or its Stockholders without any deduction from the Aggregate
Purchase Consideration and/or Final Deemed Earnings Actuals.
14.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
14.2.1 If to Compass, to:
c/o BGL Capital Partners, L.L.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ & Zavis
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
14.2.2 If to the Company, to:
BRMC of Delaware, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇.▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & Bird LLP
One Atlantic Center
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., Esq.
54
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
and:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
14.2.3 If to the Stockholders, addressed to them at their
addresses set forth on Schedule 14.2.3, with copies to such counsel as is set
---------------
forth with respect to each Stockholder on such Schedule 14.2.3.
---------------
14.3 Interpretation. The headings contained in this Agreement are for
--------------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary
intention appears, (i) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
14.4 Certain Definitions. As used in this Agreement, (i) the term "person"
-------------------
shall mean any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated association, corporation, entity or government (whether
Federal, state, county, city or otherwise, including, without limitation, any
instrumentality, division, agency or department thereof), (ii) the term
"Affiliate" shall have the meaning given for that term in Rule 405 under the
1933 Act, and shall include each past and present Affiliate of a person or
entity and the members of such Affiliate's immediate family or their spouses or
children and any trust the beneficiaries of which are such individuals or
relatives, and (iii) the term "to the knowledge of the Stockholders or the
Company" or any similar term shall mean actual knowledge of a fact or matter
possessed by any of the Stockholders, by any of the officers or directors of the
Company.
14.5 Entire Agreement; Assignment. This Agreement (including the schedules
----------------------------
and exhibits attached hereto and the documents and instruments referred to
herein) (a) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise, without the prior written consent of the
parties hereto.
14.6 Applicable Law. This Agreement shall be governed in all respects,
--------------
including validity, interpretation and effect, by the laws of the State of
Delaware applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
55
14.7 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
14.8 Parties in Interest. This Agreement shall be binding upon and inure
-------------------
solely to the benefit of each party hereto, and except as expressly set forth in
herein, nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
14.9 Severability. Without limiting in any way the applicability of
------------
Section 12.4 to the provisions of Article XII, if any other provision of this
------------ -----------
Agreement is held invalid or unenforceable by any court of competent
jurisdiction, the other provisions of this Agreement will remain in full force
and effect. Any provision of this Agreement held invalid or enforceable only in
part or degree will remain in full force and effect to the extent not held
invalid or unenforceable.
56
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
COMPASS INTERNATIONAL SERVICES
CORPORATION
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Its:Chairman and CEO
-----------------------------
BRMC OF DELAWARE, INC.
By:/s/ H. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
Name: H. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------
Its: President
-----------------------------
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
/s/ H. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
H. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
ADVANCED CREDIT SERVICES, INC., a
Georgia Corporation
By: /s/ ▇. ▇▇▇▇▇▇▇▇
-------------------------------
Name: ▇. ▇▇▇▇▇▇▇▇
-----------------------------
Its: President
------------------------------
/s/ ▇▇▇▇▇ ▇▇▇ Pitcher
----------------------------------
▇▇▇▇▇ ▇▇▇ PITCHER
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇.
----------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇.
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